IRS Tax Rules For Deducting Gambling Losses?

[takethemoney]

I've never understood the rule that you can only deduct losses to the extent of your winnings, ie., if I have won $2000, but lost $4000 getting there, I can only deduct up to the $2000. What about people who gamble enough that they consider it a business or a second job? In that case, say, a gambler loses $30,000 in a year, it would make sense that they should be able to write that off. If I were in the construction business and I lost $30,000, it would be a tax write off. How not so with gambling? Is it because I had fun doing it?

 

[pokeraddict]

If you gamble as a business you would file a schedule C, assuming you could prove that it was actually a business type scenario. The accepted win rate seems to be 2 of the last 3 or 3 of the last 5 years as a winner. If you file a schedule C you will be required to pay self employment tax which consists of double FICA and Medicare, just as someone self employed would be forced to do. In addition to netting your losses, you would also be able to deduct travel expense and any other expense related. For example, if you played online poker for a living, you could deduct your laptop uses primarily to play online poker.

If they let you deduct losses against no winnings you could lose a fortune every year and get the earned income credit due to all of the deductions. Whether gambling winnings should be deducted is another discussion entirely though.

*Not a tax adviser and all of the other disclaimers.

 

[footdr]

Filing as a business means you must "run" it as a business and pay quartery income taxes, keep precise records on each bet.

plus I am not sure how you could legally include revenue and expenses from online gambling as a business as I believe that it would be considered running a gamble business online. Can anyone verify that?

 

[takethemoney]

Filing as a business means you must "run" it as a business and pay quartery income taxes, keep precise records on each bet.

plus I am not sure how you could legally include revenue and expenses from online gambling as a business as I believe that it would be considered running a gamble business online. Can anyone verify that?

One could rename where the wins and losses come from, but I'm not a cheat and would not put my name on that, no way!

 

[LaHutti]

Am I reading this correctly, that you guys can actually deduct gambling losses ???
I mean....every day Joe, if he loses at the local casino, can deduct that ?
That can't be right, can it ?

 

[takethemoney]

Am I reading this correctly, that you guys can actually deduct gambling losses ???
I mean....every day Joe, if he loses at the local casino, can deduct that ?
That can't be right, can it ?

No, only if that is your sole means of income and you file as a business and deduct as a schedule C business owner, as I understand it. As was mentioned you also have to file self employment tax and pay your taxes quarterly, as well as a whole gauntlet of other rules. A corporation might have other rules, which I have no clue about. As it stands for the average Joe, you can deduct your losses against exactly how much you won. Since the IRS give individuals and married couples a "standard deduction", your losses and wins would need to exceed your standard deduction.

 

[silcnlayc]

Gambling losses can only be deducted when a large win is at hand up to the winning amount if a W-2G form is given to a person from the casino at the time of the win. If it is horseracing wins, that are taxable, only losses incurred by horseracing losses can be deducted. No mingling of losses vs wins.

Like vs like is the way it works up to the taxable amount regardless of how much you have lost getting there.

I was audited 2 years ago over my winnings on my horse racing and had to prove I lost a lot more than reported by the horse racing commission with all the W-2G's they sent in when I won due to the fact that I won a LOT during that short period. I could not use any losses from previous years. I could not use any casino losses either as per tax man. I did make it through it and won my case...but it put me on notice to keep EVERYTHING separate when filing.

All disclaimers are intact here too...not a tax consultant, just a poor taxpayer....

.

 

[pokeraddict]

Filing as a business means you must "run" it as a business and pay quartery income taxes, keep precise records on each bet.

plus I am not sure how you could legally include revenue and expenses from online gambling as a business as I believe that it would be considered running a gamble business online. Can anyone verify that?

Many pro and semi pro poker players file schedule C's as professional gamblers. I would say that I have filed as a pro in 7 or so of the last 10 years. The other years I had substantial income from other jobs or businesses, even in some of those years I still filed a schedule C for poker winnings because there is a cap on FICA tax although that is an entirely different discussion.

You must keep tax records for every session. The IRS does not define a session but it seems to be widely accepted that a daily win/loss ledger will suffice. You must also show that you are a winner and intended to win. This seems to be defined as having been a reasonable winner in 2 of the last 3 or 3 of the last 5 years. Here is a link that appear to address this although tbh I did not read much but the intro.

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There is no true definition as to what the IRS considers a professional gambler. If you had a losing year and had not been a consistent winner, I would think filing as a pro to deduct losses would send up a red flag. One would assume that if you won for 5 years in a row and lost money one year, that would fly. You never really know though.

Back in 2002 or so when the poker boom hit, online poker was essentially all I did for years. I had an at length discussion about the situation with a relative that is an accountant. I followed all of his advice and have yet to be audited. I even took the home office exemption some years.

Your results may vary of course, and as always seek a professional tax adviser.

 

[PenDragyn21]

Am I reading this correctly, that you guys can actually deduct gambling losses ???
I mean....every day Joe, if he loses at the local casino, can deduct that ?
That can't be right, can it ?

He can if he is itemizing and not taking the standard deduction. For the standard deduction it's considered baked in the cake. It's either/or. You need to talk to tax professional to determine which works best. Also read very carefully on what counts as winnings and losses before doing so. It doesn't quite work the way most people think. And you'll need the right kind of records to back up anything you put down.

PD

 

[anniemac]

Many years back when I was playing alot at casinos in Louisiana, not only did I have to file tax return in Texas where I live but I also had to file a Louisiana tax return because when they paid me, they held out taxes in Louisiana. Got the taxes back but it was a PIA to have to do it.

Back then it was classified as Gambling Income and could be offset with losses but the amounts had to equal out and you had to have a way to back the losses up if you were audited.

Haven't had that problem in a very long time. Wouldn't mind filing a tax return or two just for old times sake. LOL!