Gambling Winnings and Losses — What Is Reportable and What Is Deductible?

In 2021, individuals in the United States gambled an estimated $53 billion in legal gambling activities. In the United States, gambling winnings are taxable at the federal level and most states where gambling is legal also impose a tax on lottery winnings. Before paying taxes on gambling winnings, you should make sure you’re aware of the differences between deductible expenses and reportable income. 

There are two types of gambling winnings – reportable income and deductible expenses. Reportable income is the total amount of the winnings minus the amount wagered, or “the stake.” Deductible expenses are expenses incurred for gambling that can be used as a tax deduction on the tax return. For example, bus fare to the casino or a gratuity for the croupier can be deducted as an expense.

Total gambling winnings are subject to federal taxes if the individual’s total adjusted gross income is greater than $5,350 for single filers or $11,700 for married joint filers. State and local taxes may also be imposed on winnings exceeding a certain threshold. A state income tax could be as high as 15% on a non-resident’s win, and a local property tax on a second home could be as much as 2%. 

So, how do you claim and deduct these gambling winnings and other debts when filling out your tax returns? First, the total amount of taxable income should be determined. This can be done by subtracting any tax-deductible expenses from income earned from other sources, such as work or business. Generally, the cost of playing casino games is limited to the amount of the “stake” or the expenditure made to enter a game. This can include entry fees or cover charges at a casino, but also travel expenses to get to the casino such as travel, food, and lodging. If the gambler incurs a loss at a game, no income has been generated and the expenses incurred cannot be deducted as a tax deduction. Instead, the loss is deducted from the gambler’s overall income to determine the amount of tax owed. 

The taxpayer can only deduct expenses up to the amount of income generated by the activity in question. Gambling losses can only be deducted in the year they occur and cannot be carried forward to future years. It is important to keep a record of all gambling expenditures, as well as your winnings in order to accurately determine the amount of income generated by the activity and to calculate your taxable earnings accordingly.

Reporting your winnings is important to stay on the good side of the IRS – and to avoid potentially expensive penalties. For more assistance with your tax needs, contact Weisberg Kainen Mark, P.L. at (305) 374-5544 today.

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