Can I Write Off Casino Losses

Second, you can't deduct gambling losses that are more than the winnings you report on your return. For example, if you won $100 on one bet but lost $300 on a few others, you can only deduct the. Gambling Losses May Be Deducted Up to the Amount of Your Winnings Fortunately, although you must list all your winnings on your tax return, you don't have to pay tax on the full amount. You are allowed to list your annual gambling losses as an itemized deduction on Schedule A of your tax return. The casino or other entity paying the prize is supposed to issue you a W-2G form, especially for larger winnings. In other words, you can claim losses up to the amount of winnings. You must itemize your deductions to claim your gambling losses as a tax deduction. This means you can’t take the standard deduction for your filing status, which often amounts to more than a taxpayer’s itemized deductions. You’re allowed to deduct losses only up to the amount of the gambling income you claimed. So if you won $2000 but. I assuming that the prize is reported on form 1099misc box 3 - please verify.Yes - that prize is reported as gambling winnings on form 1040 line 21.You may use the win/loss statement from the casino as a supporting document for your gambling activity and your losses.You may deduct losses.However what you need to consider - your deductible losses are limited by your gambling winning.So - if you.

There are laws require that you declare your winnings in games including gambling as part of your income. But what about the losses? How do you account for the losses you made in gambling when it comes to tax filing?

It wouldn’t be fair to be taxed for the winnings and not account for the losses. Gambling after all is like running a business but with considerably lower chances for success. It’s easier making money by investing in a business compared to spending money on slots, dice, poker, or baccarat.

Based on data from H2 Gambling Capital, as reported on The Economist, global gambling losses in 2016 amounted to $385 billion with Australia topping the list of countries with the highest losses. By the way, loss here refers to the losses of players or the gains of gambling operators.

Source: The Economist, citing data from H2 Gambling Capital (website screenshot, fair use)

Tax Significance of Casinos, Online Casinos in Particular

It’s worth discussing the idea of tax on casino winnings mainly because online gambling is something common nowadays. Based on numbers from Statista, the online gaming market will have doubled in 2018 from its figure in 2009. The forecast is that it will become a $51.96 industry by 2018. A 2016 survey conducted by Nielsen Scarborough found that nearly 83 million Americans went to a casino in the past 12 months. That’s a truly massive number representing gamblers in the US alone. However, it is expected that this number of gamblers who visit physical casinos is bound to shrink over time as more prefer to play at online casinos.

Online casinos provide convenience any gambler would surely appreciate. It allows playing without the limitations of location and time. It is a major advantage for modern gambling. Some may doubt its reliability, questioning the fairness of the games being offered, but with the help of systems like random number generation and provably fair testing, players are assured that the games they play are not being manipulated. There are companies or institutions that provide certifications for random number generation to vouch for the reliability of online casinos.

The games on online casinos have also been standardized to establish credibility. Most online casinos nowadays rent or buy their software from renowned gaming service providers like Playtech, Microgaming, Realtime Gaming, Amaya, Softswiss, and International Game Technology. The use of games from this well-known companies makes it easier for players to trust casinos as compared to offering completely new in-house developed games.

Moreover, online casinos have invested time, money, and effort in improving the looks and usability of their websites. Online casinos now look indubitably better than how they looked in the past. They also employ better technologies to ensure a smoother playing experience. Flash has slowly been abandoned in favor of HTML5. At present, it is estimated that only around 4.6% of all websites are still using Flash. The same dwindling numbers can be observed when it comes to Flash use in online casinos.

Online casinos have also been designed to be accessible across multiple devices, from desktops to laptops and mobiles including tablet computers and smartphones. Online gambling operators have made sure that their online casinos are easily accessible using mobile devices, which is obviously an acknowledgment of how big the number of mobile internet gamblers is. As of February 2017, it was estimated that mobile internet access (not including access through tablet computers) accounted for 49.73% of the total page views across different parts of the world.

It’s not surprising that online casinos put emphasis on improving their looks, usability, accessibility, overall performance, and distinctiveness. They seek to provide a better casino experience that lets players enjoy quality games, snappy performance, reliability, intuitiveness, and the assurance that they will be paid of their winnings. 888 Casino, for example, has recently introduced a brand new sleek website design that makes it a one of a kind casino online.

Online gambling has come a long way and is being patronized by a growing number of people worldwide. While problem gambling is still the top issue associated with it, many are now recognizing that taxation of winnings is also an important issue to raise. After all, online casino winnings are still earnings worth subjecting to taxation. That’s why it’s worth discussing the tax implications of online casino winnings as well as the corresponding losses.

Deductible to a certain extent

The good news is that your gambling losses are actually deductible from your taxable income. Regardless of where you won and lost, be it in a traditional brick and mortar casino or in an online casino, you can deduct the losses you made from your taxable income. It does not matter if you gambled at a traditional brick and mortar casino where you made successive wins or you lost money at a dubious online casino. Your winnings and losses are supposed to be accounted for based on tax laws and regulations.

The main idea here is that you can subtract your gambling losses from the amount you won. Of course, you can’t just directly deduct the amount of your losses from your tax due. It’s similar to how you compute taxes for your business income. Your expenses and losses are deducted from your gross income first before multiplying the applicable tax rate to come up with the due amount of tax. The winnings are comparable to the gross income (in business) while the losses are comparable to the expenses and the actual losses of a business.

It’s important to remember, though, that this deduction can only be allowed if you are qualified for itemized deductions. You need a detailed listing of your winnings and losses to come up with the net amount that will be subjected to the tax rate. These details are to be listed under Other Income and Other Miscellaneous Deductions sections of Form 1040. If you opt for the standard deduction, your gambling or casino losses will no longer be subtracted from your total taxable earnings.

Source: IRS

Itemized deduction vs standard deduction

Taxpayers automatically qualify for standard deduction except when the itemized deductions they claim are greater than the standard deduction. Tax authorities are responsible for deciding if you qualify for standard or itemized deduction. You will not be compelled to choose either standard or itemized deduction, though. If you find standardized deduction more convenient, you will not be forced to choose itemized deduction even if you qualify for it. Around a third of the taxpayers in the United States use itemized deduction.

Naturally, you will have to choose the deduction scheme that is more advantageous for you, the one that yields the lower tax due. You may want to do calculations, which shouldn’t be difficult now since there are many tax computation tools online. Just do a search using the phrase “tax calculator” and Google should be able to show you a number of online tax tools to help you get a good estimate of the tax you should be paying.

Bets are not expenses

Another important detail to remember here is that bets cannot be deducted as expenses. Gambling is not like running a business wherein you put out money for the acquisition of something (cost of goods sold) to be sold later on. In business, the cost of goods sold is deducted from the gross revenues, thereby reducing the amount (net income) that will be subjected to the appropriate income tax rate. This concept is not comparable to the bets placed when gambling.

Bets are personal expenses that cannot be deducted from the taxable income. Only the amounts for gambling winnings and losses are used for the computation of the net amount that will be added to your other income figures to come up with the final taxable income amount that will be subjected to the tax rate.

Documentation requirements

If you want to account for your gambling losses to calculate your tax, the Internal Revenue Service (IRS) needs you to maintain a comprehensive listing of your winnings and losses. Gambling winnings, by the way, include winnings from raffles, lotteries, sports betting, poker games, horse racing, canine racing, and various casino games online or offline. Income derived from any form of gambling ideally should be included.

Can You Write Off Gambling Losses In 2018

Your record of winnings and losses have to be clearly detailed. The listings should include information on the date and type of gambling involved, the name and address of the establishment where you gambled, and the exact amount you won or lost. You will also be asked to list the names of the people you played with.

Moreover, you need to have supporting documents for the gambling winnings and losses you have in your record. These supporting documents include wagering tickets, form W-2G, form 5754, cancelled checks or credit records, and official receipts from the gambling establishment. You will be required to submit original documents.

Source: IRS

If your winnings and losses are from an online casino, you can ask for a win/loss statement from the online casino you played in. You may be required to submit other documents to verify the authenticity and accuracy of the details presented in the statement.

Limitations

Tax laws set a limit on the maximum amount that can be claimed as losses. Basically, you cannot claim losses that exceed your winnings. For instance, if you made accumulated winnings of $10,000, you cannot claim losses amounting to $10,001 or higher even if you actually lost more than you won. If you won $10,000 but your accumulated losses for a tax year amounting to $30,000, you cannot claim a net loss of $20,000. You cannot end up recording a negative number (net losses from gambling) that can then be deducted from your other taxable income. If this were to be allowed, it’s would be like the government somewhat subsidizing the gambling activities of taxpayers.

In conclusion

It’s important to emphasize that you cannot simply claim a net amount of winnings or losses. You need to have detailed records with all the information mentioned earlier. Gambling losses can help lower your tax due but it’s unlikely going to be by a significant amount unless your finances largely consist of gambling winnings and/or losses.

Image: Pixabay.com

We doubt that anyone ever woke up thinking, “Gee, I hope I get audited by the IRS this year”. An IRS audit could easily be one of the worst things that could happen to you this year. So if you want to avoid receiving that ominous letter from the IRS that your 2015 tax return is being audited here are seven red flags you need to totally avoid.

Not reporting all of your taxable income

Those 1099’s and W-2s you received this past January? You weren’t the only one that got them. The IRS got them too. It’s important to make sure you report all of the required income on your return. The computers used by the IRS are pretty darn good at matching the numbers on your return with the numbers on your 1099s and W-2s. If they turn up a mismatch this will create a red flag and the IRS computers will spit out a bill. If those darn computers do make a mistake and you receive a tax form that shows income that wasn’t yours or lists incorrect amounts of income, you will need to get the issuer to file the correct form with the IRS. And what about that income you earned on those side jobs? In most cases you should have received a 1099 documenting your earnings. If not, this is definitely a case where it’s better to be safe than sorry and report it.

Taking deductions that are higher than average

If the IRS spots deductions on your return that are disproportionately large in comparison with your income, it may pull your return for review. For example, a very large medical expense –again out of proportion to your income – could cause a red flag. However, if you do have the documentation to support the deduction then don’t be afraid to claim it.

Claiming really big charitable deductions

Charitable deductions can be a great write off. Plus, when you contribute to a charity it can make you feel all fuzzy and warm inside. However, if those deductions are disproportionately large in comparison with your income, it will raise a red flag. The reason for this is because the IRS knows what is the average charitable deduction for people at your level of income. Did you donate some very valuable property? In this case we hope you got an appraisal for it. Did you make a non-cash donation over $500? Then you better make sure you file form 8283. if you don’t file this form or if you don’t have an appraisal supporting that big donation you’ll become an even bigger target for auditing.

Claiming big gambling losses or not reporting gambling winnings

If you’re a recreational gambler you must report your winnings as “other income” on the front page of your 1040 form. If you’re a professional gambler you will need to report your winnings on Schedule C. If you don’t report gambling winnings this can draw the attention of the IRS – especially in the event that the casino or other venue reported your winnings on form W-2G. It can also be very risky to claim big gambling losses. In fact, what you should do is deduct your losses only to the extent that you report your gambling winnings. For example, if you were to report you had won $5000 gambling but had losses of $20,000, this could cause a red flag. Also, only professional gamblers can write off the costs of meals, lodging and other expenses related to gambling. And the surest way to invite an audit is by writing off what you lost at gambling but no gambling income. If you’ve done any of these things, or are worried about some other common tax return mistakes, it might be wise to file an amended tax return and account for those wins or losses correctly.

Writing off a hobby as a loss

You will dramatically increase the odds of “winning” an IRS audit if you file a schedule C showing big losses from any activity that could be considered a hobby such as jewelry making, coin and stamp collecting, dog breeding, and the like. IRS agents are especially trained to ferret out people who improperly deduct losses associated with a hobby. You must report any income your hobby generated or whatever but can then deduct your expenses up to that income level. But the IRS will not allow you to write off losses from a hobby. So if you want to write off a loss you must be running your hobby as if it were a business and must have the reasonable expectation of generating a profit. As an example of how this works if your hobby generates a profit in 3 out of every 5 years then the IRS will presume that you’re actually in business to make a profit unless it can prove something to the contrary. Of course, if you’re unfortunate and win the audit lottery the IRS will make you prove that you do have a legitimate business and that it’s not just a hobby. So make sure you keep all documents that support your expenses.

If you report income from self-employment of $100,000 or more

Can I Write Off My Gambling Losses In 2019

Let’s suppose that you’re self-employed, had a really great year and had earnings of $100,000 or more you are reporting on schedule C. This is likely to trigger an IRS audit because according to the IRS people who file a schedule C are more likely to under report their income and overstate their deductions. What this means is that if you earn $100,000 or more and are reporting it on schedule C you’ll need to make sure you have the documentation necessary to support your deductions and again, make sure you report all your income very accurately.

If you work in certain industries

The IRS knows based on past audit experience that there are certain activities or industries that have a higher incidence of what’s technically called noncompliance but really means cheating on their taxes. Included in this group are the tax returns of air service operators, gas retailers, auto dealers, attorneys and taxi operators. So, if you’re employed in one of these industries or activities and don’t want to suffer an IRS audit, it’s best to follow the old adage that honesty is the best policy.