So, a man across the casino just lost a bundle betting on black instead of red, but he thinks to himself, “No worries, I can just write it off on my taxes!” But, then once he leaves, he begins to think about doing this a little more seriously. Can he really write his gambling losses off against his tax debt?” After all, if he had won, he would have to report his winnings and pay taxes on them. In fact, many casinos now require individuals to pay their taxes out of a large win before they can even collect what’s left.
Don’t Count on Anything
To start with, one should never count on anything he or she hears in the rumor mill with regard to the IRS and how taxes are collected. In fact, over the years, the IRS has become increasingly strict with regard to being able to claim gambling losses when it comes to filing taxes. Not a year goes by that the IRS doesn’t receive thousands of tax returns in which the filer claims significant gambling losses, while only reporting a very small amount of gambling earnings.
The IRS rule regarding claiming gambling losses is actually quite simple. If a taxpayer is going to claim gambling losses, he must itemize all deductions using IRS Form 1040, Schedule A. On top of this, the IRS only allows an individual to claim losses that are equal to or less than the amount of his gambling winnings. For example:
In 2017, an individual managed to win a total of $500 playing the slot machines at the local casino. In the same time frame, he also managed to lose $1,000 on table games. According to the IRS, the maximum amount of losses he can claim would be $500. Thus, he would only be able to claim $500 on his tax return in losses as this was also the amount of his winnings. When looking at the rule in these terms, one can see just how simple it really seems to be.
It Gets Better
If one believes this rule is relatively simple for a mandate coming from the IRS, it gets even better. When it comes to how an individual lost the money, the IRS has no fixed rules. As long as the taxpayer lost the money in some form of gambling, it is eligible to be claimed under this rule. So, if an individual wins big at the craps table, but loses at the blackjack table, betting on the ponies, or even on a fantasy football bet, a loss is a loss. All that really matters is that one can prove he or she suffered gambling losses that are equal to or less than his or her winnings.
But, wait, there’s more. Just because the IRS allows individuals to claim their gambling losses on their taxes doesn’t mean they are being given a “carte blanch” to file away. All good things come at a cost. So, when it comes to the IRS, what is the worst problem one can imagine? For most individuals, it is being audited. Claiming gambling losses is considered to be an excellent way to trigger an audit. Therefore, if an individual plans to claim losses, he may want to be sure he has all his “I”s dotted and “T”s crossed. After all, one thing is guaranteed. The IRS will be thorough when conducting an audit.
While there is absolutely nothing wrong with filing one’s gambling losses, it is important to be aware of the consequences. To help make things easier in the likely event that an individual filing gambling losses is audited, one must be sure to keep impeccable records of every win and loss. It is recommended to keep a log with recorded dates and amounts. Hang on to receipts, payout tickets, statements, or any other type of records indicating losses and winnings. If the IRS conducts an audit, the individual must be able to produce these pieces of gambling evidence, or his claims are likely to be denied. It is also good to note that suffering gambling losses doesn’t automatically guarantee one will save money on his taxes since he must first pay taxes on his winnings. At best, claiming one’s losses may only help to offset the amount of taxes one must pay on claimed winnings.