How Do I Claim Gambling Winnings and Losses on My Taxes?

All gambling winnings are technically considered taxable income, but you’ll only automatically be provided with a Form W2-G (or 1099-MISC) if you meet certain winnings thresholds at a single gaming establishment over the course of a year. Those include:

• $5,000 for poker tournaments (minus buy-in)
• $1,500 for keno (minus bets)
• $1,200 for slots and bingo
• $600 for sports betting, horse racing and fantasy leagues

You can also deduct losses so long as they don’t exceed the winnings you report as income. In a scenario where you won $10,000 in a year but lost $13,000, you could only deduct $10,000 of losses. You might not benefit from itemizing your losses if the standard deduction is still greater than your losses plus other deductions.

If you do go with the standard deduction, you’ll need to report your winnings as income and pay the appropriate income tax without deducting the losses.

Professional gamblers can deduct ancillary expenses on their Schedule C. In addition to losses, they can deduct “business expenses”, like travel to the casino or hotel rooms.

There was a 1987 Supreme Court Case to determine what does and doesn’t constitute a professional gambler. If gambling is your primary source of income and not just a hobby, you might qualify as a professional gambler according to the IRS.

The IRS has a long list of questions filers should ask themselves if they’re trying to determine whether certain types of income qualify as businesses or hobbies.

The IRS isn’t known for leniency or intentionally subsidizing taxpayer betting, which is why you should plan on justifying your expenses if you end up attempting to deduct losses (and related expenses if you believe you qualify as a professional gambler). Be sure to keep wagering tickets, receipts and relevant credit records.

Does the IRS Know About My Winnings If I Don’t Get a W2-G?

Don’t assume the IRS is completely unaware of your winnings, even if the casino, sports betting app or gambling parlor didn’t provide you with a W2-G or 1099. If you do receive one of those forms, you should assume a copy was also provided to the IRS (and potentially even the state in which you’re gambling).

Whether the IRS will audit you for failing to report a handful of extra dollars of income is a different question, but it’s best not to assume the IRS is in the dark about any of your earnings.

Keep in mind that some gambling winnings are subject to withholding taxes once you win $5,000 or more cumulatively over the course of a year at a single establishment. If you’re in that situation, the IRS is aware that you have winnings, even if you don’t take the required steps to legally declare them on your 1040.

Will the IRS know about your office March Madness Bracket Pool or the fact that you won $20 from it? That’s highly unlikely. However, the IRS’s position is that you still have an obligation to report that income. Online services, casinos, off-track betting and other institutions will report winnings, even if your casual office pool flies entirely below the radar.

What if I Win Money in a Different State?

Some states allow filers to deduct the difference between the taxes they paid in another state where they initially earned the money via gambling and the taxes they would have paid in their home state. Gamblers who travel throughout the country may be required to fill and pay multiple state returns. If your gambling income is particularly convoluted, it may be in your best interest to work with an accountant to ensure you are accurately paying all state taxes in addition to your federal taxes.

Is Gambling a Good Form of Supplemental Income in Retirement?

Gambling is inherently risky.

Investors can research a fund’s management, a company’s financials or Arizona’s housing and real estate market. Knowledge enables you to make informed choices about those types of investments. They still aren’t guaranteed, but you may have a better idea of the probable outcome than you do when buying a lottery ticket or playing slots.

That’s not to say there are no professional gamblers, like tournament poker players and particularly talented sports betters. Making a living on gambling is technically feasible, but it’s a rare skill and not a reliable source of supplemental retirement income for the average retiree.

If you’re looking for smart ways to manage your retirement savings and secure reliable supplemental income, it may be in your best interest to speak with the team at Fullerton Financial Planning. Call us at (623) 974-0300 to schedule a consultation.