Jobe Dupre’, CPA

If you placed bets on this past weekend’s Kentucky Derby, you are either celebrating your good fortune or kicking yourself for making the wrong bet. Either way, as with most things in life, there are tax implications. Yes, that’s right, your gambling winnings are considered taxable income. But, if you lost, take heart – you may be able to deduct your losses.

Are Gambling Winnings Taxed?

If you’ve won enough in your gambling exploits, the payer must provide Form W-2G, which shows your winnings. The thresholds for reporting differ based on where you won the money:

  • $1,200 or more from a bingo game or slot machine
  • $1,500 or more from a Keno game
  • $5,000 or more from a poker tournament
  • $5,000 or more from a horse race, sweepstakes, wagering pools or lotteries

Now, before you even report your winnings to the IRS, the payer will often withhold 25% for federal taxes. If you refuse to provide your Social Security Number, they are entitled to charge 28%.

When filing your taxes, you report gambling income on line 21 (Other Income) of Form 1040. Even if you won less than the amounts listed above and did not receive a W-2G, you are still legally required to report the income; any/all gambling winnings must be reported to the IRS.

You may also have to pay state taxes in addition to federal tax, so it’s important to check your state’s policies.

Can I Deduct My Gambling Losses?

You can deduct your losses on your taxes if you itemize deductions. This is reported on Schedule A of Form 1040, and you can claim a deduction for these losses up to the total of what you won.

When deducting gambling losses, it’s a good idea to have records to back-up your claim in case it ever comes into question; keep a log of your wagers and file away losing lottery tickets or bingo cards.

Now before you rush to claim losing lottery tickets next year as a deduction, it’s important to remember that itemizing is only a good strategy when your total deductions are higher than the standard deduction. If not, it would be better not to itemize and just count your gambling losses as the price of playing the game.

So whether you placed bets for this past weekend’s race, enjoy the occasional trip to Las Vegas, or find yourself regularly playing Keno or the various lotteries, keep in mind that there are tax implications for your winnings and losses and make sure you file accordingly.

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