The following rules apply to casual gamblers who aren't in the trade or business of gambling. Gambling winnings are fully taxable and you must report the income on your tax return. Gambling income includes but isn't limited to winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and the fair market value of prizes, such as cars and trips.
Gambling Winnings
If you receive certain gambling winnings or have any gambling winnings subject to federal income tax withholding, you will be issued a Form W-2G, Certain Gambling Winnings. Gambling winnings are reported as "Other Income" on Schedule 1 of Form 1040 or Form 1040-SR. Winnings that aren't reported on a Form W-2G should also be included. Depending on the amount of gambling winnings, you may be required to pay an estimated tax on that additional income.
If you win a non-cash prize, such as a car or a trip, you will be responsible for paying taxes on the fair market value of each prize. Depending upon the amount of your winnings and the type of gambling, the establishment or payer may be required to withhold income taxes. In general, 24% of the amount is required to be withheld.
Gambling Losses
You may deduct gambling losses only if you itemize your deductions on Schedule A (Form 1040) and have kept a record of your winnings and losses. You can claim your gambling losses up to the amount of winnings as "Other Itemized Deductions." Even if you claim the standard deduction, you are still obligated to report and pay tax on all winnings you earn during the year. The amount of gambling losses you can deduct can never exceed the winnings you report as income. For example, if you have $4,000 in winnings but $8,000 in losses, your deduction is limited to $4,000. You could not write off the remaining $4,000, or carry it forward to future years.
You can include in your gambling losses the actual cost of wagers plus other expenses connected to your gambling activity, including travel to and from a casino. Keep in mind that the IRS does not permit you to simply subtract your losses from your winnings and report the difference on your tax return.
Nonresident Aliens
As a nonresident alien of the United States for income tax purposes and you must file a tax return for U.S. source gambling winnings, using Form 1040-NR, U.S. Nonresident Alien Income Tax Return. Generally, nonresident aliens of the United States who aren't residents of Canada can't deduct gambling losses.
Professional Gambling
The rules described on this blog are for the majority of people with gambling income—those who are not professional gamblers. If gambling is your actual profession, then your gambling income is generally considered regular earned income and is taxed at your normal effective income tax rate. As a self-employed individual, you will need to report your income and expenses on Schedule C and the net income would be subject to self-employment tax. You can deduct gambling losses as job expenses using Schedule C, not Schedule A.
Recordkeeping
To deduct your losses, you must keep an accurate diary or similar record of your gambling winnings and losses and be able to provide receipts, tickets, statements, or other records that show the amount of both your winnings and losses.
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