Gambling winnings are taxable income, and the IRS expects you to report them. However, gambling losses can also be deducted if you itemize deductions. To claim these losses, you need to provide solid proof. Keeping proper records, obtaining the right documents, and understanding tax rules are crucial to ensure compliance and maximize deductions.
Understanding Gambling Loss Deductions
Who Can Deduct Gambling Losses?
Only individuals who itemize deductions on their tax returns can deduct gambling losses. The losses can be deducted up to the amount of reported winnings. If you take the standard deduction, gambling losses cannot be claimed.
Types of Gambling That Qualify
Losses from various gambling activities can be deducted, including:
- Casinos (brick-and-mortar and online)
- Lotteries
- Horse and dog races
- Bingo
- Sports betting
- Poker tournaments
- Raffles and sweepstakes
Steps to Prove Gambling Losses
1. Maintain a Detailed Gambling Log
A gambling log is one of the most effective ways to prove losses. The IRS recommends keeping a journal that includes:
- Date and time of each gambling session
- Location (casino, online platform, racetrack, etc.)
- Type of gambling activity
- Amount wagered
- Winnings or losses for each session
- Names of individuals present (if applicable)
- Ticket or game numbers (for lottery or raffles)
2. Obtain Casino or Bookmaker Statements
Many casinos and sportsbooks provide win/loss statements. These documents summarize a player’s gambling activity and can serve as proof of losses. Most gambling establishments allow players to register for a player’s card or account, which tracks wagers and winnings.
3. Keep Bank and Credit Card Statements
If you use a credit or debit card for gambling, these statements can help verify transactions. They show deposits and withdrawals related to gambling activities, though they may not reflect winnings or losses directly.
4. Collect W-2G and 1099 Forms
Casinos and other gambling institutions issue Form W-2G for certain gambling winnings. While this form is used to report income, it also helps substantiate losses since the IRS will expect a corresponding report of gambling activity.
5. Save Betting Slips and Tickets
For sports betting, lottery, and other forms of gambling, keeping losing tickets and betting slips is essential. These serve as proof of participation and losses incurred.
6. Use a Dedicated Gambling Account
Using a separate bank account or credit card specifically for gambling transactions simplifies tracking and record-keeping. This method ensures that gambling-related expenses and earnings do not get mixed with personal finances.
7. Photograph and Store Digital Copies
If you gamble using cash, take photographs of losing tickets or betting slips before discarding them. Keeping digital records ensures you have a backup in case of audits.
8. Organize and Store Receipts Properly
Create a filing system for all gambling-related receipts, whether digital or physical. Proper organization makes tax preparation easier and ensures all necessary documents are accessible.
9. Consult a Tax Professional
Tax professionals can help verify that you are keeping proper records and claiming deductions correctly. They can also provide guidance if you are unsure about how to report gambling activities.
Supporting Documentation for Specific Gambling Types
Slot Machines and Table Games
Casinos often provide win/loss statements for registered players. In addition, ATM withdrawal receipts, betting slips, and personal logs should be maintained.
Poker and Card Games
Tournament entry fees and prize payouts should be documented. Keep records of buy-ins, winnings, and losses for each event. Many online poker platforms provide statements that outline playing history.
Sports Betting
Betting slips, online sportsbook transaction histories, and account summaries serve as proof. Any cash bets should be logged manually with details.
Lottery and Raffles
Losing tickets should be retained as proof of losses. If possible, take photos of purchased tickets before scratching them or before a draw occurs.
What Happens If You Get Audited?
If the IRS audits your tax return and questions your gambling losses, they will request documentation. Providing a well-maintained gambling log, win/loss statements, and supporting documents strengthens your case. If records are incomplete, the deduction may be denied.
References
- Internal Revenue Service (IRS) – Gambling Income and Losses
https://www.irs.gov/taxtopics/tc419 - IRS Publication 529 – Miscellaneous Deductions
https://www.irs.gov/publications/p529 - State-Specific Tax Guidelines (varies by state)
Check your state’s tax department website for additional guidance on gambling tax rules.
