Gambling and Taxes in the U.S.



Staff member
May 3, 2008
It’s April and many of you are wading through your 1099s, W-2s, Schedule As, and looking for line 42 on W-602A (b) to fill out in triplicate and send to your county magistrate of paper organization so that they can fax you back a blank version of the form to submit to the IRS’s bureau of revenue paperwork. Taxes can be a Kafkaesque nightmare to anyone interested in fun but gambling is actually fun and you’d think that never the twain shall meet, but they do.

Unless you win big on one of the few games that required this form, you’ve probably never encountered a W-2G. Basically, this is the form that a payer has to fill out before they give you money (after they take a decent cut of it because casinos). When this happens, you know that you definitely have to report your gambling winnings on Form 1040 and losses are reported on Schedule A under “Other Misc. Deductions.”

The bad news? If you choose a standard deduction then you’ve forfeited your right to deduct gambling losses, but still have to report your winnings. The good news is that, if you choose to itemize your deductions, you can report the gambling income but deduct any gambling losses. Unfortunately for you if you have a bad year, it isn’t a net loss the government is worried about but adding up a sessions winnings or losses and reporting those. Also, your deductions can’t equal more than your winnings. So, let’s say you lost $10,000 in 2014 but you walked out with $3,000 over the course of that year, you can only deduct $3,000 in losses. Why? Because the government thinks that deducting more than the winnings would essentially subsidize gambling.

But should you itemize your deductions? To figure this out, you have to know what the standard deductions are. For your 2014 taxes your standard deductions are as follows:
  • Single people - $6,200
  • Head of households - $9,100
  • Married people who are filing jointly - $12,400
  • Married people who are filing separately - $6,200

If your itemized deductions would be more than the standard deduction, make sure you itemize and reap some benefits of unskilled gambling or bad luck.

The government does expect you to keep track of your gambling records in case of an audit and it gets very specific. If you participate in the lottery, a raffle, betting on a horse or dog race, casino games, betting on sports, sweepstakes, betting pools, off-track betting, or play bingo, you are expected to keep a diary recording it. Not only must you keep a diary, it needs to have specific things. If you don’t include the date and type of gambling, the name and address where you gambled, whom you gambled with, and how much you won or lost (again, this is per session, not net) then it’s not specific enough for the IRS. If you don’t keep a diary, there are some other ways to prove your gambling wins and losses. These include Form W-2G, Form 5754, wagering tickets, cancelled checks, credit records, and receipts from the facility.

I hesitate to say it’s a “good” thing, but it’s a less bad thing, about having to report your winnings is that it’s not a progressive tax. What this means is that the tax rate stays the same, unlike regular income that is taxed higher for higher income brackets.

Now that you know how to file your gambling winnings, it’s important to know when you need to report them. For some games you are required to report your winnings no matter what but for other games you only have to report them after a certain threshold. It is not really known why this is outside of secret cabals in the deepest lairs of the IRS but here’s the breakdown of when you should be reporting your winnings:

If you won $600 or more at a horse or dog track (if it is 300x your bet)
If you won $1,200 or more at slots or bingo
If you won $1,500 or more at keno
If you won $5,000 or more in a poker tournament

Note that the last one on that list says poker tournament. The word “tournament” there is important because, other than that, you have to report your winnings at a regular poker game in a casino.

Finally, what should you do if you are a professional gambler? If you’ve been a professional gambler for several years and don’t know this information then you’ll probably be audited and punished. If this is your first year, good for you for being proactive. Technically, you’re a business and must fill out your forms as if you are a business. This means that you get to file any expenses (hotels, car trips, etc.) as business expenses. Losses still count as wagering losses but are filled out on Schedule C, which allows you to deduct losses that are greater than winnings.

Hopefully that helps you get your taxes in order for a decent check this tax season that you can head straight to the casino with!
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