Win or Lose: If You Got Lucky This Summer, Let Your CPA Know
Did you enjoy a summer of gambling in Atlantic City? Hit the tables in Vegas? If you had substantial winnings or losses, your accountant may choose to itemize those deductions. If so, you will need proof to back up those claims.
If you were lucky—good for you. Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse and dog races, and casinos, as well as the fair market value of prizes such as cars, houses, trips or other non-cash prizes. Gambling winnings are fully taxable.
Winnings must be reported on the “other income” line on the front page of your tax return. To measure your winnings on a particular wager, just use the net gain on the wager. For example, if a $20 bet at the racetrack turns into a $100 win, you have won just $80, not $100. If you lose $50 on a different race, however, you cannot simply offset this amount against your $80 win.
Losses are only deductible up to the amount of your gambling winnings. That is, for tax purposes, you can use your losses to “wipe out” your gambling income but you can never show a gambling tax loss.
You must separately keep track of losses. They are deductible, but only as itemized deductions. Thus, if you take the new standard deduction, you cannot deduct your gambling losses. Therefore, if a taxpayer does not itemize his deductions, he is unable to deduct gambling losses.
However, if you do itemize, gambling losses fall into the category of “other” miscellaneous deductions. The losses aren’t subject to the 2% of adjusted gross income (AGI) standard. Even better for those reporting losses, they aren’t subject to the overall limitation on itemized deductions.
Did you know that the IRS considers raffles, bingo, lotteries, etc., to be gambling, even if the sponsor of the activity is a charitable organization? So, winnings and losses are treated the same as for any other gambling activity, and the amounts paid to buy raffle or lottery tickets or to play bingo or other games of chance are not deductible as a charitable contribution.
This may change the way you participate in charity fundraisers. We wish you luck this summer, but don’t gamble with your taxes. Keep records and bring those to your Baratz & Associates CPA to report accurately next tax season.