Does More Lost Than Won at Casinos Affect the IRS?

Winning is fun, but the IRS wants its cut.

Winning is fun, but the IRS wants its cut.

So you got lucky and won at the casino -- congratulations! You walk away from the cashier's window with a stack of cash in your pocket and a smile on your face, happy that this jackpot makes up for the money you lost last week. Knowing how the IRS treats casino payouts can help keep you from overpaying income tax on your wins.

Winnings Are Taxable

The IRS considers all your gambling winnings to be taxable income. Whether you win a dollar on a scratch-off lottery ticket, a hundred bucks at the race track or a thousand-dollar poker jackpot, your winnings are fully taxable, and the IRS says that they must be included as income on your tax returns. Under IRS rules, buying a raffle ticket is also considered gambling. If you win a car or other merchandise or services, you must report the fair market value of whatever it is that you win.

Reporting and Withholding

The casino reports payouts to gamblers on a form W-2G if winnings exceed a threshold amount. The current thresholds are $1,200 for bingo or slots; $1,500 for keno, $5,000 for a poker tournament and $600 for other games if the payout is more than 300 times your wager. For keno and poker winnings, casinos deduct your wager or buy-in. If you net more than $5,000, the casino has to report the win and withhold 25 percent for taxes.

Gambling Losses

If you itemize your deductions, the IRS lets you report your gambling losses over the entire calendar year to offset your winnings for that year, but only up to the amount of your winnings. In other words, you can't claim more than you won, and you can't claim any losses at all if you don't itemize deductions. If you do itemize, list your gambling losses on line 28 of Schedule A. Report your winnings on form 1040 on the line marked, "Other Income."

Recordkeeping

Hang onto your losing keno receipts and Superbowl tickets. If you include gambling losses in your itemized deductions, you'll want to document them with tickets, receipts, statements or other records. If you get lucky later in the year, those little slips of paper can help you prove your losses. If you lose at slots or another game that doesn't give receipts, you can create a record by entering the details in a journal. When you buy a candy bar or cocktail at the casino, save the receipt as proof that you were there that day.

About the Author

Marilyn Lindblad practices law on the west coast of the United States. She has been a freelance writer since 2007. Her work has appeared on various websites. Lindblad received her Juris Doctor from Lewis and Clark Law School.

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