Important Tax Tips On Gambling Income And Losses for Expats

Common Misconceptions About Gambling Income And Losses

It’s a common misconception that we hear from taxpayers very frequently, that unless they receive a Form W-2G, Certain Gambling Winnings, at a casino, their gambling winnings don’t have to be reported on their federal tax return.

However gambling winnings, like any other income not specifically exempted from law, are still considered taxable income and must be reported on your tax return, regardless of whether or not documentation, such as a W-2G was provided at the time the money was won.

When reporting gambling income and losses you cannot subtract your losses from your winnings when reporting your gambling income.

Fortunately, if you itemize your deductions, there are ways to offset your gambling winnings with any losses that you may have incurred up to the amount of your winnings.

Below are six tax tips regarding gambling income and losses that every taxpayer who gambles should know:

1. Gambling income includes, but is not 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.
2. Generally, you report all gambling winnings on the Other income line (line 21) of Form 1040, U.S. Federal Income Tax Return.
3. You can claim your gambling losses up to the amount of your winnings on Form 1040, Schedule A, Itemized Deductions, under Other Miscellaneous Deductions. You must report the full amount of your winnings as income and claim your allowable losses separately. You cannot deduct gambling losses that are more than your winnings. You cannot reduce your gambling winnings by your gambling losses and report the difference.
4. The basic rule for tracking wins and losses are that you must figure out how much you’ve won and lost gambling during the entire year by keeping track of all your wins and losses for each gambling session you have. You add up all your winning sessions during the year to determine your winnings that are to be reported on line 21 of the Form 1040 and then do the same by adding up your losing sessions to determine your annual losses.
5. A basic definition of a gambling session for a gambler taxpayer is a period of continuous play without cashing out. However, a session cannot last more than one day.
6. Keep accurate records. If you are going to deduct gambling losses, you must have receipts, tickets, statements, and documentation such as a diary or similar record of your losses and winnings. Your records should show your winnings separately from your losses.

For more information on gambling income and losses, see Gambler Tax Preparation.
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Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US tax preparation and representation. We maintain this tax blog where all articles, such as about gambling and losses, are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.

When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts). If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).

Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.