According to the IRS, gambling winnings are fully taxable, and you must report the income on your tax return. Gambling income includes, but isn't limited to, winnings from lotteries, raffles, horse races, online betting, and casinos. It also includes cash winnings and the fair market value of prizes, such as cars and trips. On the other hand, gambling losses are deducted on Schedule A as a miscellaneous itemized deduction and are not subject to the 2% adjusted gross income limitation, even if the taxpayer is taking the standard deduction. Also note that betting on online sporting websites is considered gambling and winnings and losses need to be reported on your taxes.
Your gambling losses up to amount of winnings are deductible if you itemize your deductions. Below is an example of how winnings and losses are handled on your tax return:
In 2022, Joe and Susan filed a joint tax return, and Joe reported $1,000 in net gains and $500 in net losses, while Susan had $700 in net gains, and $600 in net losses. Their joint return reported $1,700 in net gains and $1,100 in net losses. We’ll assume that Joe and Susan have other itemized deductions of $24,900. Adding the loss of $1,100, their total itemization is $26,000, $100 more than the standard deduction for 2022 of $25,900. They will report $1,700 in net gains from gambling transactions as income on Schedule 1 (Form 1040), Line 8b. Although their net gambling winnings were only $600, the tax laws will require them to pay tax on $1,600 of their gambling net gains: $1,700 in other income, less $100 in itemized deductions exceeding the standard deduction.
Gambling Record Keeping Requirements:
The IRS requires the taxpayer to prove both your winnings and your losses if you want to deduct your losses and recommends that gamblers keep a detailed gambling log. On this log you should keep the following information about each gambling win and loss: the date(s); type of gambling activity; name and address of the establishment or event; names of other people there at the time of the activity, and the amounts of winnings and losses. You should retain all related documents such as receipts, tickets, payment slips, statements, and Form W-2G. Also note that gambling losses include the actual cost of the wagers plus expenses incurred in connection with the conduct of the gambling activity, such as travel to and from a casino. It is the burden of the taxpayer to document their gambling activities. For example, for lotteries you should keep a record of ticket purchases, dates, winnings, losses and any unredeemed tickets, payment slips, and winning statements.
Other considerations:
States handle gambling winnings and losses very differently too. For example, in Illinois you will pay tax on your winnings, but cannot deduct your losses.