October 29th, 2022 in
What do I need to demonstrate if I am deducting gambling losses on my tax return? For many, gambling holds a unique allure. Whether your game is black jack, craps, slot machines, pai gow poker, or another game, the allure of gambling can be exciting. The excitement and anticipation of winning can be exhilarating and the disappointment of losing can be devastating. All gambling income, no matter how small, is taxable income.
You can take a loss for your gambling losses but only to the extent of your winnings for the same year. For example, if you lost $40,000 the year and your winnings are $30,000, you would only be allowed to deduct $30,000 in losses. If you have $40,000 winnings and $30,000 in losses, you would have $10,000 in taxable income. If you have no winnings but $30,000 in losses, you would not be able to deduct your losses.
You as the taxpayer have the burden of proof to substantiate your gambling income and losses. To meet your burden of proof, you must have a log (or similar record) which reflects:
- The date of each gambling session;
- The name and location of the place where the gambling took place;
- The name(s) of any other person accompanying you; and
- The amount you won or loss.
The Internal Revenue Service auditor will also request additional information such as IRS Form W-2G (if given), Form 5754, wagering tickets, credit card receipts, credit records, bank withdrawals, cancelled checks, statements of winnings provided to you from casinos and gambling establishments.
This is the documentation the Internal Revenue Service auditor will request if your tax return is audited and there is gambling income or loss claimed. Since the burden of proof is on you as the taxpayer, you have to demonstrate the amount claimed on your tax return is accurate.
If you are a professional gambler and gambling activities are your business, you can claim an annual loss. You need to keep the records discussed above to substantiate what is claimed on your tax return.
To protect yourself in an audit, you may consider being represented by a tax professional. Contact our team today to get in touch with an experienced tax attorney.
