Not all hobbies are equal and you definitely have to think twice before you decide to pursue a new pastime activity. We say this because more often than not people are surprised with how many things a seemingly easy to do and fun activity can cost them. It rarely comes immediately and there are numerous chances along the way to do things right, but it is still quite difficult to recover from a larger loss of money in whatever way it hits you. With a hobby like gambling, things like this come much more often than with other things people do for fun.
Gambling losses are a common occurrence and although it is practically a scenario more likely to happen than a big win, gamblers are still surprised or shocked when they experience it. If we take into account how much luck and randomness have to come your way on top of your skill and experience just to win a single game of poker, blackjack, or roulette and walk away with a meaningful sum, it is clear that gambling is definitely not a stress-free and financially safe habit. No matter how careful you are and how healthy your gambling life is, you will experience at least a few losses. They do not have to be huge, but they will make you feel bad.
Bad news hardly stop here however, and for the purposes of this article as well as to help you do things the right way, we will talk about how you can report your gambling losses on your tax returns. Taxes are still the bane of millions of people either because they are unsure how to properly file them or because they forget or willingly ignore to do so. In truth, it is possible to handle your gambling losses in terms of taxes so make sure to read the article carefully. To learn more as well as to find a good place to gamble online, make sure to check out starwarscasinos.com.
A General Overview
There is a special section on the official IRS website regarding both the winnings and the loses in gambling. Every tax payer is required to follow them if they ever win or lose money while gambling whenever the money is subject to federal income tax. When it comes to losses, they state that taxpayers are allowed to deduct the gambling losses but only if they itemize the deductions on the form and if they had previously kept an accurate and clear record of all the wins and losses from gambling, and the money that was involved in them. Regarding the amount of losses available for deduction, they are never going to be more than what your income is on the tax return.
Basically, from what was said above, the most important part of it all is your record keeping. If you ever plan to deduct your losses, you have to keep accurate records and literally have a diary of sorts for your winnings and losses. Things like receipts, statements, tickets, and any other record that show the sum you won or lost can be used as proof and should be saved in this diary. Without such a thing you will hardly be able to report your losses on tax returns and have them deducted.
How to Do It
So now that you know more about this whole ordeal and have a clearer picture of what the government of USA gives the citizens in terms of relevant information if they visit their official websites and look for answers, it is time to give you examples and make things even more understandable. To make things even clearer, we will try to bring it even closer to you and tell you exactly what you need to do.
First off, as stated, you have to keep track of your winnings. Let us say you win $500 on horses, but you bet $30 in order to do so. This means that the taxable winnings are not $470 without your wager, but the full $500 as the total. To make things worse and more difficult, not only cash is taxable but prizes too. If you ever win an appliance, a piece of technology like a computer or a phone, it also counts as income tax and you have to claim its fair market value on the tax return.
You probably know that there are many special forms in the world of taxes, but none other than the W-2G form is more important here. Cash from your winnings and the prizes fall under the category of “other income” on the Form 1040, but if you win big, you also need a Form W-2G. Winning at least $600 on horses, $1,200 at bingo or slots, $1,500 at keno, or $5,000 at poker are all consider big and you will need the W-2G.
When it comes to deducting your losses here, you can do it but only to a certain extent. The wager is not eligible for deduction, that much is certain. The first thing that needs to happen is for you to itemize the deductions and know that standard deduction rules are not applied. The taxpayers can only deduct the losses up to the income they claimed. To use an example, if you won $3000 and lost $6000, the itemized deduction has a limit to $3000. The difference is not what matters, but the total amount you have won compared to what you lost.
What about Going Pro?
There are more rules if you are a pro gambler and want to report your losses on tax returns. For example, it is possible to deduct the costs of periodicals, magazines, and any other data related to your profession. Also, a certain part of your internet costs can be deducted if you professionally gamble at online casinos. Lastly, travel and meal expenses are deductible up to a certain extent if you frequently travel for your work and attend tournaments. The biggest negative side of pro gambling and taxes is the fact that you also have to think about the self-employment tax and file it on all of your winnings throughout your entire career.