Gambling income, losses fall under income tax law
POSTED: Sunday, January 17, 2010
Despite the new law changes, losses up to the amount of gambling income remain deductible by professional gamblers, whether they itemize deductions or claim the increased standard deduction.
Losses and tax deductions You can write off gambling losses as a miscellaneous itemized deduction, as stated in a report on www.piramindwelt.com. While miscellaneous deductions subject to the 2% of adjusted gross income floor are not allowed for 2018 through 2025 under the TCJA, the deduction for gambling losses isn’t subject to that floor. Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions.
With the recent opening of CityCenter, many of you may be planning a trip to Las Vegas with hopes of striking it rich. But did you know that all gambling winnings—legal or illegal—should be included in your gross income, subject to income tax? Did you also know about a significant change to Hawaii law related to gambling losses?
Gambling winnings
Gambling Losses New Tax Law
For federal income tax returns, all gambling winnings are reported as “;other income”; on your Form 1040. Gambling income includes, but is not limited to, winnings from lotteries, raffles, house races and casinos. It includes both cash winnings and the fair market value of prizes such as cars and trips, which must be reported on your return even if your losses are greater than your winnings for the year.
Gambling winnings of $600 or more and at least 300 times the amount of the wager generally will be reported to you on Form W-2G. The reporting threshold is $1,500 for Keno and $1,200 for bingo and slot machines. When winnings exceed $5,000, income tax is generally withheld and credited against tax due on your tax return. Please keep in mind that gambling winnings are included in gross income regardless of whether it is subject to withholding.
Gambling losses
For nonprofessional gamblers, gambling losses are deductible as an itemized deduction on Schedule A of your federal income tax return. This means that if you elect to take the standard deduction (rather than itemizing), you may not deduct gambling losses. You also cannot deduct more gambling losses than the amount of your winnings. You must report the full amount of your winnings as income and claim your losses as an itemized deduction.
Gambling losses do not include expenses used to engage in wagering (such as travel, meals and lodging).
To deduct your losses, you must be able to provide receipts, tickets, canceled checks, statements or other records showing the amount of winnings and losses. The IRS also requires that you keep a record of your winnings and losses, listing the date and type of wager or activity, name and location of the gambling establishment, people present with you, and the amounts won or lost.
Changes to Hawaii law
On July 31 Gov. Linda Lingle signed into law Act 165, which disallows taxpayers from claiming gambling losses on their Hawaii returns. So while all gambling winnings must be reported as income, you are no longer allowed to deduct gambling losses on your Hawaii income tax return. The law applies to any losses beginning Jan. 1, 2009.
Gambling Losses Under New Tax Law
Let's say in 2009 you won a total of $1,000 and had $1,200 of well-documented gambling losses. You would need to report the $1,000 of gambling income and deduct $1,000 of your gambling losses as an itemized deduction on your 2009 federal income tax return. The remaining $200 in gambling losses cannot be deducted. However, on your Hawaii tax return, you cannot deduct any of the $1,200 in the gambling losses, and you will be taxed on the $1,000 in winnings.
Gambling Losses Under New Tax Law Firms
With the beginning of the new year, now is a perfect time to remember that while gambling can be exciting and enjoyable, you should be mindful of the change in Hawaii law and take note of all your winnings and losses and keep as many receipts as you can.
“;Tax Tips”; appears every other Sunday during tax season. Amy Sugihara is a tax senior associate in the Honolulu office of Grant Thornton LLP. She can be reached at .(JavaScript must be enabled to view this email address).