Proper Documentation is Necessary for Gambling Loss Deduction

Taxpayers can deduct gambling losses only to the extent of gambling gains. The courts have ruled that this limitation applies even if the taxpayer is in the trade or business of gambling. There is no distinction between professional gamblers and occasional, amateur gamblers when it comes to the deductibility of gambling losses. The losses need not be from the same type of gambling to offset winnings.

Gambling Losses for Professional Gamblers

If you gamble for your livelihood and are treated as being in the trade or business of gambling, you report winnings and losses on Schedule C, but can only claim losses to the extent of winnings. However, the activity as a whole cannot generate a loss for the taxpayer. Any excess gambling losses over gambling winnings cannot be carried forward or carried back to offset gambling winnings from other tax years. These excesses are abandoned. The Tax Court has also ruled that the value of complimentary rooms, vacations, and other gifts a casino provides a taxpayer must be reported as taxable income but can be included in gambling gains and offset by allowable gambling losses.

Gambling Losses for Non Professional Gamblers

For the non professional gambler, the Tax Court has generally held that only the cost of a wagering transaction is treated as a gambling loss. Additional expenses to engage in wagering are not gambling losses. Thus, expenses for travel, meals, and lodging do not qualify as gambling losses. Unless the taxpayer is a professional gambler, these additional expenses generally are treated as nondeductible, personal expenses because amateur gamblers do not have a bona fide expectation of profit, given how the odds are known to favor the house. Further, such expenses cannot be deducted as Section 183 hobby expenses because such travel expenses are typically considered personal, and the regulations thereunder do not provide an exception for hobby-related travel expenses.

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Documenting Gambling Losses

Adequate documentation is required to claim gambling losses. If you have a Player’s Club Card and use it while gambling at a Casino, you can request a Win/Loss statement. This statement summarizes all of your tracked gaming activity and provides you with a net win/loss figure. For any large jackpots that you might have won, you can receive a W-2G statement from the payee, which will provide you with the taxable jackpot figure/form to file with your year end taxes. Both of the above mentioned requests must be made in writing.

If you do not have the above information, the IRS has stated that gamblers claiming losses must keep an accurate diary or similar record that contains at least the following information:

  • The date and type of specific wager or wagering activity.
  • The name and address or location of the gambling establishment.
  • The names of other persons (if any) present with the taxpayer at the gambling establishment.
  • The amount won or lost.

For example, wagering on table games (twenty-one, poker, roulette, etc.) may be substantiated by the number of the table played and casino credit card data indicating where credit was issued. For lotteries, a record of ticket purchases, dates, winnings and losses, as well as supplemental records such as unredeemed tickets, payment slips, and winning statements help document the activity.

The courts have been somewhat less restrictive in documentation for gambling losses. If sufficient evidence exists that a taxpayer incurred a gambling loss, the courts have allowed deductions where the taxpayer can estimate a loss despite lack of substantiation. In many cases, however, the courts have disallowed all of a taxpayer’s gambling losses for lack of documentation or support. The Tax Court has stipulated that the taxpayer must have evidence to corroborate the assertion that race tickets represent losses sustained by the taxpayer. A race ticket alone is not adequate substantiation.

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