How to Handle Gambling Wins and Losses This Tax Season

Editors' pick: Originally published Feb. 7.

Did you win any money from your Super Bowl pool?

Congratulations!

Now make sure you report it on your 2017 tax return.

Yep. Gambling winnings of any kind are taxable income, and Uncle Sam wants his cut. 

So if you had winnings from the Super Bowl, a fantasy league or even the local lotto, make sure you tally them all up with the money made in Vegas last year. 

All gambling winnings are reported as "Other Income" on line 21 of your Form 1040.

Your losses, on the other hand, are limited.

You only can deduct your losses to the extent of your winnings, says Nathan Rigney of The Tax Institute at H&R Block.

So if you won $1,000 last year but lost $1,500, you can only report $1,000 in losses. 

The other $500 is, well, lost. 

And you can't carry those losses back or forward, like you can in other situations, notes Cari Weston, director of tax practice and ethics for the AICPA

It gets worse. Your losses are reported on line 28 of your Schedule A - Itemized Deductions.

So if you are a high earner, your itemized deductions may be reduced because of the overall adjusted gross income limitation. Then you won't be able to deduct the full amount of your gambling losses. 

The good news is that losses from one kind of gambling are deductible against gains from another kind. 

So let's say in 2016 you played the lottery every week at $10 a pop and didn't win a thing. But you did hit it big at your Church bingo night and won $3,000. Since you had winnings, you at least can take a deduction for the $520 you dropped (wasted) on the lotto.

Look at For Form W2-G

Many casinos and organized gambling institutions will send you a Form W2-G, Certain Gambling Winnings reporting your 2016 winnings, says Weston. So be on the lookout for the form. 

The requirements for sending these forms are confusing, but know that if you won a substantial amount, expect to receive a W2-G from established places like casinos, the race track, a sweepstakes or Jai Alai. 

Granted, you're probably not going to get a W2-G from the guy who ran your office pool, but still know your winnings are taxable income.

And right about now you're saying, "But how will Uncle Sam know?"

Well, there are a few ways. If you get audited and the IRS figures it out, whether it's because of a big fat bank deposit or your seemingly lavish lifestyle, you'll owe tax on the money plus interest and penalties. 

Even worse, there are IRS whistleblower programs that encourage people to rat out their neighbors for a financial reward.

So if someone has a grudge against you and needs the money, watch how fast that person gets on the phone with Uncle Sam. 

Save Every Receipt.

As with all things, save your receipts. And if you didn't save every silly lotto receipt for 2016, don't give up, especially if you have winnings.

"You can go back and try to recreate 2016," suggests Weston.

Bank statements will show the cash you withdrew to gamble, or if you bought a lotto ticket every week from the same place and the employees can vouch for you, the IRS actually may consider that.

Going forward, get a "frequent flyer card" from your favorite casino, since it tracks your wins and losses and keep good records.

And Speaking of the Super Bowl

Texas was a great place for the Big Game for a bunch of reasons. Granted, the weather was great, but Texas doesn't impose a state tax. So Tom Brady and his cronies won't owe the state any tax on the money they made playing in the Game.

Granted, the money must be reported on their federal and home state returns, but it almost seems unfair that while they won't owe tax on their Super Bowl payouts, we still will.

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