Advice from Accounting Experts: Keep Detailed Accounts of Gambling Wins and Losses

Although the April deadline for tax filing may feel months away, it will creep up before you can say, “deductions!” Experts advise making tax time a bit easier by keeping detailed records of all financial transactions, including all gambling activity.

According to federal tax code, the IRS is entitled to take a portion of the money you win while gambling, be it in land casinos, online casinos, or in lotteries or sports- betting. State governments also require residents to pay taxes on gambling earnings, at rates which vary according to the individual state.

For an excellent detailed overview of how to indicate gambling winnings and losses on tax records, get your hands on a copy of the Internal Revenue Service's Publication 529, entitled "Miscellaneous Deductions." The section called "Gambling Losses Up to the Amount of Your Gambling Winnings” will guide you through the process. One key point made in the pamphlet is that you must report the sum total of any and all gambling winnings on the basic Form 1040 (line 21).

According to the IRS, the simplest and most effective way to keep track of your gambling wins and losses is to keep a diary. Each time you visit a casino or engage in any other form of gambling, record at least four types of relevant information: 1) The date, type, and amount of each wager; 2) The name and address of the gambling venue; 3) The amount you won or lost; 4) The names of any friends or acquaintances who were with you at the time.

You may be pleasantly surprised to know that you may include gambling losses in your list of itemized deductions. Gambling losses, however, are treated very differently than gambling winnings. Winnings are treated as income, while losses must be treated as deductions. The IRS warns that, contrary to popular belief, people may not subtract losses from winnings in order to minimize income from winnings.

Experts caution that it is crucial to keep detailed, accurate records of your losses if you plan on using them to lighten your tax burden. Losses must be recorded on line 27 of Schedule A on Form 1040.

If you should be called to an audit, supporting documentation will serve as evidence of your gambling wins and losses. Whenever you gamble, keep records that attest to the activity, such as cancelled checks, credit card bills, bank withdrawals, and receipts from casino restaurants and hotels- anything that will help you prove your case, should it meet with challenge from the IRS. If you are a member of a player’s club at a particular casino, the casino should be able to send you a detailed financial history. Although this may sound like a great deal of work, you will be thanking yourself when April rolls around!

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Advice from Accounting Experts: Keep Detailed Accounts of Gambling Wins and Losses
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