Gambling winnings/losses issue

Forum|Forum|4 years ago
February 22, 2022
4 replies
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I had a series of W-2Gs for gambling winnings that I input one at a time into Turbotax. My gambling losses equaled my gambling winnings. However, Turbotax showed an increased in my Federal and state income taxes due in spite of my gambling losses equal to my winnings. If I take away one W-2G at a time, my Federal and state taxes decrease. Why? I thought if gambling losses equal or exceed gambling winnings, there is no impact on taxes due.

JillS56

Level 10

Yes, you are correct, that if your gambling losses equal your winnings you do not pay taxes. Except that in order to take the gambling loss you must be able to file a Schedule A (itemize) on your return. Gambling losses are reported on Schedule A under Other Itemized Deductions Line 16. To get the deduction for the gambling loss your itemized deductions much be more than the standard deduction.

If you are not able to itemize, you are not able to get credit for your gambling loss. Keep in mind that even though your losses most likely exceed your winnings, you can only claim the losses to the amount of your winnings. Gambling losses cannot exceed the winnings.

My guess is that if your tax obligation increases with each W-2G is because you are not able to deduct your losses.

siyang2Author

Level 2

Jill,

Thanks for your response. I am still struggling with this problem. My gambling W2G winnings (and losses) far exceed the standard deduction, so my return is itemized. My deductions before the losses are below the itemized threshold. It appears I am only getting a partial deduction for the losses. If I input fake deductions to reach the standard deduction threshold, I still do not get full credit for my gambling losses vs my winnings. I get all kinds of different results from Turbotax depending on my input for gambling winnings and losses when I have made sure my other itemized deductions are over the threshold. Really seems like a software bug, but maybe something else?

Opus 17

Level 15

@siyang2 wrote:

Jill,

Thanks for your response. I am still struggling with this problem. My gambling W2G winnings (and losses) far exceed the standard deduction, so my return is itemized. My deductions before the losses are below the itemized threshold. It appears I am only getting a partial deduction for the losses. If I input fake deductions to reach the standard deduction threshold, I still do not get full credit for my gambling losses vs my winnings. I get all kinds of different results from Turbotax depending on my input for gambling winnings and losses when I have made sure my other itemized deductions are over the threshold. Really seems like a software bug, but maybe something else?

If you are receiving social security, gambling winnings increase your adjusted gross income and may make more of your social security taxable. Increasing your AGI can also decrease your eligibility for certain tax credits.

Greghball

Level 2

I had the same experience. My Minnesota State Taxes increased by $1,000 compared to the level before I entered the W-2Gs. In other words, after I noted the beginning MN Tax, entered the W-2Gs, then applied my losses against the winnings. my MN Tax was the original figure + $1,000. What gives?? My Federal Tax only increased by $15; I can live with that!

RaifH

Level 10

Claiming gambling losses requires you to itemize your deductions, both federally and in Minnesota. In Minnesota, your itemized deductions start to be limited if your adjusted gross income is over $199,850, or $99,925 if married filing separately. In that case, your itemized deductions start to be phased out. If you are using TurboTax desktop or pre-pay for TurboTax online, you can look at Minnesota Schedule M1SA to see the amount that is being phased out. If you are using TurboTax Online and you have not yet paid, you can see your total deductible Minnesota itemized deductions, as well as your AGI:

Open or continue your return.
Select Tax Tools in the left menu (if you don't see this, select the menu icon in the upper-left corner).
With the Tax Tools menu open, you can then view your 1040 form: Select Tools. Next, select View Tax Summary in the pop-up, then MN Tax Summary in the left menu
Your Adjusted gross income is on the first line. The itemized deductions, which includes your gambling losses is on the third line. If it is less than your reported gambling losses, it is because your AGI exceeds the threshold and your allowable itemized deductions have been reduced.

AnnParker

Level 2

In general, if your gambling losses equal or exceed your winnings, you may be able to deduct those losses on your tax return. However, there are limits and restrictions on how much you can deduct, and it may depend on your specific situation and the state you live in. It's always best to consult with a tax professional or use a reputable tax software program to ensure accuracy when filing your taxes.
Additionally, it's important to gamble responsibly and only with money that you can afford to lose. While it can be fun and exciting to try your luck at the casino or on sports betting sites like [link removed] it's important to approach gambling with caution and understanding that it is always a game of chance.

philmasch

Level 2

I'm assuming you were taking the standard deduction before you put the gambling in. The standard deduction gives you a "free' deduction of $15k if single or $25k if married. That is a net positive for you for lack of a better term. The net positive is what gives you the refund before the gambling income and loss is entered.

When you enter your gambling wins, say $50,000, and your gambling losses of $50,000, you lose that net gain of the standard deduction because now that additional $15k or $25k standard deduction gets wiped away and gets replaced by the gambling losses of $50k.

$50k of additional income and $50k in itemized deductions is a $0 net benefit.

$0k in additional income and $15k or $25k in standard deduction is a net gain, hence the refund.

You.go from a positive transaction (taking the standard deduction) to a neutral transaction (itemizing dollar for dollar of that income).

siyang2Author

Level 2

Hi Philmasch,

Thanks for responding to my question from last year. I completely agree with your comments.

This year, my W-2 G gambling wins will be close to $100,000. Therefore, I have no choice but to forgo my standard deduction and take my gambling losses which are close to $100,000 as a deduction. Otherwise, I would have $100,000 in additional income with only the standard deduction to offset that income. Life would be a lot simpler if the IRS would increase the W-2 G threshold from $1200 to $5000 before a W-2 G is issued (accounting for 70 years of inflation). This W-2 G threshold has been in place from the 1960s and needs to be updated.

Thanks again.

Opus 17

Level 15

All gambling winnings are reportable taxable income, even if they are not reported on a W-2G. If you were to be audited, the IRS can look at every transaction in your bank account and identify all the gambling winnings that you didn't report, and assess taxes and penalties, and the burden of proof is on you (not them) to show they are wrong. Raising the reporting threshold would make it easier for people to avoid taxes, not change what is taxable, so I don't think that's likely to happen.