My gambling losses exceed my winnings (by a lot unfortunately). Will I still need to pay taxes on the winnings?

[clarson73]

When I entered the W2-G info into last year's return I couldn't see where the loss statement was, only the winnings entered as extra income. I thought if you lost more than you won it would cancel each other out. Am I wrong on this?

[MargaretL · Accepted solution]

Yes, you will still need to pay taxes on the winnings. And no - the winnings and losses will not cancel each other out.

Unfortunately, it is very common that your refund will not change after your losses are entered. Why? Because the IRS does not permit you to simply subtract your losses from your winnings and report your net profit or loss. 

The IRS has very specific rules and limitations as to how the gambling losses are deducted.

First, you may deduct gambling losses (that's why we ask you enter the amount) but it is only deductible to the extent of your winnings. 

Secondly, the deduction for your losses is only available if you are eligible to itemize your deductions (have mortgage interest, real estate taxes, medical, charitable deductions, etc.) If you claim the standard deduction, (because you don't have enough expenses to itemize) then you can't reduce your tax by your gambling losses and therefore will not see your refund change at all.

And if you happen to have a bad year, you cannot just deduct your losses without reporting any winnings. If the IRS allowed this, then it's essentially subsidizing taxpayer gambling. In other words, losing money does not by itself reduce your tax bill. You need to first owe tax on winnings before a loss deduction is available.

[clarson73]

Thank you, Margaret for the quick response. That explains why I didn't see anything change on last year's returns...

[MargaretL]

My pleasure! Good luck in 2017 on your winnings!

[danielklatt1957]

This has got to really make the gaming lobby happy - wasn't it different in past years and prior to the new tax law ? This should keep your regular "Joe" out of the casinos

[fanfare]

do you mean anti-gaming lobby?
"This should keep your regular "Joe" out of the casinos"
Somehow, I don't think so.

[Anita01]

No, gambling winning and losses reporting did not change at all with the new tax code.  Winnings have always been reportable and taxable and losses, up to the amount of winnings have always been deductible as part of your itemized deductions.  If you do not have enough deductions in total to itemize, then you lose the deduction of losses.

[rdtamayo0215]

I have a question now that online casino is easily accessible. I added $1000 to my account. As I play, my winnings shows (10000) and my bet shows 11000. Note that I never withdraw anything, it was just a matter of betting overtime( win lose win lose etc.. and it accumulates. Would that be considered as income?

[ErnieS0]

@rdtamayo0215 Yes. Your wins are considered income even if you never withdrew any money from your account. It's the same as keeping money in the bank and letting it earn interest, but never making a withdrawal. The interest is still taxable.

Your net winnings are taxable (amount won - your wager). You may be able to deduct losses, up to the amount of your winnings, as an itemized deduction. You cannot net your winnings. However the IRS does allow you to report net winnings on a per session, rather than a per wager basis.

For example, suppose you visit a casino on Monday and put $500 on your casino card. You quickly win $2,000, but keep gambling until your balance drops to $1,500. The next day (Tuesday) you lose your remaining $1,500.

You cannot net Monday’s gambling winnings against Tuesday’s gambling loss to report $0 of gambling income because the win and loss occurred in different “sessions” (days).

However, your net gambling win includes the difference between the $2,000 jackpot and the $1,500 you walked out the door with. You only pay tax on the end of session gain ($1,500 - $500 original wager).

Bear in mind the IRS may come calling if you report $1,000 of gambling income and the casino reports a $2,000 jackpot on Form W-2G. The IRS may ask for detailed, contemporaneous records proving your income. Taxpayers have lost court cases over poor or inadequate recordkeeping.
 

See: 

• How to Pay Taxes on Gambling Winnings and Losses
• Chief Counsel Advisory 2008-11
• Shollenberger v. Commissioner, T.C. Memo 2009-306

[rdtamayo0215]

thanks for answering my concern. all my sessions never went over above $1000 or current fund at a time, or else I would have stopped lol.

Imagine playing win-lose $1 multiple times and lost all at the last wager, can’t believe that all winnings is considered income. Basically overall, you will lose because you cannot use the standard deduction anymore and have to itemize  and get less deduction.

[rhnorfleet]

Thank!! for info. on my win/loss.