You’ve won some money gambling, but it doesn’t matter whether you win at slots or in a poker tournament, the IRS wants to know. And if you win big enough, you get a tax form called a W-2G. This tells the IRS that you’ve won big and makes sure you don’t accidentally forget to report it (you know, just in case you’re the forgetful type.)
I used to work at the IRS in Sin City, and we audited a lot of professional poker players and gamblers. Now that I work for the light of the force, I’m going to tell you what the IRS looks for when dealing with gamblers.
Types of Gamblers
There are 2 ways the IRS classifies you when you’re a gambler:
- Casual gambler
- Professional gambler
But before we get into the type of gambler you are, there are a couple rules you need to know that affect all gamblers, regardless of the type.
Gambling Loss Limits
First things first, there is an important thing you need to know about gamblers: Congress hates them. They hate that you’re spending money at the casino instead of being a good little consumer and contributing to the economy. They would rather you go shopping, buy a car, or take out a home loan, instead of spending your money at the casino.
So, Congress has created laws to discourage you from gambling. One of them is you cannot claim losses greater than winnings. Here’s an example:
You wagered $3,000 on sports betting and won $1,000. You can only write-off (deduct) $1,000. In other words, the IRS will never let you have a net loss when you’re a gambler. And this doesn’t matter if you’re a casual gambler or professional gambler.
No Netting Gambling Winnings and Losses
Another thing that the IRS doesn’t let you do is to net your gambling winnings and losses together. You must report your gambling winnings and wagers on different lines of your tax return. Where you report your winnings and wagers are different, based on if you’re a casual gambler or professional one.
When are you a casual gambler? The IRS believes you’re always a casual gambler unless you can prove you’re a professional one. I’ll be going over the details of what a professional gambler is, but for now let’s assume that you gamble, not as a profession, but only once in a while.
When you’re a casual gambler, you are only allowed to report your winnings and deduct your wagers. Any additional expenses you may have as a gambler are not deductible. Things like gambling apps, meals, travel, gambling poker books, etc. are not deductible.
Your winnings are reported on the front of your federal tax return to calculate your adjusted gross income. And your wagers are reported on your Schedule A, as an itemized deduction.
That’s important because it means you can only deduct your wagers if you itemize your taxes. If you don’t know what it means to itemize your taxes, I’ve written an article about it here. But the quick answer is you itemize your taxes if by adding a bunch of small deductions together (e.g., your mortgage interest, property taxes, charity deductions, and gambling wagers.) If when you add all those small deductions together, and that number is greater than the standard deduction (which is $13,580 in 2023) you itemize.
That means, if you’re a casual gambler, and you take the standard deduction, you won’t even be able to write off your gambling wagers. It’s all income, no losses. More evidence that the government hates gamblers.
To qualify as a professional gambler, the IRS looks at the facts and circumstances around your gambling activity. They ask questions like:
- Do you have another job as your main source of income?
- How often do you gamble?
- Do you gamble full-time, or is it just when you’re on vacation?
- What is your history of gambling?
- Are you ranked or known in the industry as a gambler?
The IRS will check websites like The Hendon Mob to see your poker tournament history and lay judgment if you’re a professional or just a fair-weather player that made a wrong turn at the buffet.
Once you’re able to prove that you’re a professional gambler, you can deduct more than just your wagers. Here are common deductions for professional gamblers:
- Travel & hotel
- Continuing education costs (books or online courses)
- Consulting with professionals (e.g., poker coaches)
- Poker apps, like Poker Bankroll Tracker
- Computer & technology expenses (e.g., you use your laptop to play online poker.)
- Health insurance
Unlike casual gamblers, you report your winnings and losses on a Schedule C, but just like casual gamblers you still can’t net them together (you should report your winnings under gross receipts, and your wagers under costs of goods sold.) However, there’s one more important thing you need to know about your taxes as a professional gambler: if you have a profitable year, your net income is now subject to an additional 15.3% self-employment tax, on top of income tax (remember Congress hates gamblers.)
|Casual Gambler||Professional Gambler|
|Reporting Income||Front of your Tax Return||Schedule C – Gross Receipts|
|Reporting Wagers||Itemized Deduction||Schedule C – Cost of Goods Sold|
|Extra 15.3% Self-Employment Tax||No||Yes|
|Deductions other than Wagers||No||Yes|
How To Prove Gambling Losses
Now that you know what type of gambler you are, you’re asking, “How do I prove gambling losses on my taxes?” Like everything else with the IRS, they want documentation. Here’s a list of documentation the IRS accepts:
- Tax form W-2g will list the amount of your wager in Box 3, under “type of wager”
- Wagering tickets from the casino
- If you’re a slot player and use a player’s card, the casino will give you a printout of all your wagers
- Gambling apps that tracks your bankroll management & wager activity
- Keep an accurate record or journal of your gambling activity
- Use bank statements and canceled checks
If you’re gambler, find a CPA that specializes with gamblers. Most CPAs don’t work with gamblers and if you’re a professional, you’ll need one that does. For example, Kondler & Associates, CPAs works with professional gamblers, and have offices in gambling hubs, like Las Vegas and New Jersey. So even if you gamble with your money, don’t gamble with the IRS.