Expert: John Stancil, CPA - 11/8/2004

Question
I've won a few large horse racing payouts and I've received a few
W-2Gs. Will the "income" from the listed W-2Gs be calculated
with the rest of my income and be subject to all of my
deductions and write offs? Or is it subject to a strict 25%
Gambling tax?

Can I "write off" my gambling losings? If so, does this act as a
business where I can claim a deduction for all of the costs
associated with winning, like Industry publications, training,
travel, hard asset costs, and money I spend trying to win
(losing)?

Any feedback or recommended reading would be very helpful.
Thanks,
John Wohlfeil


Answer
John,

Thanks for your question.

You include your gambling winnings on line 21 of the 1040 under "Other Income."  It will be taxed at your marginal income tax rate as ordinary income.  I have not heard of a 25% gambling tax.

You can deduct your gambling losses up to the amount of your gambling winnings.  These will be a Miscellaneous Itemized Deduction on Schedule A, not subject to the 2% limitation.  The IRS requires a diary of winnings and losses which  should contain at a minimum: 1) the date and type of your specific wager or wagering activity. 2) The name and address or location of the gambling establishment. 3) The names of other persons present with you at the gambling establishment. 4) The amount you won or lost.  You cannot deduct the costs associated with winning - just your unsuccessful wagers.  

If you do not itemize your deductions, you do not get any reduction in income for your gambling losses, but the winnings are still taxable.  

Hope this helps.

John Stancil, CPA