Taxes on Gambling Earnings and Losses

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Most Common Finance Law Issues:

Are Gambling Earnings Taxable As Income?

Yes. Any earnings generated from gambling, betting, and playing lotteries are taxable income, even if they come from an illegal transaction (e.g. taxpayer's state forbids gambling).

Can I Deduct My Gambling Losses Against My Income?

Yes, but an individual may only deduct gambling losses (i.e. losses from wagering) to the extent of his/her gambling earnings. Note that a taxpayer may use losses from one type of gambling activity to offset gain from another type of gambling activity. For example, a taxpayer may use losses he/she incurred from playing the lottery to offset against income that he/she earned from winnings in horse races.

For individual taxpayers who are not professional gamblers, gambling losses are miscellaneous itemized deductions subject to the 2% AGI limitation. For professional gamblers, gambling losses are treated as business expenses, but they can only be used to offset against gambling earnings and not other income.

Can I Deduct My Expenses Related To Gambling Against My Income?

Typically no. Gambling expenses (like car rental, hotel rental & meals) are non-deductible personal expenses. If the taxpayer is in the trade or business of gambling, like a professional poker player, then he/she may deduct "ordinary and necessary" gambling expenses as business expenses. Again, these business expenses can only be used to offset gambling earnings and not other income.

Can I Use Gambling Losses That Were Disallowed In Previous Years?

No. Gambling losses in excess of gambling earnings cannot be carried forward or back to offset any other income. Thus, a taxpayer can only use losses in the year that they are incurred.

Do I Need an Attorney To Help Me With My Tax Problems?

Tax laws are complex and ever-changing. Although there are various tax preparation softwares on the market that may help you with your tax problems, they cannot provide the same level of service that an experienced and knowledgeable tax attorney can. If you are unsure about the characterization of your expenses or you need someone to represent you before the IRS, a tax attorney can help you.

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Last Modified: 12-17-2010 02:46 PM PST

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