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Taxes on Gambling Earnings and Losses

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Are Gambling Earnings Taxable as Income?

Yes. Any earnings generated from gambling, betting, and playing lotteries are taxable income, even if that income is from an illegal activity.

Can I Deduct Gambling Losses against My Income?

Yes, but an individual may only deduct gambling losses to the extent of their gambling earnings, and the gambling losses must not exceed gambling income. It is worth noting 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 they incurred from playing the lottery to offset against income earned from winnings in horse races.

How losses are required to be reported will vary depending on whether the individual is a professional gambler or not.

Non-Professional: For individual taxpayers who are not professional gamblers, gambling losses are miscellaneous itemized deductions subject to a 2% adjusted gross income (AGI) limitation.

Professional Gamblers: 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 Expenses Related to Gambling against My Income?

Not usually. Expenses related to gambling, like a car rental, hotel room, and meals - are non-deductible personal expenses. If the taxpayer is in the trade or business of gambling, like a professional poker player, then they 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?

Tax laws are complex and constantly changing. While there are various tax preparation companies and software programs on the market that may help you with your tax questions, 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, it would be wise to consult with a local tax lawyer.

Photo of page author Matthew Izzi

, LegalMatch Legal Writer and Attorney at Law

Last Modified: 08-05-2014 09:01 AM PDT

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