Gambling Loss
A gambling loss is a loss resulting from games of chance or wagers on events with uncertain outcomes (gambling). Winnings or losses can be from the following gambling activities: lotteries, raffles, dog races, horse races, casino games, poker games and sports events. Crippling gambling loss or debt can lead to embezzlements, writing bad checks and committing other crimes in order to cover a gambler’s losses. A gambling loss is a loss resulting from games of chance or wagers on events with uncertain outcomes (gambling). Taxpayer notes must include the date and type of gambling, the name and address of the gambling venue, the people that the taxpayer gambled with if applicable, and the amounts won and lost.
What Is a Gambling Loss?
A gambling loss is a loss resulting from games of chance or wagers on events with uncertain outcomes (gambling). These losses can only be claimed against gambling income.
Understanding Gambling Loss
The Internal Revenue Service (IRS) views gambling wins as income, and therefore requires people to pay tax on the winnings. It allows people to deduct their gambling losses if they itemize their deductions. The IRS also requires taxpayers to keep a diary of winnings and losses in order to deduct losses. Winnings or losses can be from the following gambling activities: lotteries, raffles, dog races, horse races, casino games, poker games and sports events. Taxpayer notes must include the date and type of gambling, the name and address of the gambling venue, the people that the taxpayer gambled with if applicable, and the amounts won and lost.
Gambling losses that are deducted cannot exceed the winnings reported as income. So if a gambler has $3,000 in winnings but $7,000 in losses, they can only deduct $3,000. The remaining $4,000 cannot be written off or carried forward to future years. If a gambler has $3,000 in winnings and $1,000 in losses, they can report the $3,000 as income and then claim the $1,000 as an itemized deduction.
The Effects of Gambling Loss
Large gambling losses are stressful and can trigger or exacerbate a gambling addiction. For example, a person can win $10,000 at Casino A one night and lose $9,000 at Casino B the next night. Despite the leftover $1,000, that gambler is sent home the first night with a W-2 for the $10,000 from Casino A and must still pay taxes on that income.
Gambling loss can not only have psychological and financial effects, but it can lead to other destructive behaviors. Crippling gambling loss or debt can lead to embezzlements, writing bad checks and committing other crimes in order to cover a gambler’s losses. Gambling can be a serious addiction and affect a person’s family life and career in many negative ways.
Related terms:
Capital Gains Tax
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Deduction
A deduction is an expense that a taxpayer can subtract from his or her gross income to reduce the total that is subject to income tax. read more
Expected Utility
Expected utility is an economic term summarizing the utility that an entity or aggregate economy is expected to reach under any number of circumstances. read more
Federal Income Tax
In the U.S., the federal income tax is the tax levied by the IRS on the annual earnings of individuals, corporations, trusts, and other legal entities. read more
Gambling Income
Gambling income refers to any money that is generated from games of chance or wagers on events with uncertain outcomes. read more
Income
Income is money received in return for working, providing a product or service, or investing capital. A pension or a gift is also income. read more
What Is the Internal Revenue Service (IRS)?
The Internal Revenue Service (IRS) is the U.S. federal agency that oversees the collection of taxes—primarily income taxes—and the enforcement of tax laws. read more
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