Not so fast... With online gambling exploding in popularity, we’d like to provide some clarity on the tax implications. Most people believe they can offset their gambling winnings with gambling losses. While that is true, very few people meet the threshold to offset their winnings. In order to claim your losses against winnings, one must first itemize deductions instead of taking the standard deduction.
Since the increase of the standard deduction by the Tax Cuts and Jobs Act of 2017, a lot less people find themselves itemizing.
2023 Standard Deduction
Married Filing Jointly
Head of Household
Here is an example of someone who did not itemize:
They have a $5,000 gambling win and a $7,000 gambling loss for the year. What happens?
- The $5,000 win is not reduced to $0 by the $7,000 loss.
- They must report the $5,000 win as income.
- If they fall into the 22% tax bracket, their tax liability will increase by $1,100 for that year.
When you combine the gambling loss of $2,000 and the tax of $1,100 on your $5,000 phantom gambling winnings, the overall loss is $3,100. If a taxpayer does itemize, their losses can only offset gambling winnings. Gambling losses do not reduce earned income.
In my opinion, it’s not worth the gamble…
IRS Resource: https://www.irs.gov/taxtopics/tc419