Gambling: How to Report Winnings for Taxes

While hitting the jackpot in a slot machine or getting a flush in poker, taxpayers must remember that even winnings from gambling are taxed. Gamblers will receive a W-2G to know the total of their winnings for the year. Although this process for taxes seems straightforward, there is more to consider when doing taxes for gambling activities.

1. Can losses be deducted from the winnings?
2. Are there different rules for different states?
3. Is there a difference if the gambler is a professional?

First off, a taxpayer’s gross income includes all earnings. This means that whether the gambling winnings are $5 or $500,00, the winnings are taxable.

But there is a good news. Losses from gambling can be deducted to the extent of the gains. For amateur gamblers this deduction is made on Schedule A for Itemized Deductions. However, nonresidents are not allowed to deduct the losses from gambling unless they are directly connected to a trade or business.

For residents of Connecticut, Illinois, Indiana, Kansas, Massachusetts, Michigan, North Carolina, Ohio, Rhode Island, West Virginia, and Wisconsin, beware. These states do not allow amateur gamblers to deduct their losses from their winnings. For example, if an amateur gambler in Ohio wins $50,000 and loses $50,000, they may not deduct their losses even though they technically broke even.

This is not the case if the taxpayer is a professional gambler such as a professional poker player. They may deduct gambling losses from their state income taxes but they are aggressively challenged for their status as professional.

So remember to consider the tax implications for gambling winnings and losses and plan accordingly based on your gambling status and the state you live in.