Cashing in on those gambling losses

COMMENTARY /// Personal finances
 

 

Although your gambling winnings are taxable, did you know you can offset them with losses?

Strategy: Always keep records to back up your claims.

Gambling losses are deductible without clearing the usual deduction threshold for miscellaneous itemized expenses.

Also, the new Tax Cuts and Job Act repeals the deduction for miscellaneous expenses, but preserves the deduction for gambling losses, with a new limitation for professional gamblers.

The basic tax rule is that gambling losses are deductible up to the amount of your winnings, but no more than that.

You claim the deduction along with other miscellaneous expenses on Schedule A of Form 1040.

Normally, you may only deduct your total miscellaneous in excess of 2 percent of your adjusted income. Fortunately, the 2-percent of AGI threshold doesn’t apply to the deduction for gambling losses.

You may have to provide proof to the IRS if it ever challenges your gambling loss deduction. This includes: The date and type of each waging activity; the name and location of the gambling establishment; the names of any other person accompanying you to the gambling establishment; and the amount you won or lost.

Under the TCJA, professional gamblers must combine their out-of-pocket gambling related expenses with their gambling losses. The total can be deducted only to the extent of gambling winnings.

Kash Chandani, CPA, is a former IRS agent. For questions or more information, call his office at (805) 494-4334 or email kash@less4irs.com.

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