The money you lose in gambling is in the class of tax-deductible provided you meet the set regulations. You can subtract the losses from the amount you declare to allow you to pay lower amounts of tax. The primary condition you have to meet is reporting your winnings to owe some tax charges before getting relief from your losses.
By declaring your winnings, you will be itemizing the deductions, and this will prove that besides losing, you also won some money. IRS requires that you owe some tax inform of winning before you can qualify for deductions in the form of losses. To effectively itemize the deduction, you must provide records showing:
- The amount you won and the amount you lost
- The type of gambling
- Date, name, and the address of the place where you gambled
- The people you were gambling with
Besides these records, you also need to keep a log of your gambling activities, including winning and losses. Failing to record your gambling history details will lead to your losses failing to meet the IRS’s minimum threshold. Some of the types of gambling you should include in your log . These include lotteries, raffles, horse racing, poker games, casino games, and sports betting.
For your gambling losses to qualify as tax deductions, you also need to provide several specific documents, which include:
- Form 5754
- Form W-2G
- Canceled credit records or checks
- Receipts from the gambling platform
- Wagering tickets
The primary reason for providing all the outlined documents is to allow IRS to accurately ascertain the amount you have won and the amount you have lost. Each document highlighted has its importance since it shows that your losses were genuine. The records you provide further provide a way of confirming that the information you provide is accurate.
Limitations on Loss Deductions
IRS’s mandatory rule is that the amount you declare as your losses can never exceed your winnings. An example is when your winnings are $10 000, but your losses are $15 000. These figures limit your loss deductions to $10 000, where the excess $5 000 cannot qualify as a deduction or be carried forward to any future period.
The essence of having a limit is to ensure that people do not assume that gambling losses will reduce their tax bills. You must owe tax in the form of winnings before you can have access to a loss deduction. This means that ducting your losses only allows you not to pay tax on your winning and nothing else beyond that.
The limit also plays an integral role in encouraging people to declare their gambling winnings. By reporting your winnings, you shall be increasing the losses you can declare. Most people report their winnings hoping that their losses will lower their taxes when declaring their taxable incomes for a particular period.
Ways to Claim Your Gambling Losses
You can present the necessary documents and records on your own and claim gambling losses. The imperative thing is to ensure that you include all the documents and make sure you present them on time. These documents and records need to be submitted together with your other tax return documents, which you are required to present to the IRS.
If you feel that you are not competent enough to present the returns on your own, you can work with a tax agent. These are the professionals who help people and firms to present their taxes accurately. Many tax agencies provide these services, especially to the big firms that have sophisticated details regarding their taxes.
By working with an agency, you shall be reducing your chances of making errors while claiming your gambling losses. The professionals from the agency you have chosen will guide you and do most of the work in the process of returning your taxes. The important thing is to ensure you work with the right agency which has a reputation of providing top-class services.
While looking for the right agency to help you claim your gambling losses, you need to consider certain factors. For starters, the agency needs to have a team of professionals who are well trained in tax-related matters. You also need to check the track record of the agency you choose to confirm that it has helped firms and individuals who are looking to present their taxes according to the law.
It is also paramount to ensure you work with a tax agency that will have time to deal with your case in a personalized manner. Most agencies have many clients, and as a result, they treat most cases in a general form. Your issue might take relatively long, especially if you are not assigned a specific agent to help you as an individual.
The Time It Takes To Claim Your Gambling Losses
The entire process takes a few hours to complete, especially if you have all the required documents and records. Some of the reasons that might make the process take longer include not having all the necessary documents and records. The agency you are working with will require that you ensure that everything needed is in place.
If you were gambling through the internet, you might not have the receipts and other available documents in conventional casinos. In such situations, you might need to provide contact details such as links to casinos you were gambling in as a form of proof. The link helps IRS confirm the details, which cannot work in receipts and other related information.
To ensure the online casino you work with is among the ones that can provide documents that can be presented to IRS; you need to confirm that the casino is licensed. The importance of this is that some online casinos do not have the required licenses. Gambling in a casino that does not have the necessary permit means that your gambling records will not be legitimate, and as a result, your records will not be presentable to IRS.
Therefore, you have all the rights to claim gambling losses on your taxes as long as you follow the stipulated procedures. These include providing all the required documents and presenting your claim on time.