What are the tax implications of gambling?

Great question. If you purchase a lottery ticket or gamble at a casino and win big, you need to be prepared for potential tax implications.

First, if you win, your gambling winnings are fully taxable and must be reported as income on your tax return. Reportable income includes winnings from lotteries, raffles, horse races, and casinos. It is your responsibility to report these on your return. In addition to cash earnings, you need to report any new items you win in a raffle and claim the item’s fair market value at the time that you won it.

It is important to note that you cannot subtract wagers from your total earnings. For example if you wagered $50 and won $500, you must report $500 in earnings, not $450.

If you have gambling losses, you can only deduct your losses if you itemize your deductions on your tax return. There is also a limitation to the amount of losses you may deduct on your return. You can only deduct gambling losses up to the amount you have in gambling winnings. For example, if you have $5,000 in gambling losses and $4,000 in winnings, you may only deduct $4,000 of the gambling losses as itemized deductions.

To track your winnings and losses, you must keep an accurate record and be able to provide tickets, receipts, or statements that indicate your earnings. If you have gambling winnings from a casino or lottery, you may be issued a Form W-2G if the winnings are above: