Most people receiving Form W-2G know their gambling winnings must be reported as taxable income. Even if a W-2G is not received, the law requires all gambling winnings to be reported. The IRS explains that gambling income includes not only winnings from lotteries, raffles, horse races, and casinos, but that it also includes cash winnings and the fair market value of prizes, such as cars and trips. Winnings are reported on the first page of Form 1040, and are not allowed to be directly offset by gambling losses.
Taxpayers that itemize deductions can report their gambling losses on Schedule A. Losses, however, can only be deducted to the extent of gambling winnings. The IRS says that to deduct your losses, you must keep an accurate diary or similar record of your gambling winnings and losses and be able to provide receipts, tickets, statements, or other records that show the amount of both your winnings and losses.
You can't reduce your gambling winnings by your gambling losses and report the difference. That means you must report the full amount of your winnings as income and claim your losses (up to the amount of winnings) as an itemized deduction. Therefore, your records should show your winnings separately from your losses.
Professional gamblers report winnings and losses on Schedule C. They can also deduct meals, lodging, and other gambling-related expenses. The rules for qualifying as a professional gambler are strict, and gambling as a business is subject to IRS scrutiny, so be sure you know what you’re doing before attempting to reporting your gambling activity this way.
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