Maintaining accurate records on your gambling winnings and losses is both necessary for tax-deduction purposes, and necessary if you want to claim those gambling losses as income tax deductions. Unfortunately, many people make costly errors when keeping such records due to misunderstand the IRS’ view on gambling wins and losses; their definition includes raffles, lotteries, sports betting (including horse race betting) poker casino games as well as any type of currency being used (cash check or credit cards all count as gambling transactions) therefore you need to maintain very detailed records on all gambling winnings and losses as soon as possible in order to claim tax deductions when filing taxes as soon as possible.
Gambling winnings are subject to federal income taxes at 24%. When reporting gambling wins, winnings must be reported using form W-2G and submitted to the IRS if they exceed $3,000 in any year. This form contains your name, Social Security number and amount won. Typically, the entity that paid you your winnings also sends one directly to your tax professional for filing purposes.
When reporting gambling losses to the IRS, they have certain guidelines that must be met in order to qualify for deduction. You must itemize your tax deductions and can only deduct losses that total less than winnings in that same timeframe. Furthermore, your losses must be supported with documentation such as receipts, payout slips, wagering tickets and bank withdrawal records; travel expenses related to gambling losses may also qualify; so keep any airfare receipts you receive and keep them safe!
Record-keeping and substantiation rules regarding gambling losses may seem complex, but in actuality are quite straightforward. Simply put, you need a reasonable basis for the amount of your losses, with Schooler 19 ruling stating that proof, record-keeping, estimating, credibility rules apply just like they would to any expense that taxpayers seek deduction for.
Bottom line, if you intend to claim gambling losses as part of your tax deductions, they must be supported with documentation that conforms with standard practices for other expenditures. Otherwise, courts are likely to disallow your deduction even though your losses may be legitimate.
One effective strategy for combatting this risk is keeping a gambling journal or records, noting each gambling experience, including date and type, place where gambled, who was present, amounts betted/won and amounts wagered/lost over time, type of bet placed/won etc. You could also consider recording all wagers/winnings in a spreadsheet/database format with each entry showing details like type of game played, time/day of wager/loss along with type/amount wagered /loss/wager amount wagered over/under or win/loss etc.