If you participate in wagering, or gambling, your taxable gains from those transactions can be reduced by your wagering losses – even if the underlying dealings are illegal.
However, wagering loss deductions are subject to a number of limitations:
➜ These losses can be used to offset winnings only during the same year, and not to offset any other types of income for that year. You may not use losses as a carryback or carryforward to reduce gambling income in earlier or later years.
➜ The losses can be claimed only as itemized deductions unless you are in the trade or business of gambling.
➜ The losses must be verified with adequate documentary evidence or other evidence, other than your personal assertion. The courts have been consistent in the past in ruling against taxpayers who have not kept detailed documentation regarding gambling losses.
If you are gambling at a casino, a good tip to follow is to use a player’s card that casinos hand out to their patrons. This card helps to keep detailed track of your activity on a daily basis. It helps track both your wins and losses.
You can use the card to print out an activity summary. The summary shows both your wins and losses on a daily basis. This is the type of independent third-party documentation that the IRS wants to see.
Losing lottery tickets would be another example of the type of documentation needed to support that gambling loss deduction.
Remember that gambling losses can be used only to offset gambling winnings. But to make sure you receive the gambling loss to which you are entitled, make sure you have adequate documentation.