Gambling Losses

Gambling winnings must be reported to the IRS as taxable income and may be offset by gambling losses if you itemize deductions. A husband and wife who are recreational gamblers had more than $44,000 worth of winnings from repeatedly playing casino slot machines. The asserted that they also had $46,500 of offsetting gambling losses, which the IRS disallowed. The taxpayers� position was that they had credit card and bank account debit cars showing $46,500 in cash withdrawals during the couples� gambling trips, which indicated that the taxpayers were losing money. In addition, these statements showed money spent at the casinos. The IRS took the position that the taxpayers� records were insufficient to establish that they sustained gambling losses. With no journal or daily record to show losses, none could be allowed. The Court, however, disagreed with the IRS and losses of $40,000 were allowed, leaving the taxpayers with only about $4,000 in taxable net winnings instead of $44,000. It is clear from this case that although the Court decided that the taxpayers could claim the gambling losses, even with no specific records, it�s best to keep detailed records of any gambling losses, even those lottery tickets, to offset gains. Here, the couple still had to pay taxes on more than $4,000 of net gambling income, which they might have avoided by keeping a log.

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