Form 1040 Gambling Winnings and Losses (2023)

Introduction

For a 2022 update, view here: youtu.be/qji3ZSmvIH8

A taxpayer must report their gross amount of gambling winnings on Form 1040 each year. If you have gambling losses, you can record those gambling losses as an itemized tax deduction (Schedule A) to the extent you have gambling winnings.

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Video

Okay, so for this video, I wanted to talk about how to report your gambling, winnings and losses on your form.

1040 tax return, um.

And so what we're going to do here is we're going to we're going to go through a form w.

2G example, I've also got a sample form 1040 where I'll show you how this actually gets reported on the return on the 1040 on schedule, 1 on schedule, a.

And then I got a simple fact pattern in front of us that we're going to use to build out the return.

So just to start with high level, u.s taxpayers are required to report gross income from whatever source derived.

So if you win money, gambling that is gross income that must be reported on your tax return.

You must pay taxes on it, um and so that's.

The kind of the short answer that people don't like you here, but it's the truth.

Now, if you gamble regularly, you report all your gambling winnings, but you can also report, gambling losses to the extent of your winnings.

So what that means is, if you have gambling winnings, you can report the losses to offset those winnings.

You can never report more losses than you have winnings right? So you can't take a net, gambling loss, but at least you're able to offset the two so you're, not paying tax on just the gains you get to offset the losses that you might incur as well.

Now, a little unique, uh nuance to that role, though, however, is for individual taxpayers.

You can only report the losses if you itemize deductions so I'm going to go over those rules we're going to look at.

This example, first I'm going to show you how that kind of works.

So in our example, here we have john doe, he's doing his 1040.

And he he gambles a lot using slots right so he's a slot machine guy.

And during 2021, he had a large payout of fifteen thousand, seven hundred and uh for those of you that go to the casinos you'll, notice that if you win a lot of money, they don't just pay you out right then.

And there they've got to pay you out at the at the window, and they give you, um, a 1099 or a w2g to report, the winnings right, they're obligated to do that under federal tax law.

So john gets his payout.

But he also is going to be issued at w-2-g, which shows the amount of the payout 15 700.

And the casino is taking out withholding taxes of 3768.

so john's going to use this w-2g to prepare his tax return.

So wtg, it might look something like this right? The payer is going to be the casino you're going to have the tax id information, the winner's name.

And then the reportable battle winnings.

The date.

He won the type of the wager, the taxes withheld if any um, and then some id information on the winner right? So tax id.

Number driver's license identification, number all that kind of stuff gets collected at the window and it's ultimately reported on your wtg and sent to the irs.

Okay.

So now go back to the slide here really quickly, um.

So john, um, he.

So he does have these winnings, but he also keeps a ledger showing all of his winnings and losses, and he does have losses of 18 600 for the year.

Okay.

So overall he's in the hole right? He he had a big payout, but overall he's lost a significant amount of money to exceed the losses.

So what he wants to be able to do here is report, the winnings report, the losses and try to, you know, make this a wash right so he's, not having to pay me taxes.

So u.s, taxpayers report, their gambling winnings.

Those gross winnings are on schedule, one of form 1040.

And then as I noted earlier, if you're a u.s taxpayer, you can deduct the gambling losses as an itemized deduction on schedule, a.

But those losses can never exceed the gross amount of winnings reported.

Okay.

So let's, look at the 1040 and kind of show how some of these numbers.

Uh, um, you know, end up on there.

So we've got a 1040 here for john doe.

Obviously he's got some other he's, got some other income, his wages, some investment, income capital gains.

But what we're going to focus on here.

The unique piece is how to report these gambling winnings and losses and the federal tax withheld by the casino.

So if I go down to schedule one here, this is where you report, the gross amount of gambling winnings so schedule, one additional income and adjustments.

If we go down to line, eight, b, we have gambling income.

This is where you see us report that fifteen thousand seven hundred the gambling winnings from the w2g.

Okay.

So you report the gambling winnings here.

Now, if you had any federal income tax withheld on the w2g or on a 1099.

So if I go back to the w2g really quickly, you see that reported winning some fifteen thousand seven.

And then in box four, we've got federal income tax withheld of three thousand seven, six eight.

So where does that number live? If I go back to the tax return page 2 of the form 1040, if we go into lines, 25 federal income tax withheld, you report, the tax withheld from the w2g on line, c.

So 25c other forms there's that number 3768 so that's how john gets credit for the amount of federal income tax withheld from his lottery winnings, right? His slot machine winnings from the casino.

Okay.

So that's that w2g part.

Now, how do we report the losses to offset those gains well recall that in our fact pattern here, john had 18 600 of losses.

Now when you're a u.s taxpayer, an individual, you report, the gambling losses as an itemized deduction on schedule, a.

But the amount of deduction cannot exceed the losses.

So if we look, uh at schedule, a here let's go to the 1040 scroll past schedule, one go down to schedule, a itemized deduction.

So if you're a taxpayer and you have other itemized deductions, obviously, these will all be completed.

You might have mortgage interest, real estate taxes, maybe some medical expenses.

But in this case, john has no other itemized, deductions, really other than his gambling losses.

And so gambling losses are reported down here in line, 16 other itemized deductions.

So these are other other itemized, deductions, they're, not subject to an agi floor.

Okay.

So what that means is any amount that you put down there is deductible so long as you can itemize.

So in this case, john reports, gambling losses.

Now notice here we're now reporting that 18 000 number we're, only reporting the amount, um to the extent of gambling winnings.

So the extra gambling losses that he had for the year.

Unfortunately, those are just lost or you can't really do anything with them.

But you can report losses to the extent of the winning.

So we've got gambling losses there of 15 700.

And so that number is included in his total itemized, deduction figure of 16465.

And so ultimately, what we're going to see is that number is flowing through to page one of the form 1040.

And we have here right standard or itemized deduction on line.

12A.

We have that 16465 number so that number includes the gambling losses.

So even though we have his gambling winnings here on line, fifteen thousand seven hundred within this.

Twelve a number we have fifteen thousand seven hundred of gambling losses.

So those two more or less offset right, um.

So that is how you report, the gambling winnings and the losses.

Now just to be clear, if we look at schedule, one here for gambling winnings, this does not just include items reported to you on w2g or 1099.

If you have other gambling winnings that are not reported to you on those forms.

You still have to report those totals here right? So you report, the total of your gambling winnings there.

And then you report, the total of your gambling losses on schedule, a to the extent that they match up with gambling income.

If you've got more losses than income, obviously, those are loss.

If you have losses that are lower than your gambling income.

Well, that means you are going to be paying some tax on your net, gambling earnings, because you have some positive profits for the year.

Okay.

So, uh that covers it for gambling, income and loss, reporting on the 1040.

I hope that was helpful, if you have any questions, leave me a comment below.

And I look forward to seeing you again on the next video.

Thank you.