Online Gambling Taxes and Deductions

image22With tax day looming just around the corner,we at ThePokerSource.com thought it would be an opportune time to familiarize you with IRS laws governing online gambling earnings and losses in the United States. Hopefully this will save some of you a few bucks this tax season, and keep the rest of you from playing your next game of Texas Hold’em from behind bars; for stakes much greater than the chips (or smokes) on the table.

First and foremost let’s clear things up a bit: you must pay taxes on all online poker winnings if you live in the United States; regardless of whether or not the poker room you are playing in is located overseas. While there has been much debate over the legality of online poker in the U.S. (see our article: Can I Play Poker on the Internet in the United States?), there’s no debate over the issue of whether or not your online gambling earning are taxable. If you earned it, you must pay taxes on it, it’s the American way.

Now, on the other side of the coin, online gambling losses can be deducted from your earnings if, and only if, your losses have exceeded your winnings (let’s hope this is not the case)! However, in the unfortunate event that you have had a down year playing online poker, you may claim your losses as itemized deductions.

Keep in mind  that you cannot reduce your winnings (which are filed under your net income for the year) by subtracting the difference between what you won and what you lost. All earnings must be filed on line 21 of IRS Form 1040, and all losses on line 28, schedule A.

We are not tax accountants at ThePokerSource.com (we have a  friend in South Florida who we routinely harass when April rolls around), so we’re not  going to even attempt to explain the details of when to file online gambling losses as taxable deductions. We will however share a few tips that the IRS provides to help you file your taxes correctly.

If you still have questions please contact a professional tax accountant.

Tax tips from the IRS:

  • helloGambling winnings can include earnings from casinos, race tracks, lotteries, raffles and Bingo, as well as fair market value for non-cash prizes won, such as houses, cars, cruises, etc.
  • Your winnings must be reported on line 21 of IRS Form 1040.
  • Losses may be claimed as itemized deductions on line 28 of Schedule A, Form 1040.
  • You are not allowed to deduct losses that exceed your winnings.
  • Keep an accurate log of the amount of time/money spent playing poker online. A record of your losses will come in handy if you claim itemized deductions. In addition, keep track of all emails, wire transactions and account updates verifying deposits, account balances, earnings/losses, etc. To deduct your losses you must be able to show documented proof of your winnings and your losses.

For more information visit IRS.gov or call 1-800-TAX-FORM.

Good luck with your taxes and good playing on the tables! We’ll see you in the poker rooms soon!

ThePokerSource.com