If games of chance such as poker, horse racing, or playing the lottery are among your recreational hobbies, the new gambling tax law brings some minor changes. In this article, we will explore the two biggest impacts of the new tax law.
The change that affects the most gamblers is how losses can be deducted. The new tax law eliminated many of the itemized deductions. However, gambling losses can still be claimed. The change to these deductions is that they can only be deducted to the extent of gambling winnings for that tax year.
At year-end, calculate all your losses. Everything from non-winning lottery and bingo ticket costs to money spent and lost on slots. You can then claim an itemized deduction for all these betting losses throughout the tax year, against your winnings. For example, if you spend and lose $10,000 and win $9,000 during the year, you could deduct the $1,000 difference. If you lose $10,000 and win $11,000 you would be responsible for taxes on the $1,000 difference.
The increase in the amount of the standard deduction may make it more attractive to many taxpayers over taking itemized deductions. Gamblers too may find taking the standard deduction a more beneficial decision than itemizing losses. If your losses are greater than the standard deduction amount then itemizing is likely your best choice. Otherwise, take the standard deduction or talk with your tax preparer. The tax law also includes changes for professional gamblers. Expenses for travel, lodging, food, and the like are lumped in with losses now for deduction purposes. These expenditures can no longer be separately itemized. Small-time gambling hobbyists will be the ones most likely to still see returns under the new law, while gambling professionals are not going to be so lucky. The IRS website includes a description of these changes as they relate to each type of gambling. Current and future gambling tax law plans can also be verified on the IRS website. If you have any questions or concerns regarding the tax implications of gambling, we encourage you to reach out to us here. How will the New Tax Law Affect You