If games of chance such as poker, horse racing, or playing the lottery are among your recreational hobbies, the new tax law brought some minor changes. The IRS website includes a description of changes as they relate to each type of gambling. It is the best place to verify current and future tax law plans, but the two biggest impacts are described below as well.
The change that affects the most gamblers and therefore is the one most talked about, is how losses can be deducted. While many types of itemized deductions were eliminated under the new law, gambling losses are still allowed! 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 for 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 than itemizing is likely your best choices. 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.
Do you have additional questions about gambling under the new tax law? Contact our office today and we will get you the answers……you can bet on it!