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RJS Law - A Tax Law Firm

RJS Law: San Diego Tax Attorney & Lawyer | CPA | IRS | FTB | California

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SOUTHERN CALIFORNIA’S FINEST
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(619) 595-1655
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(949) 535-2000
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    • Ronson J. Shamoun, JD, LL.M.
    • Chandara Diep, JD, LL.M.
    • Joseph Cole, JD, LL.M.
    • Brendan O’Connor, CPA, MST, JD, LL.M.
    • Ashley E. Teague, ESQ.
    • Brian M. Malloy, Esq.
    • Quinn Disparte, JD, LL.M.
    • Martin Schainbaum, JD, LL.M.
    • Melanie M. Shamoun
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    • Sabri P. Shamoun
    • Hilary Dargavell
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          • Offer in Compromise Alternatives
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  • Home
  • About
    • Ronson J. Shamoun, JD, LL.M.
    • Chandara Diep, JD, LL.M.
    • Joseph Cole, JD, LL.M.
    • Brendan O’Connor, CPA, MST, JD, LL.M.
    • Ashley E. Teague, ESQ.
    • Brian M. Malloy, Esq.
    • Quinn Disparte, JD, LL.M.
    • Martin Schainbaum, JD, LL.M.
    • Melanie M. Shamoun
    • Sandie Portilla
    • Renae Arabo
    • Sabri P. Shamoun
    • Hilary Dargavell
    • Lupita C. Torres
    • Leandro Favano
    • Jewell Cornejo
    • Devon J. Arabo
    • Christopher Engelmann
    • Gwendolyn K. Davis
  • Services
    • Tax
      • IRS TAX MATTERS
        • IRS Appeals
          • IRS Appeals Process
          • Contesting an IRS Levy
          • Why Retain RJS Law for your IRS Appeal?
          • 4 Tips For Navigating The IRS Rapid Appeals Process
        • IRS AUDITS
          • IRS Correspondence Audits
          • IRS Field Audits
          • Initial Compliance Center Audits
          • IRS Office Audits
          • What to Expect During an IRS Audit?
          • Taxpayer Rights Under IRS Publication 1
          • IRS Warns Taxpayers About Scam
        • IRS Collections
          • Avoiding and Eliminating IRS Tax Liens
          • Collection Due Process Hearings
          • CP 501 – IRS Notice
          • Failure to file a tax return: What happens?
          • How the IRS calculates interest
          • How to get a tax levy released
          • IRS Automated Collections
          • IRS Collections Process
          • IRS Interest Abatement
          • IRS Revenue Officers
          • Jeopardy Assessments and Jeopardy Levies
          • National Tax Agencies
          • Our Approach to Collections
          • Statute of Limitations on Collections
          • Streamlined Installment Agreements
          • TAX PENALTIES
          • Tax Penalty Abatement
          • Taxpayer Assistance Orders
        • IRS Payroll Tax Matters
          • Independent Contractor Reclassification Audits
          • IRS Forms 940 and 941
          • IRS Trust Fund Interviews
          • Payroll Tax Liability Payment Options
          • The Trust Fund Recovery Penalty
        • IRS Wealth Squad
        • Offer in Compromise & Tax Settlements
          • OVERVIEW OF OFFER IN COMPROMISE PROCESS
          • The Offer in Compromise Process
          • Appealing a Rejected Offer in Compromise
          • How the IRS evaluates an Offer in Compromise
          • Offer in Compromise and Dissipated Assets
          • Offer in Compromise Requirements
          • Pros and Cons of an Offer in Compromise
          • Why Retain RJS Law?
          • Offer in Compromise Alternatives
          • Actual IRS Offer in Compromise Results
      • STATE TAX MATTERS
        • EDD California Payroll Tax Lawyer
          • EDD Investigations
          • EDD Collections – Liens, Levies, and Garnishments
        • California Sales Tax
          • California Sales Tax Appeals
          • California Sales Tax Audits
          • California Department Of Tax And Fee Administration
        • California State Tax Matters
          • California Residency Audits
          • Discharging State Income Taxes in Bankruptcy
          • State Tax Practice – Outside of California
      • CRIMINAL TAX ISSUES
        • Criminal Investigation Division
        • IRS Criminal Investigation Division Tactics
        • Criminal Tax Defense – Tax Crimes
        • Currency Transaction Records & Suspicious Activity Reports
        • IRS Methods of Proof: Tax Fraud and Evasion
        • Methods IRS Agents Use to Locate Assets
        • IRS Special Agent Visits
        • Are You a Criminal Investigation Target?
        • Criminal Tax Attorney vs. White Collar Defense
      • International Taxes
      • CORPORATE TAXES
      • TAX COURT LITIGATION
      • Innocent Spouse Relief
    • Estate Planning
    • Trust, Estate & Probate Litigation
    • Trust & Estate Administration
    • Probate
    • Bankruptcy
    • Criminal Defense
    • Corporate & Transactional
    • Private Wealth Services
    • Real Estate Law
      • Landlord Tenant Law
    • Employment Law
    • NOTICES
      • IRS Notices
      • IRS Letters
      • FTB Notices
      • Avisos en Español
  • Tax Institute
  • Blog
  • Testimonials
  • Giving
    • RJS Law Donates Billboard to the Girl Scouts
  • Awards
    • Events
    • SD Metro San Diego’s Top Attorneys 2020
    • SD50 Extraordinary Leadership
    • Media
    • Video Gallery
    • USD Feature Story
    • Publications
  • Contact

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Are gambling losses deductible?

Gambling Losses
Are gambling losses deductible?

Are gambling losses deductible? Any money won gambling is considered taxable by the IRS. Gambling winnings include cash prizes and the fair market value of any item won from lotteries, casinos, racetracks, game shows, etc. If you’ve won big, you may be subject to a rather large tax penalty on those winnings.

However, gambling losses can offset tax liability, but only to the extent of winnings and only if you itemize your deductions. You first need to owe on the gambling winnings before any loss deduction becomes available. Regardless of whether you can take advantage of the loss deduction, all gambling winnings must be reported to the IRS via Schedule 1 (Form 1040) under “other income”.

Why Does the IRS Allow a Deduction for Gambling Losses?

First, it is important to keep in mind that losing money from gambling does not alone reduce your overall tax liability. In order to even qualify for a loss deduction, you must owe tax on your winnings. Then, total losses can be deducted only to the extent of total winnings. Remaining losses cannot be written off or carried forward to offset future tax liability.

Policy-wise, the IRS is not aiming to subsidize gambling by allowing taxpayers to claim a deduction for their losses. Allowing a deduction on losses up to winnings is merely a way to better measure income.

What Can I Do to Make Sure the IRS Accepts My Loss Deduction?

If you wish to deduct your losses, it is important to keep in mind that the IRS requires detailed records of both winnings and losses. If you win big enough, the payer will send you a Form W2-G. Remember, the IRS also receives a copy of the W2-G, so they will expect gambling winnings to be reported on your taxes. Receipts, payment slips, and tickets are important to keep on hand. Are gambling losses deductible.

The IRS suggests a gambling log or diary be kept with specific details about the type of gambling activity, where the gambling took place, who the gambling was with, and the amounts of winnings and losses, among other specifics the taxpayer might find helpful in referring to any specific gambling activity in the event of an audit. Canceled checks, credit records and receipts from the gambling facility may also be helpful in keeping track of your wagering.

What if I am a Professional Gambler?

If gambling is your actual profession, the IRS will generally consider gambling income as regular earned income. As such, it will be taxed at your normal income tax rate.

If you’re a professional gambler looking to deduct your losses as business expenses on Schedule C, the losses must qualify as a business expense, meaning your primary purpose in the gambling must have been to make a profit and you must be continually and regularly involved in gambling. Sporadic gambling or gambling as a hobby will not count for business deduction purposes.

Moreover, the Tax Cuts and Jobs Act (“TCJA”) modifies the limits on gambling losses for professional gamblers. Between 2018 and 2025, all deductions for expenses incurred while gambling is limited to the extent of winnings. This means that out-of-pocket expenses for transportation, meals, lodging, etc. are included in the cap for deducting only to the extent of winnings.

Can I Deduct Gambling Losses as a Non-Business Casualty Loss Under Section 165?

No. As a recent Tax Court opinion demonstrates, Section 165(c)(3) allows taxpayers to deduct nonbusiness losses that “arise from fire, storm, shipwreck, or other casualties, or from theft.” The loss must be sudden, unexpected, and unusual.

Furthermore, section 165 only applies where the taxpayer’s property has suffered physical damage. Funds vanishing from a bank account due to gambling do not constitute physical damage to property.

Therefore, even if the gambling is a product of sudden, unexpected and unusual incapacitation due to the onset of a disease or resulting from medication diminishing mental capacity, the taxpayer is not entitled to a deduction under section 165 for casualty losses.

Are There Any Other Barriers to Claiming a Deduction?

Non-resident aliens generally cannot deduct gambling losses. There is an exception for Canadian citizens who may deduct their losses to the extent of their winnings.

You may owe state or local taxes on your gambling winnings as well. You may or may not be able to deduct gambling losses on your state tax return. You should check with your state tax department to see what rules apply.

Contact RJS Law | Southern California Tax Law Firm

Are gambling losses deductible? Our firm represents businesses through Southern California in IRS tax audits and appeals as well as Tax Court litigation. If you have questions and would like to speak with an attorney, please call 619-595-1655 or contact us online for a complimentary case evaluation.

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