Categories
BLOG

can you write off lottery tickets

Can I Claim Lottery Scratch-Offs on My Taxes?

Are Blackjack Winnings Tax-Free?

It’s common knowledge that if you’re lucky enough to win the lottery, Uncle Sam will invariably expect a portion. However, many people are not aware that they can also claim some lottery losses on their federal income taxes. As far as the IRS is concerned, these winnings are considered gambling regardless of whether they are from a raffle, a scratch-off, sports betting, lotto ticket, horse race or a slot machine payout from a casino – all must be reported as taxable income.

There are limitations to claiming these winnings. In order to claim the gambling loss deduction on your losses, you must also report any winnings (regardless of amount) on your tax return.

Are Lottery Tickets Tax Deductible?

The short answer to this question is, yes, you can claim non-winning lottery tickets on your taxes. But, like most things involving the IRS, there are rules and requirements that must be met in order to do so. You won’t be able to deduct losses on your taxes if you go with standard deductions. To claim lotto ticket losses on your taxes, first, you will have to be eligible to itemize. If your total gambling losses – plus all of your other itemized expenses – exceed the standard deduction for your filing status, only then would you itemize.

To report any gambling winnings, keep accurate journals or records and proof of all your winnings and losses. These records should detail the date of your winnings or losses and the type of gambling you participated in. In addition, you will need the name of the people you were with and the amount you won or lost. Also, it’s advised to keep losing scratch-off tickets, casino receipts, canceled checks or credit card statements that you used to gamble.

In the event the IRS takes a second, closer look at your tax returns, you will be able to easily prove any gambling losses tax deduction that you claimed.

How to Report Gambling Losses

Because you need to itemize to claim these deductions, you have to use IRS Form 1040 to report your winnings and losses. You will list all winnings you’ve received from gambling on ​Schedule 1, line 8​ of Form 1040, entitled Other Income. This should include winnings of any amount regardless of whether you were given cash at a poker game or you won a car at the casino.

Report gambling losses on Schedule A found on Form 1040 under Other Miscellaneous Deductions. To claim these deductions, you must report all of your winnings as income as well as claiming your qualifying losses separately. You cannot report only your losses or you might find yourself in hot water with the IRS.

Limitations on the Gambling Loss Deduction

While you can deduct gambling losses, these deductions cannot exceed the amount of your total winnings. For example, if you win $1,000 playing the lotto, but you’ve purchased $2,000 worth of losing tickets, you can write off the losing tickets only up to the amount of your $1,000 winnings, and not the entire $2,000 you lost playing.

The IRS does this because if you were allowed to deduct all of your losses, then the government would in essence be subsidizing gambling. With this rule in place, at most, you can avoid having to pay taxes on what you did win.

Deductions for 2020

The definition of deductible gambling losses increased in 2018 to cover expenses involved in gambling beyond the cost of the bet itself. For example, the cost of travel to a casino or track might be deductible, or the cost of phone calls to place bets in states that allow betting by phone. This might not apply to lottery players in most cases, since there are rarely non-bet expenses involved in buying lottery tickets.

On the other hand, the standard deduction for single taxpayers is ​$12,400​ in 2020. This may mean fewer players will find it advantageous to itemize to deduct those gambling losses.

It is possible to claim losing lottery scratch-offs on your taxes, but the IRS has specific rules in place to make sure you’re paying your fair share. The gambling loss deduction can only be taken to offset gambling winnings and can only be taken if you itemize your federal deductions.

Offsetting Lottery Winnings With Casino Losses for Tax Purposes

Are Gains from Arbitrage Betting Considered Taxable Income?

The Internal Revenue Service treats gambling winnings as taxable income. This means that if you hit it big in the lottery, the tax man wins too. However, if you go to Vegas or Atlantic City and blow some of your winnings, those losses could end up reducing your tax bill.

Gambling, According to the IRS

The IRS defines gambling relatively broadly. Playing the lottery, betting on horses and participating in raffles all meet its definition. Any money you win or lose in a casino is also considered a gambling loss. You can mix different types of gambling income and losses all together, so you don’t have to separate your casino gambling from your lottery play.

Deducting Losses

The IRS will let you deduct all of your gambling losses up to the amount that you report as winnings. If you win $150,000 in the lottery and you have $50,000 in losses from bad lottery tickets and a few very unlucky hands of blackjack, you can write off all $50,000 in losses, offsetting an equal amount of your winnings. However, if you win $1,500 on a lottery ticket, you’d only be able to write off up to $1,500 in losses against it, even if you lost a lot more than that.

Claiming the Deduction

To be able to deduct gambling losses to offset some or all of your winnings, you will have to itemize your deductions. This means that you can’t claim the standard deduction. Once you choose to itemize, you can write off all of your losses, up to your winnings, on line 28 of the Schedule A form. Unfortunately, if you pay the alternative minimum tax instead of regular income tax, you lose the ability to claim the gambling loss deduction.

Substantiating the Deduction

You also need to be able to prove how much you lost. The IRS recommends keeping a diary with the dates you play, what you play, where you play, who was with you and what you won or lost. Saving supporting documentation — like hotel bills that show you stayed at the casino on the dates you were gambling — can help, too. Another way to track your losses is to use a player’s club card that logs your activity in the casino’s computers, since you can have the casino generate a printout of your gambling activity.

More Articles

Calculate Capital Loss Carryover →

Can You Write Off Getting Robbed on Your Taxes? →

The Internal Revenue Service treats gambling winnings as taxable income. This means that if you hit it big in the lottery, the tax man wins too. However, if you go to Vegas or Atlantic City and blow some of your winnings, those losses could end up reducing your tax bill.