If you hit the jackpot at a casino, racetrack or other gambling venue, you can reduce the tax on your winnings by offsetting those winnings with your gambling losses. But you must keep good records and those losses must be claimed as a miscellaneous itemized deduction on your tax return.
The case: Mr. Klingaman earned taxable income of about $14,000 from a pension, plus another $11,000 in Social Security benefits. He also pocketed about $7,300 from casino winnings and a state lottery payoff.
On his tax return, Klingaman omitted the gambling winnings. His reasoning: He claimed they were offset by his gambling losses.
The IRS challenged that argument and, when the case went to the Tax Court, Klingaman's luck finally ran out.
The court said Klingaman had to report his winnings on his Form 1040 before he could offset them against his gambling losses as miscellaneous expenses on Schedule A.
Net effect: The extra income raised Klingaman's AGI to the point where part of his Social Security benefits were taxable. For single taxpayers, benefits are subject to tax if your AGI exceeds a base amount of $25,000 ($32,000 for joint filers).
Note: Miscellaneous itemized deductions, including gambling losses, can be written off only to the extent that they exceed 2 percent of your AGI.
- Small Business Tax Deduction Strategies No matches