How much can you write off for gambling losses?

You can deduct your losses…to an extent You're allowed to deduct losses only up to the amount of the gambling income you claimed. So if you won $2000 but lost $5,000, your itemized deduction is limited to $2,000. You can't use the remaining $3,000 to reduce your other taxable income. 6 days ago

turbotax.intuit.com - How to Pay Taxes on Gambling Winnings and Losses - TurboTax

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OVERVIEW

For many of us, gambling means buying the occasional lottery ticket on the way home from work, but the Internal Revenue Service says that casual gambling also includes raffles, casino games, poker, sports betting—and, yes, even fantasy football. When you win, your winnings are taxable income, subject to its own tax rules.

You must report your winnings

The first rule is that you must report all winnings, whether the place that you gambled reports them to the government or not. For example, if you hit the trifecta on Derby Day, you must report the winnings as income. The second rule is that you can’t subtract the cost of gambling from your winnings. For example, if you win $620 from a horse race but it cost you $20 to bet, your taxable winnings are $620, not $600 after subtracting your $20 wager. Cash is not the only kind of winnings you need to report. If you win a brand new laptop in a raffle, this counts as income, too. You must claim the item’s fair market value at the time you won it, which would generally be the amount you would have to pay for the item if you bought it. Form W-2G Both cash and the value of prizes are considered “other income” on your Form 1040. If you score big, you might even receive a Form W-2G reporting your winnings. The tax code requires institutions that offer gambling to issue Forms W-2G if you win: $600 or more on a horse race (if the win pays at least 300 times the wager amount);

$1,200 or more at bingo or on a slot machine;

$1,500 or more at keno;

$5,000 or more in a poker tournament. Table games in a casino, such as blackjack, roulette, baccarat, or craps are exempt from the W-2G rule. This doesn’t mean you don’t have to claim the income and pay taxes on it if your winnings aren’t enough to warrant the tax form. It just means that the institution won’t send a Form W-2G. You can deduct your losses…to an extent You can’t deduct the cost of your wager from your winnings when determining how much you won, but you can deduct your gambling losses subject to certain rules. You must itemize your deductions to claim your gambling losses as a tax deduction. This means you can’t take the standard deduction for your filing status, which often amounts to more than a taxpayer’s itemized deductions. You’re allowed to deduct losses only up to the amount of the gambling income you claimed. So if you won $2000 but lost $5,000, your itemized deduction is limited to $2,000. You can’t use the remaining $3,000 to reduce your other taxable income. You have to claim $2,000 in income on your Form 1040 and then separately claim $2,000 as an itemized deduction.

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What raises red flags with the IRS?

Red flags may include excessive write-offs compared with income, unreported earnings, refundable tax credits and more. “My best advice is that you're only as good as your receipts,” said John Apisa, a CPA and partner at PKF O'Connor Davies LLP.

cnbc.com - Here's why your tax return may be flagged by the IRS - CNBC

Tax season has kicked off, and the IRS has already warned filing mistakes may cause delays amid staffing shortages and a massive backlog. While electronic filing offers the best chance for faster refunds, other moves may invite IRS scrutiny, according to tax experts. The IRS closed 452,515 individual audits during its fiscal 2020, about 0.29% of the roughly 157 million individual income tax returns filed, according to the agency. "Some people play the audit lottery, meaning they'll do whatever they want, and know that the chances of getting caught are slim," said John Apisa, a CPA and partner at PKF O'Connor Davies LLP. "That's not a good philosophy to have, though."

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While there's typically a three-year statute of limitations for an IRS audit, with extensions in some cases, there's no time limit on how long the agency can pursue fraud or nonfilers. One of the first cues may be trying to claim too many credits or deductions compared with your income, tax experts say. The IRS uses software with a numeric score for each return, with higher scores more likely to spark an audit, explained certified financial planner David Silversmith, a CPA and senior manager of PKF O'Connor Davies.