Gambling Proceeds – How To Deduct Gambling Losses
You can deduct gambling losses but only against the amounts you win. To write off your losses, you must be able to prove them.
In a recent case (Coloney, TC Memo 1999-194), a betting taxpayer gambled heavily at the racetrack, but the IRS and the Tax Court wouldn’t allow him to use unreported losses to offset his winnings. The Court stated that you can’t simply show a stack of losing ticket stubs from the track to prove your losses since anyone can scoop up worthless tickets that others throw away.
Keep a contemporaneous diary of losses incurred during the year. Back up the diary with written records, receipts, tickets, or statements. Report the total amount of your winnings on Form 1040 and claim your losses as an itemized deduction on Schedule A. Take into account any withholding from the money won in sweepstakes and lotteries, and certain wagers.
Do you buy lottery tickets for yourself and family members with the idea of splitting the proceeds? Establish a family partnership agreement and put it in writing.
Not only can a written agreement avoid potential disputes, it can also save gift taxes.
In a recent case (Winkler, TC Memo 1997-4), a mother and father split a $6.5 million payoff by keeping half and dividing the balance equally among their five children. The Tax Court said the transfer was not subject to gift tax because a family partnership existed – even though the spoils were divided after the lucky ticket was purchased.