The Tax Consequences of Gambling in 2025

Gambling is both a recreational activity and, for some, a professional pursuit. Regardless of your level of involvement, it is important to understand the tax implications of gambling winnings. The Treasury Inspector General for Tax Administration (TIGTA) has highlighted that gambling income is often underreported, which can result in back taxes, interest, and penalties. Therefore, staying informed about the tax rules is essential for avoiding tax-related issues and maximizing potential deductions.

Reporting Gambling Income

Under federal tax law, all gambling winnings are considered taxable income. This includes winnings from various activities such as:

• Casinos
• Lotteries
• Raffles
• Horse races
• Online betting platforms
• Bingo
• Poker games
• Sweepstakes and contests
• Fantasy sports

Moreover, gambling income isn’t limited to cash winnings. You must also report non-cash prizes (such as cars, vacations, or other goods) based on their fair market value.

Certain gambling establishments are required to report winnings to the IRS by filing Form W-2G (“Certain Gambling Winnings”) when specific thresholds are met. These thresholds include $1,200 for slot machines, $5,000 for poker tournaments, and various other thresholds for different gambling activities. The form is submitted to both you and the IRS.

Even if you do not receive a W-2G, you are still required to report gambling income. For amateur gamblers, this income is reported on Form 1040, Schedule 1.

Claiming Gambling Losses

While gambling winnings are taxable, you may deduct gambling losses, but only up to the amount of your winnings. To claim gambling losses, you must itemize your deductions on Schedule A and provide documentation such as:

• Receipts
• Wagering tickets
• Casino statements

However, if your total itemized deductions (including gambling losses) do not exceed the standard deduction, it may be more beneficial to claim the standard deduction. The standard deduction amounts for the 2024 and 2025 tax years are as follows:

Taxpayers 65 and older or blind may qualify for a higher standard deduction.

Professional Gamblers

Professional gamblers are taxed differently from recreational gamblers because their gambling activities are considered a business. To qualify as a professional gambler, you must demonstrate that gambling is your primary income source and that you engage in it with continuity and regularity. Factors such as the amount of time spent gambling, the level of skill required, and your dependence on gambling for income will be considered.

Professional gamblers report their income and expenses on Schedule C (“Profit or Loss From Business”) and can deduct gambling-related expenses, including:

• Travel costs to and from gambling establishments
• Lodging expenses for overnight stays related to gambling
• Meals during gambling trips (subject to IRS limits, typically 50% deductible)
• Tournament entry fees
• Equipment and supplies necessary for gambling activities
• Professional fees, such as legal or accounting services related to your gambling profession

These deductions can result in a business loss, which may offer additional tax benefits, subject to specific IRS rules. It’s essential to keep meticulous records to substantiate these expenses.

3 Tax Tips for Gambling Income

Here are three valuable tax tips to help you navigate the complexities of gambling income and deductions:

1. Maintain a Detailed Log: Keeping an accurate log of your gambling activities is crucial for tax compliance. The log should include:
   • Dates and locations of gambling activities
   • Types of wagers
   • Amounts won and lost

   A contemporaneous log, kept during the gambling activity, is more credible to the IRS than one compiled after the fact. This log will help you accurately report your winnings and losses, ensuring you don’t miss out on deductions you’re entitled to claim.

2. Organize Receipts and Statements: When you’re deducting gambling losses or gambling-related business expenses, it’s important to keep all receipts, wagering tickets, and casino statements. These documents are essential for backing up your deductions and ensuring you don’t overpay on your taxes.
3. Plan for Tax Withholding and Estimated Payments: Gambling establishments are required to withhold federal income taxes on certain winnings, which can reduce the risk of underpayment penalties. However, for winnings without withholding, or if you anticipate significant gambling income, it’s a good idea to make estimated tax payments or increase your withholding throughout the year to cover your tax obligations.

Tax Treatment of Complimentary Goods (Comps)

Gamblers—whether amateur or professional—often receive complimentary items from casinos, such as free hotel stays, meals, or event tickets. The IRS treats the fair market value of these complimentary goods as taxable income.

Amateur gamblers must report comps on their personal tax returns, while professional gamblers include them as income on Schedule C. Your tax advisor can help you calculate and report the fair market value of these items correctly.

Conclusion: Stay Compliant and Minimize Tax Risks

Navigating the tax rules for gambling income can be complex. Failure to report gambling income or claim allowable deductions can result in unnecessary taxes, interest, and penalties. To ensure that you comply with tax regulations and take advantage of potential tax-saving opportunities, consult with a qualified tax professional who can provide guidance tailored to your specific situation.

If you have any questions or need personalized assistance with your gambling income or other tax matters, we are here to help. Our team of experienced professionals can guide you through the complex tax laws and ensure you are in full compliance while maximizing your potential tax savings.

Contact us today via our website at LosangelesCPA.org, call us at (323) 902-1000, or email us directly at dmitriy@losangelesCPA.org. We look forward to assisting you with your tax needs!