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What Is a Gambling Loss?

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  • Written By: Lainie Petersen
  • Edited By: Rachel Catherine Allen
  • Last Modified Date: 24 November 2016
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Some jurisdictions permit taxpayers to deduct the money they lose while wagering as a “gambling loss.” While the laws vary as to who is entitled to this deduction, by writing off a gambling loss from one’s taxes, it is possible for a taxpayer to reduce his or her tax liability. In some places, such as the United States, the ability to take these deductions depends, in part, on the amount of money won or lost and whether the taxpayer is a professional or recreational gambler.

Not all countries permit treat gambling winnings as income, the United Kingdom being a prime example. Other countries, such as the United States, do tax winnings as they would other types of income. As a result, these countries typically allow gamblers to deduct their losses in order to reduce tax liability.

The process for claiming a gambling loss can be complex. Some jurisdictions limit the amount that a person can claim in losses to the amount that they won. In addition, casual or recreational gamblers may only be able to claim a gambling loss as itemized deductions. If the tax laws in their country grant them a standardized deduction, gambling losses may have to be higher than that standard deduction before they can be claimed as deductions in their own right.

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In addition to restricting a gambling loss deduction to the amount that a taxpayer wins through gambling during the year, other tax rules may affect the deduction as well. For example, many casinos encourage gambling by providing free meals, show tickets or accommodations to gamblers. These incentives, known in the gambling industry as “comps,” can be included in gambling winnings, sometimes making it easier for a gambler to qualify for a gambling loss deduction.

Professional gamblers may be subject to a different set of rules when making gambling loss deductions. If a person makes all or most of their living by gambling, some jurisdictions will permit them to file their taxes as a self-employed person, and these professional gamblers may have more leeway in claiming losses connected with gambling and gambling-related expenses. Tax laws may also require casinos to report major wins to the tax authority. The amount that a casino must report on behalf of a gambler varies, though the gambler may be responsible for reporting any gambling earnings to the tax authority, even if the earnings are small enough that the casino isn’t responsible for filing the report.

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