Q: How do i clam gambing loss for IRS and federal taxes? -- Rick, Fresno, CA
A: Whether a person is a professional or merely a casual gambler is often a point of controversy with the IRS.
Assuming that you're not a professional gambler, gambling losses are claimed as an itemized deduction on Schedule A of the IRS 1040 tax form. On the 2011 Schedule A, for example, losses would have been listed on Line 28, "Other Miscellaneous Deductions."
The deduction for gambling losses is limited, however, to the taxpayer's total amount of gambling winnings. Both must be reported in full on the tax return. Losses cannot be netted against winnings for this purpose. Gambling winnings are reported on Line 21 of Form 1040. Losses are reported as described above.
California law conforms to the federal rules, with two limited exceptions, so gambling losses for state purposes would be included in itemized deductions on Line 38 of the Schedule CA.
In addition, the person claiming gambling losses must keep adequate documentation to prove the losses. The IRS requires a diary or other contemporaneous record of a person's gambling activities in order to support a deduction for gambling losses. A mere record of withdrawals from a bank account will not suffice.
If you're a professional gambler, your winnings must be reported as gross receipts on Schedule C, Profit or Loss from Business (Sole Proprietor). Losses and other ordinary business expenses directly related to the gambling activity are deducted on Schedule C.
For more information, see IRS Publication 529 at irs.gov.
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