If you make any winnings in the gambling, you need to report the full amount of the winnings for the year on line 21 on Form 1040. You can deduct the losses you make from gambling for the year, on line 28 of form 1040 on Schedule A. However, you cannot deduct the losses from gambling which are more than your winnings! Also remember, this facility is not available to the non-resident aliens. They cannot deduct losses on gambling in schedule A.

In order to claim losses on gambling you need to know certain basic rules of IRS on the subject. Suppose you make a winning in gambling of $1000 and in the same year you make losses of $500, you cannot reduce your winnings by your gambling losses and the report the difference of $500. You have to report the full amount of your winnings as your income and then you can claim losses equal to the amount of winnings as an itemized deduction. So your records for gambling activity should show your winnings separately from your losses.

In order to claim losses in gambling, you need to keep proper records. You must keep a diary entering details of all the losses and winnings from gambling. The diary should contain the following information

The date and the type of your wagering activity.
The location of the gambling establishment indicating the name and address.
The names of persons present with you at the gambling establishment.
The amount won or lost.
The maintenance is just one part of IRS requirements. In addition to the diary you must keep all the related documentation. This can include form W-2G (declaring Winnings from Gambling), Form 5754 (It’s a Statement by person who receives winnings from gambling), tickets for wagering, the credit card records including the bank statements showing withdrawals or receipts, payments slips provided to you by the gaming establishment.

These records are just suggestive. The tax liability depends on the facts of a particular winning or losing and the related circumstances.

Keno – the copies of the Keno tickets purchased by you and validated by a gambling establishment, copies of your casino credit records, and copies of your casino check Cashing records are required to be produced for winnings and losses from keno activity.

Slot machines – If you’re playing on these machines, a record of the machine number and all the winning date and time the machine was played.

Table games (including blackjack, poker, roulette, wheel of fortune etc) – the number of the table you are playing, Casino credit card details showing the credit issued.

Bingo – You should keep a record of the games you played, the cost of the tickets purchased and the amounts collected on winning tickets, any receipts from the casino and other relevant records.

Winnings from racing – a record of races you played, the amount of wagers, the amounts collected on winning tickets and amounts lost on losing tickets need to be produced.

Winnings from lotteries – a record of tickets purchased, the dates of purchase, winnings and losses are required to be kept. You can also keep unredeemed tickets and payments slips in support of your claim.

Many people never realize that winnings from gambling are taxable. And those who know it, tend to ignore it. However you should remember that the legal betting options like state lotteries, casinos and horse racing tracks are regulated by government agencies and IRS keeps a close track with these agencies. In fact that is the reason why the bells ring when you hit the slot. They’re shouting that someone is there to report your gambling information to the IRS.

There are all sorts of financial decisions you take in your life. You make gifts to your children; you make investments and acquire real estate. Do you really know the tax implications of these decisions, which can save you thousands of dollars?