|Posted: September 27, 2013, 11:04 am - IP Logged|
Are lottery tickets tax deductible? If you're big on gambling, you may have pondered this question once or twice. While you are adding up all the money you've spent buying lottery tickets over the course a year, it's also a good time to consider the possible tax deductions that may benefit you. The good news is that Uncle Sam allows you to deduct your gambling losses, but of course there is a catch.
Understanding Gambling Tax Deductions When you file your taxes, you can treat your gambling losses as an itemized deduction. One great fact about deducting your lottery ticket expenses is that you are not required to meet the stringent miscellaneous deduction of 2% of your Adjusted Gross Income. Instead, your itemized deduction can be much less, which is beneficial to those who are in a high income bracket with a low amount of itemized deductions.
The catch with listing your lottery losses as deductions is that the amount cannot exceed how much you have won. For example, if you won $1000 in total gambling pursuits, but spent over $5000 in buying lottery tickets, you cannot claim the entire amount of your loss. You can only claim the amount equal to your winnings, which in this example is $1000. Because of this rule, it is difficult to find relief from excessive gambling expenses.
Making Gambling Losses Work In Your Favor The main advantage to keeping records of your gambling losses (for example, lottery tickets that did not translate into wins) is that you can use the losses to offset your wins. In the above example, you won a $1000 and spent $5000 in lottery tickets. Let's say of the $5000 total that you spent, $100 resulted in wins. You then have $4900 in loss. You must report the $1000 as income, but you can also deduct up to $1000 of your $4900 in gambling losses. It doesn't make you whole, but it does provide some relief.
A Warning Income earned from gambling will raise your Adjusted Gross Income, which can also affect your standard and miscellaneous deductions. In some cases, the standard deductions will benefit you more than the itemized deductions from your gambling losses. Depending on your state tax laws concerning gambling losses, you may not be able to offset your winnings at all, so it is up to you to check those laws before you try to take these deductions
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