Like a lot of people in Hawaii, I enjoy going to Las Vegas to take in the shows, eat lots of delicious food and stick a few dollars in a slot machine. But did you know that all gambling winnings, whether legal or illegal, should be included in your gross income and subject to income tax on your individual tax return?

Gambling Winnings

All gambling winnings are reported as “;other income”;on line 21 of your Form 1040. Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse races and casinos. It includes both cash winnings and the fair market value of prizes such as cars and trips, and is required to be reported on your return even if the amount that you lose in a single year is larger than the amount that you won.

Generally, gambling winnings that are $600 or more and at least 300 times the amount of the wager are reported on Form W-2G. For Keno, the reporting threshold is $1,500 while for bingo and slot machines, it is $1,200. When winnings exceed $5,000, income tax is generally required to be withheld and credited against income tax due on your tax return. Please keep in mind that gambling winnings are includable in gross income whether or not it is subject to withholding.

Gambling Losses

For non-professional gamblers, gambling losses are deductible as an itemized deduction on Schedule A, line 28, meaning that if you elect to take the standard deduction rather than electing to itemize deductions, you may not deduct any gambling losses. In addition, the allowable amount of gambling losses that can be deducted is limited to your gambling winnings in the same year. In other words, you cannot reduce your gambling winnings by your gambling losses and report the difference. You must report the full amount of your winnings as income and claim your losses as an itemized deduction.

Generally only the cost of a wagering transaction is treated as a gambling loss. Additional expenses to engage in wagering (such as expenses for travel, meals and lodging) are not deductible as gambling losses.

To deduct your losses, you must be able to provide receipts, tickets, cancelled checks, statements or other records that show the amount of both your winnings and losses. In addition, the IRS requires that you keep an accurate diary or similar record of your winnings and losses that lists the date and type of your specific wagering activity, the name and address or location of the gambling establishment, the names of other persons present (if any) present with you at the gambling establishment and the amount(s) you won or lost.

For example, let's say you took two trips to Las Vegas in 2008 and won a total of $1,000 and had $1,200 of well-documented gambling losses. You would need to report $1,000 of gambling income and deduct $1,000 of your gambling losses as an itemized deduction on your 2008 income tax return. The rest of the $200 in gambling losses cannot be deducted.

So next time you make a bet in Las Vegas or any other gambling establishment, make sure you take note of all your winnings and losses and keep as many receipts as you can.

Good luck!