If 2003 was a good year at the track or the casino, or if you won the lottery, you're not the only one who was lucky. So was Uncle Sam. Gambling winnings are taxable just like your hard-earned wages.
You may have heard that gambling losses are deductible, too. That's true, but there's a catch. Losses can be written off only up to the amount of winnings you report as taxable income. You don't simply subtract wagers from winnings and report the net amount as income, either. Oh, no: All your winnings are reported on one part of your return and then your losses are written off as itemized deductions on a different form.
That means that the majority of taxpayers, who take the standard deduction, are out of luck ... again. Those who don't itemize have to report their winnings but don't get to deduct losses.
If you do itemize, though, be sure to tote up all your gambling losses -- including everything you paid for lottery tickets -- to hold down the government's take on your winnings.
Gambling losses are considered miscellaneous deductions. Unlike most miscellaneous expenses, they are fully deductible (up to the amount of income you report). Most other itemized expenses are deductible only to the extent that the total exceeds 2% of your adjusted gross income.
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