We get this question often, especially around this time of year. The answer, in a nutshell, is yes. You must file on all your gambling winnings from the previous year, whether or not you hit a jackpot that requires the issuance of a W-2G.
If you walked into a casino once in 2008 with a dollar, put it into a slot machine, and walked out with $5, you’re technically required to report it on line 21, "Other Income," of Form 1040 and label it "Gross Gambling Income," even though there’s no paper trail to your "income."
Now, if you walked into another casino in 2008 and lost that $4, you can deduct it from your winnings, but only if you itemize your deductions. You put the total allowable loss figure on Schedule A on a line in the section for "Other Miscellaneous Deductions" and label it "Gambling Losses to Extent of Gambling Income."
Note the line, "to the Extent of Gambling Income." There’s a restriction on listing your losses on Schedule A: You cannot reduce your tax on non-gambling income if you have more gambling losses than wins. You can deduct gambling losses only up to the amount of your winnings.
Some people "get around" filing on gambling winnings by playing in such a way that never necessitates a W-2G, but by signing your 1040 form, you're swearing that you're not guilty of perjury by lying about anything.
Gambling and taxes is highly arcane and complicated. Luckily, we sell a book called Tax Help for Gamblers by Jean Scott and Marissa Chien, EA, which is available instantly as an e-book for $9.98 or in the print version for $19.99 plus shipping, both at ShopLVA.com.
