Question:
Okay, I know you can deduct lottery ticket losses off your taxes.
If I save $5,000 worth of losing scratch-offs, does that mean I can deduct the full $5,000 for that tax year? What about the little $10 and $25 winners that you already cashed in?
Thanks in advance for your answers
Answers:
You can only deduct the losses up to the amount of your winnings. In the above situation you mentioned, you'd have to declare $5,000 worth of winnings to deduct the $5,000 worth of losses. And it wouldn't even be a total break-even situation. The winnings increase your AGI which decrease your allowed medical deduction on Schedule A, it also decreases your allowed miscellaneous itemized deductions as well. Oh, some states (Massachusetts for example) don't let you deduct your lottery losses, but tax you on the winnings. Massachusetts does let you deduct the cost of the winning ticket from your winnings.
You can only deduct gambling losses to the extent of your winnings - so if you spent $5,000 in tickets and won $1500, you could only deduct $1500. And yes, you should have the receipts.
If you itemize your deductions, you are allowed to deduct your lottery/gambling losses up to the extent of your winnings. You should have proof of both your losses and your winnings. If you lost more than you won, the net impact on your taxes is zero (winnings are taxable as income, losses equal to the winnings are deducted from your income.)
Small winners are not reported to the IRS, so if your losses exceed your winnings you should forget about it. Note: some state tax laws may be different.
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