In either instance, you'll get a Form W-2G showing the amount you won and, if applicable, how much in taxes you paid on it upfront.
When you have to report it
Even if you didn't win enough to trigger W-2G filing, you do want to be a diligent taxpayer and report those gambling winnings, right? The casino, track or lottery agent might not have reported that $25 you won, but it's still taxable income. It's ultimately the taxpayer's responsibility to tell Uncle Sam about his good fortune.
You report your winnings -- from the W-2G or those smaller jackpots -- on line 21, Other Income, of Form 1040. In addition to gambling proceeds, this is where you'd report any prizes or awards (cash or the cash value of merchandise) you won. All this money goes toward your total income amount.
However, you don't have to pay taxes on all your earnings, regardless of how you got them. You can reduce the amount of money the IRS will tax by reporting your losses as part of your overall itemized deductions. Check out line 28, Other Miscellaneous Deductions, on Schedule A. That's where you report any gambling losses. You can claim up to the total amount of winnings you entered on your 1040, effectively wiping out any taxable gambling income.
But make sure this deduction, along with your other itemizations, is more than the standard amount. You always want to use the method that will provide you a bigger deduction.
Even though technically you might be able to avoid taxes on $3,000 you won by claiming $3,000 in bad bets, that's still less than the standard deduction of $6,200 allowed a single taxpayer on 2014 returns or $6,300 on 2015 filings. If you have no other deductions to itemize, it doesn't make sense to forfeit the standard deduction's other $3,200 (or $3,300 on a 2015 return) just because you can claim gambling losses.
If, however, your wagering losses are large enough to help boost your already substantial itemized deductions, then fill out the Schedule A.
Keep track of your gaming losses
When you do claim your gambling losses on your tax return, it's a good idea to keep a record of them. While you don't have to send your loss data in with your return, documentation could come in handy if the IRS ever questions the claim.
Acceptable gambling-loss record keeping includes a written log detailing the date of your wagers, the location, amount of the bet, type of gaming, and wins and losses. You should also hang on to losing lottery tickets or bingo cards.
The good thing about deducting gambling losses is that, unlike some other deductions, you don't have to meet a certain level before you can claim them. But then again, they aren't completely unlimited.
You can count in losses only as much as you won. So if you spent $100 on lottery tickets and won $75, you can deduct only $75. The other $25 is just part of the price of playing the game.