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Tax breaks: Bait and switch
Enjoy your Las Vegas vacation, and don’t worry about taxes due on your winnings. After all, you can deduct your bad bets.
It is true that Uncle Sam helps you limit any tax bill on gambling payouts by allowing you to offset your winnings with your gambling losses. As with many other tax breaks, however, it’s not quite that simple.
You report gambling winnings as “other income” on line 21 of Form 1040, but you must itemize to deduct losing bets. If you have few other expenses to claim on Schedule A, it probably won’t be worth sacrificing your standard deduction amount just to limit or erase your taxable winnings. Do the math to make sure.
The good news with gambling losses, however, is that they have their own special line on Schedule A, “Other miscellaneous deductions,” and are not subject to the general 2 percent of adjusted gross income limit.
But don’t go crazy in Sin City or other gambling locales thinking Uncle Sam will underwrite your bad betting luck. You cannot deduct more than you won. And excess gambling losses cannot be carried forward to future tax years.