12/10/2024
Gambling has become more widely available in the US, particularly through online platforms. Many gamblers however may not be aware of the tax implications and the unique state tax treatments which can be particularly oppressive.
Federally, all gambling winnings are reported as income, yet taxpayers are allowed to deduct their gambling losses, up to the amount of their winnings.
However, states have very different tax treatments which can significantly impact your total tax results. To illustrate:
Kentucky offers the same opportunity to deduct losses up to the extent of winnings.
Illinois however offers NO opportunity to deduct gambling losses and all of your winnings are fully taxable regardless of how many losses were incurred.
To quantify this, presume this year a taxpayer had $50,000 in winnings, and $60,000 in losses, so overall they had a net gambling loss of $10,000 for the year. Federally, they report $50,000 in income, and deduct up to $50,000 of their losses, reporting zero net gambling winnings and zero federal tax liability. In Kentucky, their state tax return would reflect the same $50,000 income and $50,000 deduction, zero net gambling income and zero state tax liability. In Illinois however, they would report the $50,000 in income but have no ability to claim losses. At current rates, even though the taxpayer lost a net of $10,000, they would still owe $2,475 in state income taxes.
Be well aware of your state tax treatment for gambling before placing that bet as many taxpayers end up owing state taxes even when they have lost money during the year.
