Gambling Loss Deductions 2021
The amount of gambling losses you can deduct can never exceed the winnings you report as income. For example, if you have $5,000 in winnings but $8,000 in losses, your deduction is limited to $5,000. You could not write off the remaining $3,000, or carry it forward to future years.
- Single Filers: The maximum deduction is reduced at $65,000 in 2021 (up from $64,000 in 2020) and is completely eliminated at $75,000 or more (up from $74,000). Married Filing Jointly: The maximum deduction is reduced at $104,000 (up from $103,000 in 2020) and is completely eliminated at $124,000 (up from $123,000).
- Recent tax law changes turned a bad situation worse. The higher standard deduction means fewer people will benefit from deducting gambling losses since you need enough itemized deductions to exceed the standard deduction before the gambling losses reduce your tax liability. Then we have issues with state tax returns.
Even though you probably just filed your taxes in July, thanks COVID, it’s never too early to get a head start on the one you’ll file in April 2021. The reason? There are several changes that you may have overlooked because, well, there was a lot going on in 2020.
To quickly catch you up to speed, your taxes will differ in 2021 in the following ways:
- Higher Health Savings Account (HSA) Limits. Self-only coverage will increase $50 to $3,550. Family coverage will increase $100 to $7,100.
- Waived RMDs. Because of the Coronavirus Aid, Relief, and Economic Security Act of 2020, aka the CARES Act, waived required minimum distributions (RMDs) for 2020.
- Higher Income Brackets. Due to inflation, tax brackets tend to fluctuate annually. For next year, however, expect income tax brackets to rise. For example, if you’re single and make $85,525 to $163,300 it will rise 24%.
- Increased Contribution Limits For Limited Workplace Retirement Accounts. After being adjusted for inflation, the base contribution limit for 401(k) plans is now $19,500, which is $500 more than the previous year.
- A More Valuable Earned Income Tax Credit. Both the income limits and the maximum credit will be higher for EITC. For example, if married and filing jointly, it will go up from $55,952 to $56,844.
- A Higher Cap on Payroll Taxes. Not the most welcome news for some. But, Social Security payroll taxes rose to $137,700 for 2020.
Of course, you should review these changes over at irs.gov. And, definitely speak with a specialist. But, at least you have an idea of what to expect.
Additionally, you should anticipate some new deductions on your taxes for 2021. For those unfamiliar, tax deductions are kind of important as they can reduce your Adjusted Gross Income or AGI. In turn, this will reduce your overall taxes, increase your refund, and decrease the taxes you owe.
Now, there are two deduction methods you can employ. The first is the standard deduction which is a dollar amount that non-itemizers can subtract from their income prior to the application of income tax. The second is itemized deductions which are eligible expenses individuals can claim as tax-deductible.
What method you chose ultimately depends on your specific situation. Let’s say that your itemized deductions are more than your standard deduction amount. If so, then you might want to go with itemized deductions.
After deciding on your preferred method, you should know that eligible Tax Deductions Expenses must take place during the tax year — Jan. 1 – Dec. 31. The exception? Retirement or health plan contributions as long as they aren’t made beyond the Tax Return Due Date.
With all that out of the way, let’s take a closer look at what you can deduct on your taxes in 2021.
1. Home mortgage interest.
“The mortgage interest deduction is a common itemized deduction that allows homeowners to deduct the interest they pay on any loan used to build, purchase, or make improvements upon their residence, from taxable income,” explains Julia Kagan for Investopedia. “The mortgage interest deduction can also be taken on loans for second homes and vacation residences with certain limitations.”
“The amount of deductible mortgage interest is reported each year by the mortgage company on Form 1098,” adds Kagan. “This deduction is offered as an incentive for homeowners.” How so? By making homeownership more affordable.
2. Student loan interest.
Did you pay interest on your student loans in 2020? If yes, then you’re able to deduct up to $2,500 from your taxable income. Just note that will phase out if you’re modified adjusted gross income (MAGI) is $70,000 ($140,000 for taxpayers filing a joint return). But, if your MAGI hits $85,000 ($170,000 for taxpayers filing a joint return) this deduction is not eligible.
3. Standard deduction.
The IRS states that the “standard deduction is a specific dollar amount that reduces the amount of income on which you’re taxed.” Because of inflation, it’s normal for these to rise each year. For 2020, the amounts are:
- Married filing jointly: $24,800 — that’s up to $400 from 2019.
- Married individuals filing separately: $12,400 — a $200 increase.
- Head of household: $18,650 — that jumps up to $300.
- Single: $12,400 — an increase of $200.
If you’re eligible, you may want to consider going this route since it lowers the amount of your income that is subject to federal taxes. For example, if you’re single and meet the qualifications that you won’t be taxed on the first $12,400 of your income.
4. American opportunity tax credit.
Did you spend some of your hard-earned money on tuition, books, equipment, or school fees? If so, then you can claim all of the first $2,000 that you spent on these educational costs. From there, you can deduct 25% from the next $2,000. Overall, that’s a total of $2,500
Just note that this does not apply to house and transportation. And, most importantly, it’s meant for first-time college students.
5. Lifetime learning credit.
Are you a higher education candidate? Did you take some classes to improve your side hustle or advance your career? If the answer to either is so, then you can claim 20% of the first $10,000 you paid toward tuition and fees.
And, just like the AOTC, you can include books and supplies. But, housing and transportation are a big no.
6. SALT.
Did you know that you’re allowed to deduct state And local real estate and personal property taxes (SALT)? Yes? Well, did you also know that you can deduct state and local income taxes or general sales taxes up to $10,000 as well?
To do this, you will have to use, the itemized method. However, if the new standardized deduction amount exceeds the itemized amount, you might want to reconsider.
7. Child and dependent care tax credit.
If you care for a child under the age of 13, parent, or incapacitated spouse then can claim a credit for up to $3,000. For two or more, it would be $6,000. Just be prepared to provide relevant proof of your expenses.
8. Child tax credit.
Parents can receive up to $2,000 per child. Eligible dependents are biological, step, and foster children under the age of 17. But, it can also include siblings, grandchildren, niece/nephew, or adopted children.
9. Saver’s credit.
Did you make contributions to either an individual retirement account or employer-sponsored retirement plan? You did? First, congrats on wisely preparing for your future. Secondly, you may be eligible for a non-refundable tax credit.
The catch? You must be over the age of 18, are not a full-time student, and are not claimed as a dependent by someone else. Also, the crest amount varies depending on AGI. Usually, this is $32,000 if you’re a single filer or less than $64,000 if married and filing jointly.
10. Medical and dental expenses.
Even if you have a solid insurance plan, there will out-of-pocket expenses. Examples could be hospital care, treatment for substance abuse, fees to specialists, or payments for things like glasses. Beginning in 2020, the threshold amount increased to 10% of AGI — previously it was 7.5%.
11. Charitable donations.
“Usually, you can only write off tax-deductible donations to charity on your federal tax return if you itemize your deductions rather than take the standard deduction — and the latter has become far more common since the 2017 overhaul of the federal tax code,” writes Karla Bowsher for MoneyTalkNews.
“But in an effort to encourage Americans to donate money to charity during the coronavirus pandemic, the CARES Act enabled taxpayers to deduct up to $300 in monetary donations in 2020 — even if they take the standard deduction.”
12. Residential energy credit.
Are you all about energy efficiency? If so, and you made upgrades to your home, then you can obtain an energy credit — usually 30% of the installation cost. These include:
- Solar energy systems.
- Energy-efficient windows and doors.
- Insulation.
- Roofs.
- Energy-efficient cooling and heating systems.
- Biomass stoves.
- Small wind turbines.
13. Home office expenses.
Considering that you probably spent most of 2020 primarily working from home, this is a deduction that should be a priority. As such, you may be able to write off costs like rent, mortgage interest, utilities, real estate taxes, repairs, or inventory.
14. Adoption credit.
In 2020, the maximum allowable credit amount is $14,300. That’s up from $14,080 in 2019.
Gambling Loss Tax Deduction
15. HSA contributions.
Do you have a health savings account? If so, then any contributions you made are not subject to federal taxable income. Even better? You can claim your contributions as a deduction. Please note that this will vary depending on factors like your plan, age, and when you became eligible.
16. Reinvested dividends.
As TurboTax explains, this isn’t a tax deduction per se. Instead, it’s “a subtraction that can save you a lot of money. And it’s one that many taxpayers miss.”
Let’s say that you’re all about earning a passive income. If so, you probably have it set up where mutual fund dividends are automatically invested in any extra shares. However, “each reinvestment increases your ‘tax basis’ in the stock or mutual fund. That, in turn, reduces the amount of taxable capital gain (or increases the tax-saving loss) when you sell your shares.”
“Forgetting to include the reinvested dividends in your cost basis—which you subtract from the proceeds of sale to determine your gain—means overpaying your taxes.”
17. Job searching.
Searching for a new job can be stressful — especially during these trying times with a global pandemic in the background. If it’s any consultation, however, you can deduct preparing, printing, and mailing your resume, as well as transportation and employment agency fees. The caveat is that the job hunt must be in the same line of work as your current job.
18. IRA and 401(k) contributions.
You can absolutely deduct any contributions you made into a traditional IRA. The amount, however, will vary depending on factors like how much you make and if your spouse has a retirement plan through their week.
And, just like the previous year, you can contribute up to $19,500 into a 401(k) without being taxed.
19. Gambling losses.
Don’t get confused by the name here. Gambling loss deductions mean that you can only deduct what you won. So, if you spent $200 on lottery tickets and didn’t win, you can’t deduct that. But, if you did win then your winnings can be claimed.
Have you ever wondered, can I deduct my gambling losses?
You might be surprised to hear that the answer is yes. But you can only deduct gambling losses up to the amount of your winnings, and you must keep precise records.
You report gambling gains and losses in two separate places on the tax return.
- Report what you won as income on line 21 of the 1040.
- Report what you lost as miscellaneous itemized deductions which are NOT subject to the 2% of AGI reduction on Schedule A.
Example
If you spent $300 purchasing lottery tickets and you had $200 in lottery winnings, you would enter $200 on Form 1040, line 21, and then enter only $200 as a miscellaneous itemized deduction on Schedule A—deducting just $200 of the $300 you spent on lottery tickets.
Are you a Professional Gambler?
If you’re a non-professional gambler, you can report gambling losses only as a miscellaneous itemized deduction on Schedule A. But you do not have to reduce gambling losses by 2% of your adjusted gross income, as you must for many other miscellaneous itemized deductions.
Gambling Loss Deductions 2021 Income Tax
If you’re a professional gambler (and we all want to know how a person becomes a professional gambler), the IRS seems to make this determination on a case-by-case basis. You can deduct gambling losses directly from your gambling income instead of deducting them as an itemized deduction on Schedule A.
Keep Records
Professional and nonprofessional gamblers alike need to keep adequate records to document their gambling losses. The records should include a diary of your gambling activities noting
- The date
- The location (name of the establishment and address)
- The names of other people who were there with you
- The amount you wagered
- The type of gambling
- Your winnings
- Your losses
You must also provide evidence of both what you won and what you lost. You can generally prove your winnings and losses through
- Form W–2G, Certain Gambling Winnings
- Form 5754, Statement by Persons Receiving Gambling Winnings
- Wagering tickets
- Canceled checks
- Credit records
- Bank withdrawals
Statements of actual winnings or payment slips provided by the gambling establishment
Other Deductible Losses
If you want to deduct losses from other gambling activities, you need documentation for those, too:
- Bingo: Record the number of games, ticket costs.
- Lottery: Keep records of ticket purchases, payment slips, and unredeemed tickets.
- Slot machines: Note the date, time, machine played, and machine number.
- Horse or dog races: Keep records of races and wagers.