Gambling Tax Guide: Tracking & Deducting Losses in the US and Canada

United States: How the IRS taxes gambling winnings

The IRS treats all gambling winnings as taxable ordinary income, regardless of amount or source. This includes cash, the fair market value of prizes, and winnings from casinos, lotteries, sports betting, poker, daily fantasy, raffles, and online platforms. Winnings are reported on Schedule 1 (Form 1040), Line 8b.

Payers are required to issue Form W-2G when winnings exceed specific thresholds — for example $1,200 from bingo or slots, $1,500 from keno, $5,000 from poker tournaments, and 300:1 odds wins of $600 or more. Above $5,000, the payer typically withholds 24% federal tax automatically. The W-2G threshold determines reporting by the payer; it does not determine when you must report. Every dollar of winnings is taxable, even if you never receive a W-2G.

United States: Deducting gambling losses

Under IRC §165(d), gambling losses are deductible only as an itemized deduction on Schedule A, and only up to the amount of gambling winnings you reported for the year. Three rules to remember:

• No netting. You must report gross winnings as income and claim losses separately as an itemized deduction. You cannot report a net number.
• Standard deduction forfeits the offset. If you take the standard deduction, you lose the ability to deduct any losses — even with a perfect log.
• Capped at winnings. Losses in excess of winnings cannot create a deductible loss, cannot offset other income, and cannot be carried forward.

Ancillary costs — ATM fees, wire fees, travel to a casino, currency conversion — are not deductible as gambling losses. They remain personal expenses.

United States: Records the IRS expects

Per IRS Publication 529 and Revenue Procedure 77-29, you must keep a contemporaneous, session-by-session log containing:

• Date and type of wager or wagering activity
• Name and address (or location) of the gambling establishment
• Names of other people present (for table games)
• Amounts won and lost per session

Back this log with supporting evidence: W-2G forms, casino win/loss statements, wagering tickets, bank withdrawal records, and payment-processor statements. Retain records for at least three years from the filing date — seven if you under-reported by more than 25%, and indefinitely if you never filed.

Canada: How the CRA treats gambling winnings

In Canada, casual gambling winnings are not taxable. The Canada Revenue Agency (CRA) treats lottery prizes, casino winnings, sports-bet payouts, and similar wins as non-taxable windfalls under long-standing common-law principles reflected in Paragraph 40(2)(f) of the Income Tax Act. There is no T-slip equivalent of the W-2G for recreational players, and casual winnings do not need to be reported on your T1 return.

However, investment income earned on those winnings is taxable. If you deposit a $1M lottery prize and earn interest, dividends, or capital gains, that income is reported normally on your T1 in the year earned.

Canada: When gambling becomes a business

If you gamble with the regularity, system, and profit-seeking intent of a business, the CRA may treat your activity as self-employment. The leading test comes from Stewart v. Canada (2002 SCC 46) and CRA guidance in Interpretation Bulletin IT-334R2. Factors include:

• Frequency and volume of wagering
• Use of a system, training, or analytical methods
• Intent to profit (as opposed to entertainment)
• Reliance on winnings as a primary income source

If you qualify as a professional gambler, net winnings are taxable as business income, and losses become deductible against that income. The bar is high — most recreational players, even consistent winners, do not meet it. Consult a Canadian CPA before claiming professional status.

Canada: Records to keep anyway

Even though casual winnings are non-taxable, you should keep records of significant deposits and withdrawals to support source-of-funds questions from your bank or the CRA, and to document the non-taxable nature of large windfalls. At minimum:

• Dated bank statements showing deposits from licensed operators
• Account statements or screenshots from gambling platforms
• Lottery ticket scans for prizes claimed
• A simple ledger of wins and losses by session and date

Cross-border situations

A Canadian resident who wins at a US casino is subject to 30% US withholding tax on most winnings. Under Article XXII of the Canada–US tax treaty, Canadians can recover that withholding by filing Form 1040-NR with the IRS and claiming documented US gambling losses up to the amount of US winnings. Keep your US session log, W-2G, and ITIN documentation.

A US resident gambling in Canada generally still owes US tax on the worldwide winnings, reported as ordinary income on Form 1040.

Quick summary

This article is general information, not tax advice. Rules change and individual circumstances vary — consult a licensed tax professional in your jurisdiction before making filing decisions.