Intuit Academy Tax Practice Exam

What gambling losses can a taxpayer deduct from their gambling winnings?

1. They can deduct all losses above the winnings

2. They can only deduct losses up to their winnings

3. There is no deduction for gambling losses

4. They can deduct losses and expenses related to gambling

The correct answer is: They can only deduct losses up to their winnings

A taxpayer can only deduct losses up to the amount of their gambling winnings because the IRS allows gamblers to deduct losses as an itemized deduction on their tax return, but only to the extent of their gambling winnings. This means that if a taxpayer has $5,000 in gambling winnings, they can only deduct gambling losses that amount to $5,000 or less. This principle is in place to ensure that taxpayers do not benefit from gambling losses exceeding their winnings, which would lead to potential tax avoidance. It's important for taxpayers to keep accurate records of their winnings and losses to substantiate their claims on their tax returns. Other options either misstate the allowable deductions or suggest that no deduction exists, which does not align with IRS regulations.