Any way I can keep the standard deduction with gambling wins/losses??

[therethere]

So my husband got way into online gambling in 2021. I generally bit my tongue all year and let him do it without having to answer to me. He just looked into the tax consequences today and now is saying that it will force us to itemize and lose the standard deduction. This obviously makes us owe way more in taxes, I'm guessing to the tune of 6-7k as we're in the 22% tax bracket. I think we're talking about 55k in winnings and 50k in losses. This is between 3 different online sites in 2 player mode. Really he only netted like 3-5k maximum over the full year. Also, not sure if this complicates anything, but he also was claiming unemployment for 6 months of the year while gambling.

I fully admit this is just as much my fault as his. As I trusted him to understand the tax consequences and then really never asked about it again. I handle all of the money in our relationship, so it was monumentally stupid of me to just assume it was fine.

Is there anyway I can salvage this? Can we somehow claim the gambling was a business and only have to declare the net? Is it too late to do anything now that it is the new year? I really need help here.

[Sibley]

https://www.irs.gov/taxtopics/tc419
https://www.irs.gov/instructions/i1040sca

The winnings will be reported on the 1040. The losses go on schedule A, itemized deductions, under "Other itemized deductions" and are deducted that way. You would also put anything else you have that's eligible on schedule A - property taxes, state/local taxes, charitable deductions, etc. Depending on the math, you may or may not be better off if you didn't have the gambling activity.

[therethere]

https://www.irs.gov/taxtopics/tc419
https://www.irs.gov/instructions/i1040sca

The winnings will be reported on the 1040. The losses go on schedule A, itemized deductions, under "Other itemized deductions" and are deducted that way. You would also put anything else you have that's eligible on schedule A - property taxes, state/local taxes, charitable deductions, etc. Depending on the math, you may or may not be better off if you didn't have the gambling activity.

Yeah, this is what I'm afraid of. We rent, so the only other itemized deductions we would have is state income tax (5k). Brings it down a little, but not much.

[Sibley]

I think your long term solution then is no more online gambling.

[therethere]

It's looking like we would itemize because we'd have to if the numbers are >20k or so. But I was hoping there was a way we could pay taxes just on the net while keeping the standard deduction. Otherwise, his foray into gambling is costing us 7k in extra taxes on only 3k of takehome. But that doesn't seem likely the way the code is written.

I was wondering if we could call it self employed income as a professional gambler. And then pay the FICA taxes. But I'm not sure if it's passable or how it would affect the unemployment income. Realistically it's like 20-40 smaller bets a day. Not just some $1000 or larger bets that added up. So I would say passable in the time spent department.

Don't worry online gambling is donezo. I'm just trying to minimize the damage.

[secondcor521]

I doubt that he could call himself a professional gambler.

The $55K will be added to your income and your AGI.  The $50K in losses, as previously noted, can be deducted on Schedule A as an itemized deduction.  Since the $50K exceeds your standard deduction, it will generally be to your benefit to itemize.  You can include any other itemized deductions - state income taxes and charitable contributions are the two big ones usually (plus property tax but you said you rent).

I think what's probably happening is that there are other things on your tax return that are being impacted by the increase in your AGI (like ACA subsidies, or perhaps the child tax credit).

Note that if you itemize this year and get a state income tax refund, then that state income tax refund will probably be taxable income on your federal return for next year.

Unemployment is taxable in 2021, and you'll probably receive a 1099-G for that from your state.

There is a special provision in the 2021 rules that since your husband received unemployment income, your FPL for ACA subsidy purposes is set at 133% of FPL, which means your ACA subsidies, if you are eligible, should be excellent.  Make sure you check the correct boxes for that.

Other than that, the unemployment income and the gambling stuff don't really interact other than the fact that both will add to your income for the year.

[therethere]

I think the only thing it should affect is an underpayment penalty (and potential later years status) and the ability to deduct student loan interest, which is minimal. It has the potential to push us out of Roth eligibility if the numbers are higher. But nothing too alarming like ACA or tax credits thankfully.

My thoughts on the unemployment was solely if we attempted to show it as a business. But that all feels kind of sketchy. Although he did use an obscene amount of time on this venture.

As a read a little more, it appears that since it's online each site may actually only report the net gain for that particular site. Which would be very beneficial and hopefully bring the number down more. I guess I have to wait to see what paperwork starts coming in before I know how bad it is.

Thanks for the feedback thus far.

[Dicey]

Erm, how can you be sure it's  "donezo"?

[Much Fishing to Do]

As a read a little more, it appears that since it's online each site may actually only report the net gain for that particular site. Which would be very beneficial and hopefully bring the number down more. I guess I have to wait to see what paperwork starts coming in before I know how bad it is.

Well, the reporting doesn't really effect too much how you are "supposed" to do it.  In the end someone who gambles a lot on just a few days can really keep the income number down with a "session" log (generally netting the day is good enough, though its technically more complicated than that) even if you end up with a ton in W-2gs that evened out with losses, or nothing in W-2gs, etc.  But if you do it across a lot of different days all those net gains (on the winning days) are gonna add up that way as well.