Dear Harry: I recently won $1,000 from a scratch-off lottery ticket. I filled out the paperwork needed to claim the money. I have been told that I may use losing lottery tickets against the tax on my winnings. Is this so? I also go to the racetrack and bet on horses. Can my losses here be used? How about losses in Atlantic City? What else do you suggest I do to cut that tax?
What Harry says: Yes you may use losing tickets to get a tax deduction but only to the extent of your winnings. In addition, keep in mind that your winnings are part of your adjusted gross income, while your losings are part of itemized deductions. (They are not subject to the 2 percent of AGI reduction). To be safe, if your return is questioned, you should have some evidence of the losses. These may include losing tickets from the lottery, the races, evidence (even a diary) regarding casino trips, etc. Do not just pick up someone else's losing tickets. IRS has ways to nail you on these frauds.