Journal of Gambling Studies, 2023
The US personal tax code taxes gambling winnings but allows gambling losses to be deducted up to the amount of winnings (and less so since this paper was written). But these deductions can only be claimed as part of itemized deductions, so your gambling losses plus other deductions need to be large enough to make itemizing better than taking the standard deduction. For most small-scale bettors, the standard deduction is the superior option.
For those who don’t itemize, taxation of winnings but not losses raises the effective break-even win rate for bettors to a level that very few are ever likely to achieve. The system effectively incentivizes gamblers to bet large amounts, so they can itemize their losses and reduce their break-even rate.
Key research finding: The US tax treatment of gambling materially worsens expected returns and discourages small-stakes betting while favoring larger bets.
Practical advice: If you are a bettor who wants to be fully tax compliant, check the rules. They are not as friendly towards betting as you might imagine. They are even less friendly now than when I wrote this paper.