Gambling and Taxes: Part 1

Part 1

Even When You Win You Lose

  So it’s nearly April, and that means it’s tax time here in the US. If you’re a gambler, even if you pay someone to fill out your forms, taxes are something you need to know about. Yes, I know tax talk can be dry and hard to understand, but I’ll try to keep it simple and stick to just the basics. If you’re already knowledgeable about taxes and gambling, this part may not be for you. Feel free to skim or skip ahead. If you aren’t an expert, stick with me because the tax deadline is just around the corner.

  Most of us occasionally read articles and books about gambling. Many of them seem to gloss over the part about taxes or they simply tell you to talk to your tax preparer. Why do they do this? It’s because they don’t want to deliver the bad news - all income won gambling is taxable, and the taxes are not figured in a way that will seem fair to you.

  Okay, here are some basics:

  If you win anything, anytime during the year, you are expected to remember it and report it. If you win $1,200 or more on a single wager, the casino will take your Social Security number and issue you a W2G form to file with your taxes. The “G” as you might have guessed stands for "Gamble." They will also send IRS a copy to keep you “honest.” 

  It will be up to you to report ALL your winnings at tax time, not just the winnings on the W2G forms you may have received. In addition, if you are ever audited, you will be asked to produce a gambling diary substantiating your wins and losses each session. These figures should be supported by the yearly win/loss statement the casino can print out for you if you have gambled with your player’s card. They should also be supported by ATM and bank statements and evidence of other gambling expenses such as losing lottery tickets and scratch offs.

  How many people do you know that keep a gambling diary? Probably none. Not until they have a big win and wonder about how much tax that win will cost them. Only then do they begin to worry about whether they can deduct any of their losses against that win. This is when most people start to keep better records. In all my times gambling, I think I have only seen one person in the casinos I visit recording her outcomes in a gambling diary.

  If you are like many taxpayers, you probably file IRS Form 1040 A or 1040 EZ. You won’t find a line on either of those forms from gambling income or gambling losses.

  OMG! What do I do? 

     Well, here’s more bad news. You will have to file the “long form” Form 1040 to report your winnings. And you can only deduct losses if you itemize on Schedule A, and only to the extent of your winnings. Even then, not everyone benefits from itemizing instead of taking the standard deduction.

  Stay tuned… In my next article on this subject, we’ll look at an example and go through the ins-and-outs of what a person really has to know. As you will see, this can be a lot more complex than it needs to be. Thankfully the IRS is reviewing some of this process, but changes are never guaranteed. But more on that later.