Not Keeping Track Turns Gambling Winners Into Tax Losers

NEW YORK (MainStreet) — If you are a frequent visitor to the local track or casinos it is important to keep good records of your gambling winnings and losses. To deduct losses you must be able to provide receipts, tickets, statements or other records. If you play the lottery, keep your losing tickets. If you play the ponies, keep the daily track programs and all your losing tickets. And make sure the tickets you are saving don’t have footprints on them!

Gross gambling winnings are reported as “Other Income” on Line 21 of your Form 1040. Gambling losses, allowed only to the extent of reported winnings, are allowed as a “Miscellaneous” Itemized Deduction. If you report gambling winnings of $10,000 on Line 21 of your Form 1040, the most you can deduct as gambling losses on Schedule A is $10,000. Allowable gambling losses are deducted in full and are not subject to the 2% of Adjusted Gross Income exclusion.

You will get a Form W-2G for each individual gambling win of $1,200 or more, including each win of $1,200 or more from a single slot pull.

Losses from any type of “wagering transaction” can be deducted against your reported gross gambling winnings. If you win in the slots, your deduction is not limited to losses from slot machines. You can deduct losses from the lottery, bingo, table games such as poker and blackjack, raffles, horse racing, keno, etc.

Recent developments make it even more important to keep proper track of your gambling activity so you can minimize the tax cost of your winnings. The Tax Court, in TC Memo 2009-226 (Ann L. Laplante v Commissioner of Internal Revenue) has agreed that a gambler’s aggregate (i.e. “net”) winnings for the day per casino should be included in gross income and not the individual winnings on a slot machine.

Just as people uses their car for business must keep a record of business mileage, a gambler must keep a record of daily activity. A simple pocket notebook will do. You would indicate the date, location, names of casinos visited and the net activity from each casino for each type of gambling activity for the day.

You must keep a separate recording of each type of game being played at each casino (for instance, slot machine and table games such as blackjack and poker), reporting the net activity from each game. In the case of a table game, the reporting requirements state that you must also make a note of the table number.

Say you play slots for an hour and blackjack for an hour. Each must be reported separately in your log. All of the slot play is netted; all the blackjack play must be separately netted. Losses from one game could not reduce net reportable winnings from another game, even if they occurred in the same casino on the same day.

If I won net $1,000 in blackjack and lost net $500 in slot play from one visit to Bally's I would need to report $1,000 on Page 1 of the Form 1040, but I could deduct $500 as losses on Schedule A.

When you enter a casino keep your gambling money separate — in separate pockets or separate envelopes, and one for each gambling activity (for instance, slot machines and table games).

Let’s say you spend a weekend in Atlantic City. On the morning of July 16 you began your gambling at Bally’s Wild West on the Boardwalk. Make the following entry in your notebook:

7/16/2013 — Atlantic City, N.J.

Bally’s Wild West — slot machines

Beginning cash = $200
Start time: 10 a.m.
End time: 1 p.m.
Ending cash = $315
Net win/(loss) = $115

You may have win $1,300 in one slot pull while at Bally’s on July 16, but you put $1,185 back into the machines before leaving the casino. So instead of $1,300, as appears on the Form W-2G you got from Bally’s, you would include only $115 as actual gambling winnings on Line 21 of your 1040.

On the same day you also gamble at Caesar’s Palace. You would make the following entry:

Caesar’s Palace — slot machines
Beginning cash = $315
Start time: 1:30 p.m.
End time: 3 p.m.
Ending cash = $290
Net win/(loss) = ($25)

Net daily activity — slot machines
Wins = $115
Losses = $25

The next day you return to Bally’s and play both the slots and Blackjack:

7/17/2013 — Atlantic City, N.J.

Bally’s Wild West — slot machines
Beginning cash = $290
Start time: 1 p.m.
End time: 2 p.m.
Ending cash = $240
Net win/(loss) = ($50)

Bally’s Wild West — blackjack
Beginning cash = $100
Start time: 2 p.m.
End time: 3 p.m.
Ending cash = $0
Net win/(loss) = ($100)
Table #234567

Net daily activity — slot machines
Wins = $0
Losses = $50

Net daily activity — blackjack
Wins = $0
Losses = $100

You did not win enough in one pull to get any additional Form W-2Gs at Caesar’s or the next day at Bally’s. The $175 in net losses from the two days from slots and blackjack could be included in gambling losses claimed on Schedule A if you itemize.

By reporting $115 as gambling winnings on Page 1 of your Form 1040 instead of $1,300, you reduce your AGI by $1,185. While your net taxable income, $0, would be the same whether you reported $115 or $1,300 on Page 1 and were able to deduct losses on Schedule A, your actual tax liability may be less by claiming the lower amount of winnings. And if you are not able to itemize and claim losses you will certainly pay less federal income tax by reporting only $115 as your winnings.

Not being a gambler, I do not know how detailed the information you get from using your Player’s Club cards is. It is possible that printouts would support the individual activity by date you have entered in your book. Do not, however, assume the printout of card activity is enough proof — you should still maintain your own contemporaneous gambling log.

 

 

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