The taxman cometh
20 July 2007
By Mark Pilarski
Dear Mark: I have a question regarding winnings
from a slot tournament. The casino reported the
tournament winnings on a 1099 MISC ($15,000).
Can an equal amount of gambling losses be shown
to offset the winnings from gross income on
Federal 1040; like it can when you receive a W2G
form? Sandra D.
The casino's decision, Sandra, to issue a Form
W2-G, Certain Gambling Winnings, or a Form
1099-Misc., Miscellaneous Income, does not
affect the nature of the winnings or the
deductibility of losses for tax purposes.
Back in 1977 the IRS introduced the W2-G
(statement of gambling winnings) to replace form
1099 for reporting gambling wins as well as
income tax withheld. Presumably the reason you
received a 1099-MISC instead was because your
win was considered a "prize" worth $600 or more,
and not winnings from a wager. Still, just so
long as the value of the prize received was
considered an inducement to gamble, it could be
rightfully represented as gains from gambling,
and offset by gambling losses.
Gambling winnings are reported on tax form 1040
on the Other Income Line. Reportable gambling
winnings can come from lotteries, bingo,
raffles, horse and dog racing, online poker,
casino games, and slot tournament wins. Luckily,
Sandra, you can offset the taxes by reporting
your losses if you keep impeccable records.
As a loss-claimant, you must substantiate your
loss claims with a flawlessly documented,
descriptive gambling diary. For starters, your
gambling diary should have date and type of
gambling event, name and location of casino,
poker room, racetrack, etc., table or slot
machine number where the gambling took place and
total dollar amount lost. You are also permitted
to use airline tickets, bank withdrawal
statements made at the casino, canceled checks,
credit-card cash advances, bona fide (see below)
losing betting stubs, and yearly statements of
your wins and losses from the casino as
additional collaboration.
Also, Sandra, you can only offset your wins by
loses if you itemize rather than take the
standard deduction on your tax return. Gambling
losses can be used only to counterbalance
gambling winnings during that same tax period.
They cannot be carried forward or back to any
other tax year.
Remember, Sandra, the burden of proof falls on
your shoulders, so the better your records, the
better your chances of surviving an audit. And
don't emulate a misinformed friend of mine who
went dumpster-diving at the racetrack to collect
over $10,000 worth of losing tickets over one
weekend, and then tried to peddle them off as
his own personal loses. The IRS caught a strong
whiff of that horse manure, and his legal fees
ended up far outweighing his tax liability,
penalties and interest.
Final caveat: Being that this subject matter is
well above my pay grade, I would still recommend
that you consult your CPA or accountant to get
the current tax code changes regarding gambling
and taxation.
Dear Mark: Can I take advantage of my wife's
gambling losses and apply them to my wins for
tax purposes? Joe T.
Yes, Joe, married couples can combine their wins
and losses for reporting purposes as long as
they file a joint return.
Dear Mark: Are the probabilities for various
hands the same in Texas Hold'em as they are in
Seven Card Stud, or are they different due to
the way community cards are dealt? Also, does it
matter how many players are on the game? Randall
G.
The probabilities are the same, Randall. Seven
random cards out of 52-card deck have the same
odds of appearing regardless of how they are
dealt and distributed or how many other players
are at the table.
Gambling Wisdom of the Week: "The professional
gambler bets to win; the novice bets to bet." --
John Patrick
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