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Save Some For Uncle Sam
By David S. Olson, Esq.
Being a sophisticated Las Vegas Direct consumer and occasional gambler, you may well be familiar with the Internal Revenue Tax Code provision providing that gambling losses are deductible against gambling winnings. So after you “Book Direct and Save” at Las Vegas Direct, you hit the casinos armed with a log book to record your gambling activities. Gambling logs are generally accepted by the IRS as proof of losses, especially when supported by other evidence of gambling activity such as wagering tickets or receipts, payment slips provided by sports books and gaming establishments, bank records, and printouts of gambling activity maintained by casinos. In addition to exercising diligence in documenting your gambling winnings and losses, there are other things you should keep in mind.
First, casinos are obligated to report your gambling winnings in excess of certain thresholds to the IRS, but do not report your losses. Again, it is thus imperative that you maintain contemporaneous logs–showing winnings and losses by gambling activity, establishment, and date–and other records of your gambling activities. Moreover, a net loss in a given year is never deductible. Thus, if your losses in a given year exceed your winnings for the year, you cannot deduct those losses on your taxes. And you cannot carry that loss over to offset gambling winnings in any subsequent year.
Moreover, the tax consequences of gambling often are not as simple as tallying winnings and losses. Winnings count toward the taxpayer’s adjusted gross income whereas losses can only be applied, to the extent of winnings, as itemized deductions. For example, if you hit a $3,000 slot machine jackpot, that will increase your adjusted gross income by $3,000 regardless of any losses you may incur. The increase in adjusted gross income can bump you into a higher tax bracket. That might have negative implications regarding allowable exemptions, deductions, and credits you can claim, or respecting taxation of social security benefits. And even if you also lose $4,000 on the day you hit a $3,000 jackpot–such that you wind up losing $1,000 for the day, and that was the only day you gambled all year, you may still have adverse tax consequences. For example, the increase in your adjusted gross income could have negative impacts as noted above and if your total itemized deductions do not exceed the standard deduction, the gambling deduction will effectively be worthless as you will simply take the standard deduction on your taxes. Alternatively, your income level might be such that your itemized deductions are phased out under the Tax Code, also rendering the deduction effectively useless.
So, if you hit a jackpot or have other significant gambling winnings, don’t blow it all! You may need some of that money to pay to Uncle Sam. And you should consult with a qualified tax accountant and/or attorney.
LVD Note: David S. Olson is outside general counsel to Las Vegas Direct, focusing on business litigation. He will be providing informational columns here from time to time here. These columns are not intended to constitute legal advice and you should not rely upon them. Anyone seeking legal advice should consult with an attorney. Mr. Olson can be reached by contacting us.
Gambling Income and Expenses
Below are one of the rules from the IRS website regarding paying taxes on gambling winnings. There are other rules and regulations that may also apply.
Topic 419 – Gambling Income and Expenses
Gambling winnings are fully taxable and must be reported on your tax return. You must file Form 1040 (PDF) and include all of your winnings on line 21. Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and also the fair market value of prizes such as cars and trips. For additional information, refer to Publication 525, Taxable and Nontaxable Income.
A payer is required to issue you a Form W-2G (PDF) if you receive $600 or more in gambling winnings or if you have any gambling winnings subject to Federal income tax withholding. The $600 amount is increased to $ 1,200 for winnings from bingo or slot machines and to $ 1,500 for winning from Keno. In addition, if you make 300 times the amount of a wager, or the winnings are subject to federal income tax withholding, you must also file.
If you have won more than $5,000, the payer generally is required to withhold 25% of the proceeds for Federal Income Tax. If you did not provide your social security number the payer may have to withhold 28%. For more information on withholding, refer to Publication 505, Tax Withholding and Estimated Tax.
You may deduct gambling losses only if you itemize deductions. Claim your gambling losses as a miscellaneous deduction on Form 1040, Schedule A (PDF), line 27. However, the amount of losses you deduct may not be more than the amount of gambling income you have reported on your return. It is important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses. If you have a players card and use it when gambling, you can request an annual summary of you winnings and losses to support your deduction claims. Refer to Publication 529, Miscellaneous Deductions, for more information.
Tax Cuts and Jobs Act of 2017 (TCJA)
If you are able to itemize your deductions and they are more than just taking the standard deduction, the 2017 Tax Cuts and Jobs Act can help individuals who have gambling winnings by also (in addition to your gambling losses) deducting your entire gambling trip, such as travel, meals, and even your hotel stay. However, since the standard deduction was raised a lot, it may not be worth doing unless you spent a lot on your trip.
Professional gamblers lost benefits, since you can no longer have a net gambling tax loss when reporting your taxes.