ABC Taxes, Tips & Tools

You are not a pro­fes­sional gam­bler, but you gam­ble a lit­tle.  Over the long haul odds are that you are not a win­ner over­all.  The nat­ural ten­dency for casual gam­blers is to net their win­nings and losses over the year and report the dif­fer­ence, if any, as income.  What the casual gam­bler may or may not real­ize is that win­nings over a cer­tain amount are reported to the IRS; indeed they may receive a W-2 G from the gam­ing par­lor when they hit big.  What the casual gam­bler may not real­ize is that net­ting heir losses and their win­nings over the year is not the proper way to report these win­nings and losses for tax purposes.

A new tax court rul­ing (Shol­len­berger, TC Memo, 2009-306) reit­er­ates this fact.  If you win a pretty penny one day, and lose a pretty penny down the road in a given tax year, you can­not net the two together to fig­ure out your tax­able income from gambling.

Casual gam­bling win­nings are are other income reported on the front page of Form 1040.  How­ever, the way to prop­erly report gam­bling losses is on Form 1040 Sched­ule A, on the mis­cel­la­neous deduc­tions not sub­ject to the 2% lim­i­ta­tion of income line.  If you do not item­ize your deduc­tions, the casual gam­bling losses do not off­set your gam­bling winnings.

Fur­ther­more, fail­ure to report all of your gam­bling win­nings on your tax form may set you up for an audit sce­nario because gam­ing win­nings are reported and may trig­ger an income mis­match.  Basi­cally the IRS will want to know why you didn’t report all of your income.

If you need help with this issue or any other, remem­ber, small busi­ness ser­vices and tax­a­tion are our busi­ness.  Please give Art & Busi­ness Con­sult­ing a call.  We would love to engage you as a client.

The usual dis­claimers: Although ABC has made every effort to insure the accu­racy of Taxes, Tips and Tools, mis­in­for­ma­tion, dis­in­for­ma­tion, changes, mis­takes, typos and hack­ers hap­pen, there­fore Art & Busi­ness Con­sult­ing LLC takes no respon­si­bil­ity for any action taken or results based on the infor­ma­tion sup­plied here in.  Inter­nal Rev­enue Ser­vice Cir­cu­lar 230 Dis­clo­sure:  As pro­vided for in Trea­sury reg­u­la­tions, advice (if any) relat­ing to fed­eral taxes that is con­tained in this com­mu­ni­ca­tion (includ­ing attach­ments) is not intended or writ­ten to be used, and can­not be used for the pur­pose of (1) avoid­ing penal­ties under the Inter­nal Rev­enue Code or (2) pro­mot­ing, mar­ket­ing or rec­om­mend­ing to another party any plan or arrange­ment address herein.  Art & Busi­ness Con­sult­ing LLC cur­rently does not have a cer­ti­fied pub­lic accoun­tant or an attor­ney on staff; this infor­ma­tion is purely for edu­ca­tional pur­poses and not to be con­strued as legal or finan­cial advice.  Art & Busi­ness Con­sult­ing LLC and its employ­ees, mem­bers and asso­ciates are not engage to prac­tice law; you always should dis­cuss legal mat­ters with your attor­ney before talk­ing to any­one else.

Tags: casual gambling, deduction, income, losses, reporting, tax, winnings

This entry was posted on Saturday, February 6th, 2010 at 11:56 pm and is filed under Individual Taxes, Other Information. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.