ABC Taxes, Tips & Tools

The tax court recently ruled that gam­blers much net their win­nings and losses on a daily basis. Nev­er­the­less the rul­ing is actu­ally a good win for casual gam­blers as pre­vi­ously the IRS held that win­nings and losses must be recorded after every slot machine pull or roll of the dice.  In this case the cou­ple won $2,000 but was only up $1,100 on the day.  Since the cou­ple did not item­ize they could not take any gam­bling losses from dif­fer­ent days.  Intially the IRS said they owed tax on the entire $2,000 but the Tax Court ruled it was only $1,100. 

So lis­ten up all you gam­blers out there.  Keep a diary of all of your trips to the track, the casino etc.  This diary needs to have the type of gam­ing activ­ity, the date, the loca­tion, a state­ment of wins and loses.  Receipts and tick­ets (of both win­ners and losers–don’t trash them) should be kept to sub­stan­ti­ate the claim on your tax return later on.  Exam­ples of substatiation: 

• For bingo you would need the num­ber of cards pur­chased, and amounts col­lected on win­ning cards.
• For Keno you need val­i­dated Keno tick­ets, copies of the casino credit reports and casino check cash­ing records
• For Rac­ing a record othe the num­ber of races that were bet on, amount of the wagers, and amounts lost
• For Slots, the num­ber of the machine and win­nings by date machine was played. 
• Tables (Black Jack, Craps, Roulette etc.), the num­ber of the table where you played, casino credit card data indi­cat­ing where the credit was issued.

Don’t pick up a bunch of losers from the ground.  The IRS will know that you did not make wagers on mul­ti­ple ponies for the same race. The time to keep the diary, is now, before you hit the mod­er­ately big jackpot. As a gam­bler you know you have up days and down days, and you should be keep­ing a gam­bling diary to sub­stan­ti­ate those days. 

For casual gam­blers win­ning days are listed in “other income” on the front of the tax return, and you will need to item­ize your tax return to take your losers, but because the gam­ing indus­try is so influ­en­cial gam­ing losses are NOT sub­ject to the 2% lim­i­ta­tion of income — they have there own spe­cial line right their on the Sched­ule A.  However you may not deduct losses on the Sched­ule A that that exceed win­nings reported in other income.  Large write-offs on a Sched­ule A may trig­ger AMT though.

In a sep­a­rate case, the Tax Court ruled there are “pro­fes­sional” gam­blers.  It was a case of a cou­ple whose gross wagers exceed $1 Mil­lion.  They spent every week­end play­ing slots that prior users had lost money on.  Although they made money at first they wound up down $200,000 with their retire­ment accounts tapped out, mort­gaged to the hilt.  Then they decided to return to casual gam­bling.  This cou­ple was allowed to claim losses up to their win­nings on  a Sched­ule C. You can bet this cou­ple had a lot of doc­u­men­ta­tion of their activities. 

As always, small busi­ness ser­vices and tax­a­tion are our busi­ness.  If you need help 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. The con­tent of this blog gen­er­ally applies to busi­ness and indi­vid­ual tax­a­tion in the United States of Amer­ica.  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, human resource spe­cial­ist, finan­cial plan advi­sor 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: bingo, casual gambling, craps, documentation, Gambling, keno, log, race track, receipts, roulette, slots, taxes

This entry was posted on Tuesday, August 10th, 2010 at 2:57 pm and is filed under Business 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.