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.