Gambling and taxes

Hey folks,

So over the course of the 2011 calendar year, I ended up with around $5K in net gambling winnings (this was almost completely blind luck, err variance [there's that term again] at craps but did involve some card counting and one large sports bet that I would like to think was "smart"...I won it anyway). Originally I was going to take the high road and report this amount on my taxes, as it's a non-trivial amount of money, but now I'm not so sure. As I've been researching the topic on the internet, I've come to an impasse.

Here is the IRS's official stance on it, which is pretty straightforward - all gambling winnings are taxable, and gambling losses are deductible up to the amount of your winnings. Here's where it gets annoying though - if you poke around into publication 529 on miscellaneous deductions, you'll find this statement (which I've seen repeated on tax advisory websites around the web):

Quote: Publication 529

You cannot reduce your gambling winnings by your gambling losses and report the difference. You must report the full amount of your winnings as income and claim your losses (up to the amount of winnings) as an itemized deduction. Therefore, your records should show your winnings separately from your losses.

To be completely above-board, you're supposed to add up all of your winning sessions and report that as gambling income, then add up all your losing sessions, and deduct that as a loss! (Only up to your winnings though.) This seems beyond stupid to me, since the end result is the same amount of taxable income. Now, here's the quandary. To do this correctly, you have to itemize deductions and you lose the standard deduction! For a single guy like me, no dependents, no mortgage interest, no appreciable donations to charity, I never have any reason to itemize and always take the standard deduction. To be "above-board," I'm actually going to incur more tax liability than my net gambling winnings, since I'll lose the standard deduction.

This really pissed me off, so I'm now back to probably just not reporting anything. The amount seems non-trivial to me, but I highly doubt I would get audited because of it. I could also just report the net winnings on the 1040 and not bother with separating the wins/losses. This would probably be the "ethical" thing to do and seems like it's in line with the spirit of the law, if not the letter.

Regardless of what I do this year, I fear that I'll have the same situation next year, but hopefully I'll have even more income if I stick to the card counting. At some point in my life I'll probably start itemizing, so then the problem would go away anyway...

Quote: AcesAndEights

I'm now back to probably just not reporting anything. .

Not only that, you have to keep accurate records
when you play. The date, the casino, the number
of the table you played at, wins and losses. If you
don't, they'll take your wins as income and disallow
the losses and you're really screwed. If none of the
wins were reported to the IRS by the casino, what
are you worried about.

In the years where I had wins that incurred a W2G, I just said screw it and paid the tax. If I didn't have a W2G then I didn't pay. I've never lost any sleep over it.

Very interesting. As we all know there really is no such thing as a 'session'. Each bet is an individual event. You make 1000 $100 pai gow bets.... You are lucky and win 400, push 300, and lose 300.... So you won $380,000, and lost $300,000.... You do this 10 times ayear... Next time you win $320,000, but lose $360,000... at the end of the year you won 3.6MILLION, and lost 3.5 MILLION.... Ya think you'll trigger an audit? I agree with Bob here...

Quote: AcesAndEights

Hey folks,

So over the course of the 2011 calendar year, I ended up with around $5K in net gambling winnings (this was almost completely blind luck, err variance [there's that term again] at craps but did involve some card counting and one large sports bet that I would like to think was "smart"...I won it anyway). Originally I was going to take the high road and report this amount on my taxes, as it's a non-trivial amount of money, but now I'm not so sure. As I've been researching the topic on the internet, I've come to an impasse.

Here is the IRS's official stance on it, which is pretty straightforward - all gambling winnings are taxable, and gambling losses are deductible up to the amount of your winnings. Here's where it gets annoying though - if you poke around into publication 529 on miscellaneous deductions, you'll find this statement (which I've seen repeated on tax advisory websites around the web):

Quote: Publication 529

You cannot reduce your gambling winnings by your gambling losses and report the difference. You must report the full amount of your winnings as income and claim your losses (up to the amount of winnings) as an itemized deduction. Therefore, your records should show your winnings separately from your losses.

To be completely above-board, you're supposed to add up all of your winning sessions and report that as gambling income, then add up all your losing sessions, and deduct that as a loss! (Only up to your winnings though.) This seems beyond stupid to me, since the end result is the same amount of taxable income. Now, here's the quandary. To do this correctly, you have to itemize deductions and you lose the standard deduction! For a single guy like me, no dependents, no mortgage interest, no appreciable donations to charity, I never have any reason to itemize and always take the standard deduction. To be "above-board," I'm actually going to incur more tax liability than my net gambling winnings, since I'll lose the standard deduction.

This really pissed me off, so I'm now back to probably just not reporting anything. The amount seems non-trivial to me, but I highly doubt I would get audited because of it. I could also just report the net winnings on the 1040 and not bother with separating the wins/losses. This would probably be the "ethical" thing to do and seems like it's in line with the spirit of the law, if not the letter.

Regardless of what I do this year, I fear that I'll have the same situation next year, but hopefully I'll have even more income if I stick to the card counting. At some point in my life I'll probably start itemizing, so then the problem would go away anyway...

I have been in the EXACT same situation as you. I always take the standard deduction and this screws me. Luckily the year that I hit the Pick 6 at Saratoga, I did extensive traveling for work, so I had a lot of miles to itemize. In 2011 I won a $700 trifecta on the Preakness, and everything else was at the tables. I don't know what I'm going to do yet.

Not that I did this, because I would never do anything illegal, but SOME PEOPLE (not me, IRS :) ) have collected losers from the track in the amount of their losses. In fact, a nice tip when you go to collect could earn you a few thousand in big losers if you ask the cashier nicely. (many of them keep some for such happenings). This way, you get around the "Date and time reporting of losses" and the "Oops I actually didn't lose that much this year." Just keep the stack with your W2s and if there's an audit, you've got a paper trail of all of "your" losing bets.

Quote: SOOPOO

Ya think you'll trigger an audit? I agree with Bob here...

My tax guy says unless you win an amount that
is lifestyle changing, like buying $60 car or a summer
home, don't bother. He says you'll open an incredible
can of worms you'll never close. The IRS isn't stupid,
they know everybody lies about gambling losses and
they'll make you jump thru hoops and probably audit
you, maybe for years.

Quote: AcesAndEights

To be completely above-board, you're supposed to add up all of your winning sessions and report that as gambling income, then add up all your losing sessions, and deduct that as a loss!

Technically, not true. You are supposed to add up all your winnings, report that as income, then report your losses as a deduction. The IRS doesn't specify anything about a "winning session" or a "losing session". The concept of a session is something to make things easier, but, if you really wanted to be technical, the IRS doesn't care about sessions. However, it is accepted that utilizing the concept of a session in order to report your taxes makes things easier.

Quote: AcesAndEights

This seems beyond stupid to me, since the end result is the same amount of taxable income.

Not necessarily true. In addition to what you already identified as a problem for someone who doesn't normally itemize deductions, the fact remains that your income from gambling could also put you into a higher tax bracket. Which is why the IRS wants you to report your total gambling wins, and not your net gambling wins.

If the amount of your losses does not exceed the standard deduction, then itemizing your deductions will not help you. Obviously, if your gambling losses (up to the amount you won) exceeds your standard deduction, then you should itemize.

If you don't get issued a W-2G, then you can get away with not reporting any of your gambling wins, as the IRS won't know what you've won. But if you do get issued a W-2G, and you don't itemize your deductions, then your bottom line discovery (the fact that you're screwed) holds true.

Quote: EvenBob

If none of the
wins were reported to the IRS by the casino, what
are you worried about.

Quote: Mosca

In the years where I had wins that incurred a W2G, I just said screw it and paid the tax. If I didn't have a W2G then I didn't pay. I've never lost any sleep over it.

Quote: SOOPOO

Ya think you'll trigger an audit? I agree with Bob here...

Thanks guys for reinforcing my probably final decision...despite my generally libertarian-leaning political beliefs, I try to be as honest as possible on my taxes. This may be one time where I just let it slide. I never had to fill out a CTR or give my social, and I never received a W-2G, so I think I'm good.

Quote: SOOPOO

Very interesting. As we all know there really is no such thing as a 'session'. Each bet is an individual event. You make 1000 $100 pai gow bets.... You are lucky and win 400, push 300, and lose 300.... So you won $380,000, and lost $300,000.... You do this 10 times ayear... Next time you win $320,000, but lose $360,000... at the end of the year you won 3.6MILLION, and lost 3.5 MILLION....

Exactly, the whole concept is retarded. I was going to bring up the stupidity of the "gambling session" but ended up not bringing it up...you made that point nicely for me :)

Quote: konceptum

Technically, not true. You are supposed to add up all your winnings, report that as income, then report your losses as a deduction. The IRS doesn't specify anything about a "winning session" or a "losing session". The concept of a session is something to make things easier, but, if you really wanted to be technical, the IRS doesn't care about sessions. However, it is accepted that utilizing the concept of a session in order to report your taxes makes things easier.


Not necessarily true. In addition to what you already identified as a problem for someone who doesn't normally itemize deductions, the fact remains that your income from gambling could also put you into a higher tax bracket. Which is why the IRS wants you to report your total gambling wins, and not your net gambling wins.

If the amount of your losses does not exceed the standard deduction, then itemizing your deductions will not help you. Obviously, if your gambling losses (up to the amount you won) exceeds your standard deduction, then you should itemize.

If you don't get issued a W-2G, then you can get away with not reporting any of your gambling wins, as the IRS won't know what you've won. But if you do get issued a W-2G, and you don't itemize your deductions, then your bottom line discovery (the fact that you're screwed) holds true.

Good points. I hadn't even thought about the tax bracket issue. *shakes fist at government again*

Quote: EvenBob

Not only that, you have to keep accurate records
when you play. The date, the casino, the number
of the table you played at, wins and losses. If you
don't, they'll take your wins as income and disallow
the losses and you're really screwed.

Around August of this year I began keeping more accurate records, including dates, casinos, and buy-in/cash-out for that session, but not table number. I'm going to start adding table number to my records for future consideration.