How to deal with tax with a pooled bankroll

If people shard a bankroll for a progressive, how do they deal with taxes? For example one guy who hits the progressive may be in a higher tax bracket than the others and his cut may be largely eaten up by taxes. On the flip side you may have someone who already has big losses for the year who hits the progressive and doesn't have to pay any taxes. How do you deal with this?

I would assume the answer to "How do they deal with taxes?" is, "In writing, and in advance" - in other words, make it quite clear in advance who is responsible for how much of the bankroll and how much of the profits they receive. Otherwise, the IRS will almost certainly assume that whoever was playing the machine when it hit is the legal owner of 100% of the money (and any subsequent distribution would be treated as a "gift"), and as a result pays 100% of the tax on it.

IRS Form 5754 lets you list multiple winners of a single gambling win (usually when a group of people combine to win a lottery jackpot). Note that the instructions say that everybody on the form will receive a separate W-2G, even if the individual amounts are below the reporting threshhold (e.g. a $1600 win shared by two people still generates W-2Gs, even if each winner gets only $800.)

The winner of the jackpot should issue the others a 1099 for their share of the income. That way all people pay their own taxes at their own tax bracket.

Form 5754, Statement by Person(s) Receiving Gambling Winnings
Payers use this form to prepare Form W-2G when the person receiving gambling winnings subject to reporting or withholding is not the actual winner or is a member of a group of two or more people sharing the winnings.

Form 5754
OMB No. 1545-0239
Statement by Person(s) Receiving Gambling Winnings
(Rev. December 2008)
© Payers of gambling winnings should see the separate Instructions for Forms W-2G
and 5754.
Department of the Treasury
Internal Revenue Service
Date won Type of winnings Game number Machine number Race number
Person to Whom Winnings Are Paid
Name Address
Federal income tax
withheld
Taxpayer identification number Other I.D. Amount received
Persons to Whom Winnings Are Taxable (continued on page 2)
(e) Winnings from
identical wagers



I realize this wont keep you from paying more on the amount you're responsible for if youre in a higher bracket however you wont get stuck with having to take a losses off the entire amount of the JP.

Some teams have the JP winner scrape a % off the top of progressive Jackpots.

Quote: DRich

The winner of the jackpot should issue the others a 1099 for their share of the income. That way all people pay their own taxes at their own tax bracket.

Sounds like the wisest way to protect player privacy from the casino. I'm not so sure making it obvious to the casino you're on a good machine worth investors. Either do this or allow the claimer to hold xx% percent and keep it simple.

Quote: onenickelmiracle

Sounds like the wisest way to protect player privacy from the casino. I'm not so sure making it obvious to the casino you're on a good machine worth investors. Either do this or allow the claimer to hold xx% percent and keep it simple.

You can't always do that. A 5754 is better the casinos are not involved if you do it at home.

If you have a employee on a AP team you'll have to to deal with a 5754. Especially if you play any $5 slots or VP.

FWIW, I found the 5754 very easy to use. You just have to make sure you have valid SSN's and addresses for the other parties with you, because it's one or the other (W2G) at the time they pay the JP.

Quote: DRich

The winner of the jackpot should issue the others a 1099 for their share of the income. That way all people pay their own taxes at their own tax bracket.

A 1099, or a W-2G? (A 1099-G is what you get when you itemized deductions last year and got a state tax refund.)

Quote: ThatDonGuy

A 1099, or a W-2G? (A 1099-G is what you get when you itemized deductions last year and got a state tax refund.)

I've used 1099 Misc forms. You can not issue a W2-G. That can only be issued by a licensed gambling location.


Axel, do all parties need to be present when using the 5754? Will the casino hold the funds for those not present so they can pick it up later? I am assuming they will not give the winning amounts for others to the one that hit the jackpot. I have never used that form but just assumed all parties had to be present.

Quote: DRich

I've used 1099 Misc forms. You can not issue a W2-G. That can only be issued by a licensed gambling location.


Axel, do all parties need to be present when using the 5754? Will the casino hold the funds for those not present so they can pick it up later? I am assuming they will not give the winning amounts for others to the one that hit the jackpot. I have never used that form but just assumed all parties had to be present.

I've only use these after the fact on jackpots. I've never personally involved the casino or exchange one at the casino. Everybody just filled out their information exchanged, made copies and give it to the tax lady.

it was to my understanding that casinos were supposed to let this transaction take place at the time of the jackpot, upon request, but I don't know the actual law.no doubt nobody in the casino knows what the hell they're doing anyways. I've known guys who have claimed to have done it with the casino's involvement.

they do this often at poker tournaments when players make deals. but that's probably the 1099 form


if you're using a 5754 in order to sign over a jackpot to someone. I highly suggest you make sure that they actually file properly and do the right thing on their taxes. I have a suspicion the IRS could come after you, if that person failed to live up to their tax obligations

Quote: AxelWolf

I've only use these after the fact on jackpots. I've never personally involved the casino or exchange one at the casino. Everybody just filled out their information exchanged, made copies and give it to the tax lady.

it was to my understanding that casinos were supposed to let this transaction take place at the time of the jackpot, upon request, but I don't know the actual law.no doubt nobody in the casino knows what the hell they're doing anyways. I've known guys who have claimed to have done it with the casino's involvement.

they do this often at poker tournaments when players make deals. but that's probably the 1099 form


if you're using a 5754 in order to sign over a jackpot to someone. I highly suggest you make sure that they actually file properly and do the right thing on their taxes. I have a suspicion the IRS could come after you, if that person failed to live up to their tax obligations

I think the IRS would only come after you if the other party denied authorizing the 5754 or something.

If the other party agrees they received part of the jackpot and refuses to pay tax on it, the IRS would go after them, not the person who did everything properly.

This is one reason why I won't be bothered with slots plays, or anything else that generates W-2Gs. Lacking W-2Gs, everyone can take their share and do what they want on their own taxes, and other team members don't have to concern themselves with other people's tax situation.

The 5754 does not go to the IRS. It goes to the gambling entity, which is supposed to use it to issue W2G's to each party as listed on the 5754, which must account for the total amount of the payout among the players. It would be wise for you to get them to make you a copy, or have them stamp/countersign a copy you make for yourself, if you're the person collecting the winnings.

Only the person collecting the bet at the window/slot/game has to sign the 5754, or be present to collect. It is to their benefit to lay off those expenses, which will otherwise default to their tax liability, as sc15 said above.

If you are a secondary person on one, it is smart to report your part whether you got the W2G or not, and put the 5754 in your files for reference as to why you did. If you are the primary, it's essential to do so, because you won't be reporting the full liability of the JP back to the IRS.

There are lots of problems that will likely result with an individual issuing a 1099 MISC to another individual for a split jackpot.

From 5754 is the right way to go per BBB above, anything else in my humble opinion, is incorrect.

Quote: Paradigm

There are lots of problems that will likely result with an individual issuing a 1099 MISC to another individual for a split jackpot.

From 5754 is the right way to go per BBB above, anything else in my humble opinion, is incorrect.

I don't doubt that a 5754 would be the way to go but how do you facilitate it if all partners are not available to the casino?

I would be interested in hearing what the likely issues are with 1099's. I know many gamblers that exchange 1099's with W-9's. In my case, I always get another signed paper when paying a partner that acknowledges receipt of the money and that they understand they will be issued a 1099.

The replies here are confusing.

Player A
Investor 1
Investor 2
Investor 3

Player A hits a $24,000 JP on a slot. What does Player A tell the slot attendant?

To issue a 1099-MISC the payment must be business related. Now I realize in the AP world, there is a professional gambler position being claimed and likely a Schedule C utilized for Income & Expense purposes, so AP's can get through that hurdle. But as the IRS hates that "business" position on its face, and I believe they do, when you start using the wrong procedures to support deductions, likely cash deductions, I just think the situation is rife with problems....in the form of disallowing the deduction.

What box are you going to use on From 1099-MISC? Box 3 is precluded in the instructions from being used for payments that should be reported on a W-2G.

If you aren't an AP and aren't running a Schedule C, there is no place to deduct a 1099-MISC payment on your 1040.....you can't just net it against the W-2G form amounts. Putting it on line 21 Other Income as a negative amount is a big red flag if the amount doesn't relate to an NOL or other deduction that belongs there.

Have your partners name, address & ID numbers with you and complete the Form 5754 at the time of the jackpot. My understanding is all the parties listed on the Form 5754 do not need to be present to sign the form but the individual filling out the form is signing under penalties of perjury.

Your best position is to get the W-2G's issued to multiple parties by the casino......and this is your business we are talking about, so you are going to have tough argument saying you are in business as a professional gambler but didn't follow the right protocol on what should be an every year/potentially multiple incidents each year type event......."business" people that routinely don't get regular transactions correct start to look a lot more like "recreational gamblers" that can't deduct expenses directly against winnings.....I just don't think that is where an AP wants to be should an audit occur.

Obviously tax stories are like fish stories and everyone is getting away with everything and have survived audits, etc.. so I am sure the stories are going to come out of the woodwork on how this person did this and the other did that it all ended up being accepted under audit. So be it. This is the course of action I would recommend to a client, but it is just one CPA's opinion.

That's all I got for you......anymore and I'll have to ask for a retainer :-).

Quote: Paradigm

What box are you going to use on From 1099-MISC? Box 3 is precluded in the instructions from being used for payments that should be reported on a W-2G.

Right or wrong, i have used box 3 for prizes with the caveat that a W2G has already been issued for the whole amount to the person that claims the jackpot.

Please help me understand, will the casino issue me the whole jackpot amount if I fill out a form 5754 with two additional peoples names on it? I thought each person had to collect their own and sign for the W2G. If they will, that is fantastic and I will start doing it that way.

Quote: DRich

Right or wrong, i have used box 3 for prizes with the caveat that a W2G has already been issued for the whole amount to the person that claims the jackpot.

Please help me understand, will the casino issue me the whole jackpot amount if I fill out a form 5754 with two additional peoples names on it? I thought each person had to collect their own and sign for the W2G. If they will, that is fantastic and I will start doing it that way.

the best and most common use for 5754


. It works best for employees, but should work the same as if we were just partners.

let's assume I'm playing for you/us and you're now you're home sleeping and I hit a jackpot for you/us.

even though I signed for the entire amount the jackpot, i shouldn't be responsible for the full amount of the taxes. my personal losses might not come close to covering the jackpot amount since I really only getting a portion of the amount. the next day me and you would fill out to 5754 forum. this will relieve my responsibilities for that portion of the jackpot

Quote: sc15

I think the IRS would only come after you if the other party denied authorizing the 5754 or something.

If the other party agrees they received part of the jackpot and refuses to pay tax on it, the IRS would go after them, not the person who did everything properly.

This is one reason why I won't be bothered with slots plays, or anything else that generates W-2Gs. Lacking W-2Gs, everyone can take their share and do what they want on their own taxes, and other team members don't have to concern themselves with other people's tax situation.

sign over a couple hundred thousand to a guy who disappears and doesn't pay his taxes and see what happens to you

Quote: beachbumbabs

The 5754 does not go to the IRS. It goes to the gambling entity, which is supposed to use it to issue W2G's to each party as listed on the 5754, which must account for the total amount of the payout among the players. It would be wise for you to get them to make you a copy, or have them stamp/countersign a copy you make for yourself, if you're the person collecting the winnings.

Only the person collecting the bet at the window/slot/game has to sign the 5754, or be present to collect. It is to their benefit to lay off those expenses, which will otherwise default to their tax liability, as sc15 said above.

If you are a secondary person on one, it is smart to report your part whether you got the W2G or not, and put the 5754 in your files for reference as to why you did. If you are the primary, it's essential to do so, because you won't be reporting the full liability of the JP back to the IRS.

it's to my understanding the person receiving the 5754 who is being relieved of the taxes would send that in when they file. if not the W2Gs are just going to be applied to him without proof that somebody else is taking over the responsibility. I'm just going by what a tax person who specializes in gaming has been telling us for years

The 5754 does NOT go to the IRS (this is printed in bold on the top right of the form). It goes to the gaming people paying out the JP.

The only person who signs a 5754 is the person collecting the JP. It should be filed at collection. You can go back thru the casino retroactively, but it's a pain for them.

The casino then is required to issue W2G's in the amounts you listed on the 5754 to the parties. The person collecting the JP is the #1 person listed on the 5754. You show how much, in dollars, your part is.

Then you list the next person by first and last name, SSN, and tax address (usually house address, whatever the IRS uses for them), and the amount of the total that belongs to them.

You keep doing that until you've accounted for the entire amount.

You can print out the form (it's a 1 pager) at home from the IRS website, fill it out with your team info (you listed first) and just carry that in case. Make one out with each member of your team as primary and all of you carry one. If you hit, then just fill in the amounts right there, then sign it and get the casino to make you a copy. There's a continuation page available if you have more than about 10 people splitting; you can copy that onto the back and add the others there.