Taxes

In a different thread, mkl stated he has declared 170k or so over the last 11 years in gambling winnings.
1. Is there a minimum that you 'should' report winnings to the IRS?
2. How exactly does the IRS 'know' what you made/lost in a given year?
3. Can you deduct your airfare/hotels/meals from your winnings?
As a table games player, unless a large jackpot is hit, I cannot imagine ever needing to declare any winnings.
They are all cash transactions, and I do not see how there can be any trail to follow.
Am I missing something? Do BJ card counters declare their winnings?

Straight from the horse's mouth:

Quote: IRS

Gambling winnings are fully taxable and must be reported on Form 1040.

Gambling income includes, among other things, winnings from lotteries, raffles, horse races, poker tournaments and casinos. It includes cash winnings as well as the fair market value of prizes such as cars and trips.

Even if a W-2G is not issued, all gambling winnings must be reported as taxable income regardless of whether any portion is subject to withholding. In addition, taxpayers may be required to pay an estimated tax on the gambling winnings.

Losses may be deducted only if the taxpayer itemizes deductions and only if he or she also has gambling winnings. The losses deducted may not be more than the gambling income reported on the return.

So apparently, yes, technically you should be reporting all gambling winnings as taxable income. Like you point out, however, if it's a cash transaction then there's no way for the IRS to tell and it's up to you, I guess.

Unless it's a sufficiently large amount, of course; in those circumstances you'll receive a W2-g and there's no way out :-P

You can deduct your losses, but apparently you have to keep record of everything via receipts or something, as well as itemizing instead of the standard deduction. I think you can only deduct airfare an other out-of-pocket expenses if you call yourself a "professional gambler", which has it's own set of rules.

Complicated, right?

(Note: I'm a slow typist and was clumsily composing this post when ElectricDreams posted above.)

It is my impression that you "should" report income from all winning sessions then deduct losses from all losing sessions (up to the amount of winnings). And of course "should" does not always result in "actually did". As for table games, there is rarely documentation of either wins or losses. Large, high-ratio payouts, such as on the "Fire bet" at craps and some other sucker side bets, can result in a W2-G being issued. Other than that, table games and tax reporting is pretty much on the honor system, as far as I can see. Players are to maintain their own records, and the reports available from the casinos, while not considered documented proof, can help establish the reasonableness of a player's records.

My own attitude has been that I don't believe I am a consistent winner, so reporting wins and deducting losses would not change my tax obligations but would increase the work/documentation load for both me and the IRS. For that reason I didn't even keep records until a year and a half ago, when I started it on a whim. By some fluke of favorable luck, it seems I am actually ahead this year and have my own records of it. I guess I am just counting on the idea that my December trip to Las Vegas will wipe out my year-to-date winnings. :-) Then I can maintain my position that "simplified" reporting that does not involve failure to pay taxes is actually good for everyone.

Quote: ElectricDreams

... You can deduct your losses, but apparently you have to keep record of everything via receipts or something, as well as itemizing instead of the standard deduction. ...

Not sure, since I have never been involved in this. But the need for receipts for losses does not seem reasonable. I have never seen a casino table game that gave out receipts for losses. I suspect that table game losses are on the same honor system as table game winnings. Of course, one does have a receipt available for state lotteries and sports book and track wagers, so those few types of bets/losses could be documented. I do have scanned images of the lottery tickets I purchased this year as part of my records.

The vast majority of my play has been on VP, with a slot card, so wins and losses are easily documented. There is the issue of W2-Gs, which compel that documentation. I also have had tournament wins, proceeds from promotional drawings, etc. to reconcile.

I think if your play never generates a W2G, you can fly under the radar indefinitely. I know quite a few players who stick to .25 VP for precisely that reason.

Quote: ElectricDreams

You can deduct your losses, but apparently you have to keep record of everything via receipts or something, as well as itemizing instead of the standard deduction

It is actually worse than you may think.

Suppose, you bet $100 on zero, win, bet $3600 on red and lose.
According to IRS, unless you itemize, you have to pay the tax on your "winnings" of $3500.

Quote: weaselman

Suppose, you bet $100 on zero, win, bet $3600 on red and lose.
According to IRS, unless you itemize, you have to pay the tax on your "winnings" of $3500.

My understanding is that the IRS expects your records to be on a "session" basis. If you define your session as the consecutive time you spend at a roulette table, your winnings are the excess amount you leave the table with, compared to your buy-in. The two-wager situation you describe would not have resulted in a winning session -- nothing to report unless you are itemizing the losing sessions.

You are correct on this last point. Also, I believe the minimum threshold winning for issuing a W-2G at a table game is $5000, versus $1200 for slots. You can certainly deduct your losses to the extent of winnings as an itemized deduction. But, if you don't normally itemize, you could really get screwed.

Quote: tgarrettcpa

... I believe the minimum threshold winning for issuing a W-2G at a table game is $5000, versus $1200 for slots. ...

Again, I have no personal experience in this area, but it is my understanding that issuing a W-2G (maybe I put the hyphen the wrong place before) at a table game requires that two criteria be met: (a) the ratio of payout to wagered amount must meet/exceed some figure, maybe 300:1 (guess), and (b) the payout amount must meet/exceed some figure, which I thought was more like $1,500. This last factor avoids the tax form for most $1-on-a-whim bettors who hit some kind of long shot. Of course, your nickname includes "cpa" so you might be working with a better set of facts than my guesses.

Of course, limiting the issuing of W-2G forms at table games is intended to avoid shutting down the entire action at a multi-player table (in contrast to a slot machine) other than in exceptional situations. Large bettors getting large payouts at small payout ratios may be expected to lose a high percentage (likely >100%) of their winnings in a session, and the form would be more unjustified hassle than value to the IRS.

It is still even worse. Your bet amount is considered to be won and taxable, as well.

Quote: dm

It is still even worse. Your bet amount is considered to be won and taxable, as well.

If you mean that the way I think that you do, then I believe that you are mistaken. Perhaps it is better that I just ask that you explain your point a little more thoroughly. It is my understanding that if you place some kind of wager for $25 and receive $2,000 as a payout (and that's your entire session), your taxable income amount would be $1,975. Do you think it is something different?

In general I'm pointing out a win on a slot INCLUDES the amount bet in the total won. I imagine the same would apply on tables.

I agree with your analysis and your criteria assumptions are correct. Except, only one of the conditions needs to be met, not both.

And yes, I do this sort of thing for a living and see plenty of W-2Gs come across my desk. Many times, someone will hit a slot machine, throw the W-2G in a drawer, and forget all about it. Then they file their taxes without reporting it. In about 18 months they get a notice from the IRS. The IRS assumes no gambling losses, so the proposed amount due (with interest and penalties) is huge. Nine times out of ten, we amend the return to include winnings and losses, and the taxpayer owes nothing.

As a side note, I have a handful of clients who consistently receive $20K plus a year in W-2G's from slots and we always offset the entire winnings with losses. I have never had any of these audited or investigated by the IRS. IMHO the IRS must not find any of this to be too suspicious.

My $0.02.

Quote: tgarrettcpa

I agree with your analysis and your criteria assumptions are correct. Except, only one of the conditions needs to be met, not both.

Am I correctly understanding you to say that if a player wagers $1 on a long shot and wins $300 (if my guessed 300:1 criterion is correct) then a W-2G would be issued? I think that is not correct. Have you actually seen W-2G forms issued for small amounts, say less than $500?

On the other side, have you seen a W-2G issued for a larger win at a table game, say $5,000, when the amount wagered was of the same order; e.g., $5,000 wagered and winning at 1:1? I would expect that to happen on close to half the hands dealt at a very-high-limit blackjack table. Can you imagine the hassle?

It is my understanding that both criteria must be met. My accounting training was definitely not at the CPA level, and I have successfully avoided reading detailed IRS regulations, so my understandings are based on what I have read in articles and discussions such as this forum.

My problem is I have hit $6,000 in W2-G's this year and most, if not all, of my losses have been at table games rather than slots. Can I still offset my winnings even though I didn't keep detailed records? (I think not ... :( )

Thankfully, I am an unemployed student so I'm in a low bracket, and the standard deduction should cover most of it.

Quote: teddys

My problem is I have hit $6,000 in W2-G's this year and most, if not all, of my losses have been at table games rather than slots. Can I still offset my winnings even though I didn't keep detailed records? (I think not ... :( )

Can you provide some dates of your caino trips? Bank records that show ATM withdrawls from casino ATMs?

Bottom line, you don't NEED detailed records, just reasonable justification. And you don't even need that unless they call you in for an audit.

Quote: Doc

Not sure, since I have never been involved in this. But the need for receipts for losses does not seem reasonable. I have never seen a casino table game that gave out receipts for losses. I suspect that table game losses are on the same honor system as table game winnings. Of course, one does have a receipt available for state lotteries and sports book and track wagers, so those few types of bets/losses could be documented. I do have scanned images of the lottery tickets I purchased this year as part of my records.

Yeah, you're probably right... I don't think asking for a "receipt of losses" after playing an hour of table games is something reasonable to expect.

But, I don't itemize my tax returns and I'll probably never hit the minimum amount to be issued a W2-G, so this is all just a thought exercise anyway :-)

Quote: dm

It is still even worse. Your bet amount is considered to be won and taxable, as well.

No. Only the amount of your WIN is taxable.

I once got fired from my keno writing job for this reason: a player hit a six out of six for a $1200 payout on her $1 bet. They gave her a tax form to fill out. She didn't want to do it, and was quite upset. My supervisor was quite adamant, and wouldn't pay her unless she filled out the form. I butted in and told her that since she had only won $1199, NOT $1200, she wasn't obligated to fill out the form to get paid. My supervisor fired me on the spot!

A few days later, I called Accounting and they verified that I was right. The casino manager asked me if I wanted my job back, and I said no, not if I had to work for that same guy. So they fired him! Woo hoo!

Doc,

On second thought, you may be correct on the criteria. I have only seen W-2G's from slots and poker, not any from table games. Here is the IRS code for your viewing pleasure: http://www.irs.gov/pub/irs-pdf/iw2g.pdf

Thankfully, I have not experienced an audit regarding gambling losses. I would think the best evidence would be a log of casino visits with dates, amounts, etc. with corresponding bank withdrawals/statements. I don't know what kind of information, if any, the casinos would recreate for you using your player card. Unfortunately, it would depend on the individual auditor more than anything else. I have worked with auditors that want to disallow every possible deduction and put the burden of proof completely on the taxpayer. So, an ATM receipt from Harrah's would not mean anything to them.

Quote: tgarrettcpa

Doc,

On second thought, you may be correct on the criteria. I have only seen W-2G's from slots and poker, not any from table games. Here is the IRS code for your viewing pleasure: http://www.irs.gov/pub/irs-pdf/iw2g.pdf

Thankfully, I have not experienced an audit regarding gambling losses. I would think the best evidence would be a log of casino visits with dates, amounts, etc. with corresponding bank withdrawals/statements. I don't know what kind of information, if any, the casinos would recreate for you using your player card. Unfortunately, it would depend on the individual auditor more than anything else. I have worked with auditors that want to disallow every possible deduction and put the burden of proof completely on the taxpayer. So, an ATM receipt from Harrah's would not mean anything to them.

You've put your finger on the true horror--no matter what evidence you do or do not present, it'll all come down to whether they are INCLINED to believe you or not. They can credit or disallow ANY evidence you present, according to their whim. I was audited just once, and on the advice of my tax preparer, I put up the following defense:

1. Reams and reams of paper. Records, whether meaningful or not. Bury 'em. The more work the wolf has to do to eat you, the more likely he will choose easier prey.
2. Schedule your audit for a Monday. Plead personal hardship or something, until you get that day of the week. IRS offices, like just about any other offices, are busiest on Monday. You might get a quick pass-through instead of a three-hour grilling.
3. Schedule your audit for March or April, if you have the chance to do so. Same reason as #2.
4. At all times, unequivocally project the attitude that you will fight them every inch of the way. Most taxpayers who are audited are awed, cowed, and intimidated. The IRS counts on that.

I sailed through the audit. I had, in fact, paid the proper taxes, filled out the proper forms, and kept the proper records--but that had nothing to do with the favorable result I obtained; it had much more to do with the attitude of resistance I brought with me.

Quote: tgarrettcpa

... Here is the IRS code for your viewing pleasure: http://www.irs.gov/pub/irs-pdf/iw2g.pdf

Bingo! I think this document answers several of the questions raised here and eliminates my guesses.

Quote: IRS 2010 Instructions for Forms W-2G and 5754

Report gambling winnings on Form W-2G if:
1. The winnings (not reduced by the wager) are $1,200 or more from a bingo game or slot machine,
2. The winnings (reduced by the wager) are $1,500 or more from a keno game,
3. The winnings (reduced by the wager or buy-in) are more than $5,000 from a poker tournament,
4. The winnings (except winnings from bingo, slot machines, keno, and poker tournaments) reduced, at the option of the payer, by the wager are:
    a. $600 or more, and
    b. At least 300 times the amount of the wager, or
5. The winnings are subject to federal income tax withholding (either regular gambling withholding or backup withholding

Quote: tgarrettcpa

... I would think the best evidence would be a log of casino visits with dates, amounts, etc. with corresponding bank withdrawals/statements. I don't know what kind of information, if any, the casinos would recreate for you using your player card.

During the year and a half that I have tried to keep records, the log such as you suggest has been trivial to maintain. At the end of each session, I note the casino, the game I played, the time I played, and my win/loss in the calendar on my phone/PDA. When I get home, I transfer the info to a spreadsheet that I keep for the year. No problem at all.

My experience, as a low-roller, is that the records that the casino keeps have only a vague similarity to my actual gambling. Perhaps if I were betting at a level that drew more of their attention, the records would be more reliable. I think my experience supports the IRS position that the casino reports are not proof of your play, but I think they take such reports into consideration when they support (or not) the reasonableness of a player's own records.