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.

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". .

And there's the rub. If you have a lot of slot
winnings that were reported by the casino,
and you want to deduct your slot losses, you
must have an immaculately precise journal
of the date, the casino, the number of the
slot you played, how much you put in and
how much you took out. Go to another
machine, you start all over. Who does that?
If you lie and invent everything in the journal,
and they check, you're toast.

Quote: EvenBob

And there's the rub. If you have a lot of slot
winnings that were reported by the casino,
and you want to deduct your slot losses, you
must have an immaculately precise journal
of the date, the casino, the number of the
slot you played, how much you put in and
how much you took out. Go to another
machine, you start all over. Who does that?
If you lie and invent everything in the journal,
and they check, you're toast.

Which is why I just said screw it and reported the amount on the W2G.

Quote: AcesAndEights

I'm going to start adding table number to my records for future consideration.

Without that, your records are useless. Every table
and machine has a number. If you're in a casino,
its also a good idea to write down dealer names
and pit names, you can't have too much info.

Quote: AcesAndEights

I try to be as honest as possible on my taxes.

Ever found a penny on the ground and picked it up? Did you report that on your taxes?
Ever gotten a gift for a birthday or holiday? Did you report that on your taxes?

The rules that the IRS has written out for themselves give them a lot of power, in that, technically, you are required to report ANY and ALL income from any source of any kind. The flip side is that the IRS just plain doesn't have the man-power to go after every little infraction. Thus they stick to the big ones, and hope that the random audits allow them to catch some of the medium-sized problems.

Back in my tax accounting days, I had a (potential) client come in who wanted to claim "head of household", except that, according to the IRS, he wasn't eligible to claim head of household due to the fact that his mother, who lived with him, made more money than he did. There were three adults in the home, the customer, his girlfriend, and his mother. The mother made the most money, and was thus the only one eligible to claim head of household. However, since the customer and the girlfriend had a child, either one of them would benefit more by claiming head of household. I explained the IRS rules to the (potential) client and that I couldn't file taxes or prepare a return fraudulently. (I should have said that I'm not WILLING to do it, but whatever.) The (potential) client decided to go somewhere else. He was able to find a tax accountant (someone I knew in the industry, but not a friend of mine) that not only allowed him to file as head of household, but also allowed the girlfriend and the mother to ALSO file as head of household. (In case anybody doesn't know, only one person can file as head of household for a particular address.)

They were able to get away with this for 6 years. Then they were audited, and busted. They had to go back and pay back taxes and penalties and fines and interest.

Know what happened to the tax accountant that allowed them to do this? Nothing. The rest of this is hearsay, but supposedly they tried to find an attorney who would sue the tax accountant. But since the IRS rules state that the taxpayer is responsible no matter who actually prepares their taxes, they wouldn't end up with the ability to win enough money to justify the expense of the attorney.

The point of the overly long story is that if your winnings are not enough to trigger a W-2G, then don't worry about reporting the winnings. I understand that you want to be as honest as possible, but this is a situation in which reporting a small amount of winnings is not beneficial in any way. When the casinos get to the point where they will start turning in the entirety of your gambling records from your player's card, then start worrying about the taxes.

Quote: Mosca

Which is why I just said screw it and reported the amount on the W2G.

Back in the late 90's I was standing next to
my wife at an Indian casino and I never play
slots, but she gave me a $1 token (remember
those?) and I won $1500. The slot queen came
and even though it was my wifes money and
I was giving the money to her, because I
pushed the button I had to fill out the paperwork.
In fact, they were very shitty about it, like I
was a crook or something. Well, I forgot all about
it and so did my wife. I remembered it years
later and because I'd heard nothing from anybody,
and still haven't, I never did anything about it.
I found out later the IRS plays hell getting casinos
to send in the paperwork on slot jackpots. Sometimes
they did, sometimes they didn't. They have strict
penalties now, which didn't exist in the 90's.

That's a good reason to use a comp card. The casino will send you a win/loss report at the end of the year, and that is usually sufficient to wipe out any W-2G amounts (assuming you actually did lose money). Without the loyalty card, they don't track your play and can't do this.

So if any carded players got W-2Gs this past year contact your casino for the win/loss form so you can substantiate deductible losses.

As far as the gambling records go, consider the following.

The IRS states that your gambling diary should include "at least" the following information: date and type of specific wagering activity; name and address of gambling establishment; names of other persons present with you at the gambling establishment (I live this "rat out your friends" concept); amount you won or lost.

The key for me is the "at least" part. More on this later.

In addition to this written diary of yours, you need other documentation that proves your winnings and losses. Well, it's easy to prove winnings with a W-2G issued by the gambling establishment. For losses, you can have non-winning wagering tickets, canceled checks, credit records, bank withdrawal records, or any information provided to you by the gambling establishment, such as a win/loss breakdown provided by most casinos because of the information on your players card.

In addition, you "can" use the following additional information. Machine numbers of slot machines. The table number for any table games.

All this is included with the following generalized statement:

Quote: IRS

These recordkeeping suggestions are intended as general guidelines to help you establish your winnings and losses. They are not all-inclusive. Your tax liability depends on your particular facts and circumstances.

In other words, no matter WHAT information you provide, the IRS can decide that the information you provided is not enough. Won $25k, but have $24k in losses? Didn't write down the pit bosses name? Can't take the deduction. Didn't note the hair color of the dealer? No deduction. Didn't count how many pieces of gum were stuck under the table? No deduction.

I'm being facetious, of course, but the bottom line is that the IRS, if they want, can take your diary and throw it out the window, no matter how much information you actually put down on it. The only thing you can really do is make a good faith effort to keep the gambling diary with as much information and accuracy as you can. And then hope that if you get audited, the IRS will accept it.

Quote: konceptum

Ever found a penny on the ground and picked it up? Did you report that on your taxes?
Ever gotten a gift for a birthday or holiday? Did you report that on your taxes?.

I heard today that this year airlines are required
to turn in passengers frequent flier miles earned,
because its considered taxable income. I believe
casino comps are taxable also.

Assuming you use a player's card, contact all the casinos you played at last year and request your annual win/loss report.

They track both machine and table action.

Quote: EvenBob

I had to fill out the paperwork.

As you said, the penalties are greater now. Plus, a lot more of it is computerized, so there's less actual work on the part of the people having to send in the information to the IRS.

I've only once received enough money that it triggered paperwork, and that was many years ago as well. As I was filling out the form, I came across the idea that it would be possible to just lie on the paperwork. (I didn't.) But, make up a name, address, phone number, social security number, whatever. ID? Sorry, I didn't bring it with me.

After the incident, I was told by someone in the tax industry that such lies are often done. If you don't have ID, the standard position was that the casino would then be required to withhold a percentage of the winnings for taxes. The idea being that if you wanted that money, you would have to file taxes, and thus you would still give your correct information. However, if a person had really only put in $1 and won $1500, they might not care if the IRS withheld $500 of that, as they would still be walking out $999 richer, and thus they would have incentive to lie about their ID.

I'm not sure if any of this is the case anymore, but I often wondered back then if there was a way to find out how many of these lies were performed.

Quote: MrV

Assuming you use a player's card, contact all the casinos you played at last year and request your annual win/loss report..

Unless they changed from the last time I checked,
you can use the players card report to validate your
log, but you can't use it alone as proof. You might
have only used it half the time, and are trying to
get away with something.

Quote: EvenBob

I heard today that this year airlines are required
to turn in passengers frequent flier miles earned,
because its considered taxable income. I believe
casino comps are taxable also.

Yes, and yes.

When I worked for a major university, the issue of frequent flier miles became a burden. Professors were flying on trips, that were paid for by the university. However, they were earning frequent flier miles on their personal credit cards. (They use credit card to pay for flight, earn miles, and get reimbursed by the university.) The university decided to take the position that any frequent flier miles earned on business trips belonged to the university, so that they could use them to send professors on trips at a lower cost. I remember at the meeting, one professor stating that the peanuts that were served on the plane should also then belong to the university, and he would be happy to regurgitate his peanuts right onto the table.

I apologize for the tangent. But, as more and more things become computerized and easily trackable, we'll see more and more things that the IRS is going to want their tax money off of. I'm still surprised that home equity loans never got attacked.

Quote: MathExtremist

That's a good reason to use a comp card. The casino will send you a win/loss report at the end of the year, and that is usually sufficient to wipe out any W-2G amounts (assuming you actually did lose money). Without the loyalty card, they don't track your play and can't do this.

So if any carded players got W-2Gs this past year contact your casino for the win/loss form so you can substantiate deductible losses.

I actually got one of these win/loss statements over email from the Station chain (I gambled once there all year, funny they were the only chain to proactively send me such a thing). I had no idea these win/loss statements were even available - I just tried to pull up my 2010 win/loss from Total Rewards, but the "system is down." Interesting to see what they have for me for 2010 and 2011 compared to my records. They can't have anything too exact...

Quote: EvenBob

Unless they changed from the last time I checked,
you can use the players card report to validate your
log, but you can't use it alone as proof. You might
have only used it half the time, and are trying to
get away with something.

Yeah it says that right on the TR page where you request your statement:

Quote: Total Rewards

TERMS & CONDITIONS

The Total Rewards player rating system is not intended for tax reporting purposes to the IRS. or any other State or Local reporting agency. Caesars Entertainment makes no representation as to either the accuracy of this information or its effectiveness as a proof of losses and expressly disclaims any liability arising out of or related to any errors contained in this statement. This amount may not include all hand-paid jackpots reportable to the IRS on form W2G. The IRS recommends keeping a diary of your gaming activity with such pertinent information as dates, slot machine or table numbers, jackpots, and total wins and losses. For specific information on tax return preparation and IRS requirements, please consult a tax advisor or the IRS at www.irs.gov.

>>The IRS recommends keeping a diary of your gaming activity with such pertinent information as dates, slot machine or table numbers, jackpots, and total wins and losses.>>

Its not recommended, its required. Without it they
won't even consider your losses.

Only IF you face an audit. And the odds (as we all play) are slim on that. Unless you are trying to hide something. Life is far too short to worry about stuff like this. Gamble, drink and enjoy!

Quote: Boz

Only IF you face an audit.

And if you keep claiming gambling amounts,
chances are good you'll get flagged and
audited. My tax guy says the IRS is a money
making outfit, if they work 5 hours on something,
they expect a return of X amount of dollars.
Because most gamblers lie like hell about how
much they win, they're a good audit choice.
They can a do a forensic audit on you that comes
so close you'll be amazed.

Quote: EvenBob

>>The IRS recommends keeping a diary of your gaming activity with such pertinent information as dates, slot machine or table numbers, jackpots, and total wins and losses.>>

Its not recommended, its required. Without it they
won't even consider your losses.

So is a diary.....proof, I mean is that good enough? I couldn't fudge the numbers, hey? I would most likely have to submit my statement if/when its ever needed?

Ken

The main point seems to have been covered well enough, so I'll keep silent on it. However, on some of the side points...

Quote: konceptum

When the casinos get to the point where they will start turning in the entirety of your gambling records from your player's card, then start worrying about the taxes.

When the casinos start reporting my gambling play to the IRS is the day I shred the things and throw them off the nearest bridge. That's why I believe it will never happen.

Quote: konceptum

I'm still surprised that home equity loans never got attacked.

Why would they do that? Borrowed money is never taxable. If that money is used to make real money, then THAT is taxable.

Quote: MrV

Assuming you use a player's card, contact all the casinos you played at last year and request your annual win/loss report.

They track both machine and table action.

Yeah, but not very well. I've pulled my reports from selected casinos the past few years and most of them have been off significantly (I keep detailed records). So I think the IRS is justifiably skeptical about players using only them as documentation.

Quote: mrjjj

So is a diary.....proof, I mean is that good enough? I couldn't fudge the number

You can fudge the numbers, but its not worth it. They're
very good at catching people, you're better off not getting
on the train at all.

Quote: fremont4ever

Why would they do that? Borrowed money is never taxable. If that money is used to make real money, then THAT is taxable

I actually meant the deductibility of the interest on such things as home equity loans. The rule set on that is another quagmire, and I won't get into it because it's OT, but as I mentioned, I'm just surprised that the IRS never got into attacking people over it.

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

If you're netting $100,000 a year, then you should be considering it a business instead of "gambling income", and take all the legally available deductions you can for having a business. Of course, I used to recommend this to any person with a "hobby" that netted more than $10k a year.

Quote: konceptum

If you're netting $100,000 a year, then you should be considering it a business instead of "gambling income", and take all the legally available deductions you can for having a business. Of course, I used to recommend this to any person with a "hobby" that netted more than $10k a year.

This brings up another good point. The IRS article I linked in my original post said that those rules applied to "casual gamblers." What's the line for becoming a "professional gambler?" I'm poking around the tubes but nothing obvious yet.

Thanks everyone for the intelligent and amusing discussions! I really like this board.

Quote: AcesAndEights

What's the line for becoming a "professional gambler?" .

It means you have to file quarterly, and get 'probed'
often to see if your lifestyle matches your claimed
income. This is to be avoided unless absolutely
necessary.

My accountant told me that if I had W2-G statements from horse racing wins, I couldn't use the reports I receive from casinos for slot and table games as losses. I read Publication 529 and did not see any information saying that one type of gambling wins could not be offset against other types of gambling losses.

Any truth to this assertion? I cannot find any information that supports this claim. I had over $6,000 in W2-G wins and not sure if I have enough losing horse racing tickets to match my wins. I have at least $3k or $4k worth of losing tickets, but thought slot losses would easily cover the rest should I ever have to prove this to the IRS.

Quote: SONBP2

My accountant told me that if I had ... horse racing wins, I couldn't use ... slot and table games as losses. ...Any truth to this assertion?

If you maintain adequate records, you are correct and your accountant is not. Gambling losses can be claimed as deductions up to the amount of gambling wins.

Another "gotcha", and why I might significantly cut back in gambling the year before my daughter heads off to college: gambling wins, as others have pointed out, get added to your income, which gets all totaled up into your Adjusted Gross Income (AGI). The AGI figure is used for, among other things, the amount of family income on financial aid forms.

Gamblng losses, because they're deductions, get subtracted from AGI later in the tax form. Unless things have changed in the last several years, this deduction doesn't show up on the financial aid forms. I'm a really low roller, but if I've cumulatively had $8000 in wins and $8500 in losses, it'll skew the financial aid forms and not paint a true picture of my income.

The real bummer is in state taxes. I live in Massachusettes and Gambling losses are *not* deductible against winnings for state tax purposes. You end up paying taxes on all gross winnings, which is about 5% as ordinary income.

http://www.mass.gov/dor/individuals/filing-and-payment-information/guide-to-personal-income-tax/massachusetts-income/gambling-and-lottery.html

"For Massachusetts purposes, losses up to winnings are not deductible even if they may be claimed as an itemized deduction on U.S. Form 1040, Schedule A. (Exception -see Gambling Activities that Constitute a Trade or Business."

That's crazy. If I visited you in Massachusetts, and we agreed to flip a coin 100 times, with the loser paying the winner $10 each time, the way I'm reading this, we'd both expect to break even on the flips, but would each owe Massachusetts taxes on $500 of winnings.

Quote: travisl

That's crazy. If I visited you in Massachusetts, and we agreed to flip a coin 100 times, with the loser paying the winner $10 each time, the way I'm reading this, we'd both expect to break even on the flips, but would each owe Massachusetts taxes on $500 of winnings.

Right. Michigan is the same way. My understanding is that many other states do it this way too.