jtrz asks
A little early, I know.
But the year is starting to come to an end so I thought I would start this thread. We ask the pros around here for dice advice all the time. But how about how to handle the wins/losses come tax time ?
Hypothetical Scenario I’ve been a good little gambler and kept a record of all my play and wins/losses in a spreadsheet all year. Now I’m up $5,000. How do you handle it for tax purposes ?
Choices: Pay what you owe you chisler ! Pay some of it – Go to the casino one more time anonymously and have a large losing session (sorta – if you get my drift) and record the loss on paper… Forget it ! They’re not getting any $$$ I earned at the tables
Or are there any other tricks of the trade we should know about ?
The casinos keep win/loss records but don’t report them to the IRS at the end of the year, right ? They only do so when the IRS requests them in say an audit, right ? I know you can get your own w/l report from the casinos upon request.
Any help here would be appreciated !
Thanks,
John
Seymore8s Responds
Great Question John. Let your conscious be your guide. I have asked my accountant if I can set up a corporation strictly to handle the gambling aspect of my life. His answer was yes, and I am meeting with him this week to figure out what is involved.
The pluses and minuses are you can deduct your expenses – but you will need to report all of your income and pay up. Talk about your vig’s. The casino cuts its cut, Uncle Same gets its cut. What’s left?
If not going to this extreme, reporting your gambling income is simple, just get the proper IRS form from <http://www.irs.gov/forms_pubs/forms.html> and cough it up.
Dominator Responds:
As A table player John, I don’t worry about it. I never cash in for more than the allotment $10,000 in chips so I never get a W2G. Now slot players are a different story. They get a W2G at the $1200 win level. The thing to do is to us markers. The casino has a record of this and these can be used to offset the wins
Dominator
ACPA Responds:
An article I saw this past week, indicated that the percentage of people who believe it’s OK to cheat"a little" on their taxes went from 8% to 12% since 1999 and the people who think they should cheat "as much as possible" went from 3% to 5%.
I am one who believes in resolving questionable issues in my clients favor as long as we both know that it is questionable and the IRS might take a position that is different.
However, if the IRS rules are clear, and don’t leave any wiggle room, if a client wants to wiggle then he needs a different person.
A person who has been on Television and indicated that had gambling winning increases their chance of being audited.
I’ve been told that in a least one IRS district, returns where the only winnings they showed were amounts reported on W2-Gs, which you know represent slot winnings of $1,200 or more, were selected for audit, because the IRS didn’t think most of those people only had that one event of winnings in a year.
As I have discussed even having net losses for a year may still result in additional taxes.
Noah
Wagner Responds:
The long arm of the government can be very frightening. The tax department, in an effort to keep itself alive and kicking, must perform a certain number of audits every year on different tax brackets. I don’t think most gamblers have anything to fear since they lose most years. As an advantage player you’ll not have to worry unless you start making 10K on a given night.
ACPA responds:
In this installment I’ll address your $10K figure. I’ve already pointed out that in other installments that you can have something to worry about even if you were a net loser for the year.
The $10k refers to a report that the casino has to make to the Government for any cash transaction of $10K or more in a day.
I use to write a weekly column for the local newpapers addressing various financial matters and one day thought I’d write about the $10K requirement. I stopped by Fitzgeralds casino where I was gambling quite a bit and asked to talk to the head of the Cashering Department and told him what I was planning and asked him to explaining this rule for me.
Boy, was I surprised by his answer which was basically, "I can’t answer that or I will be in trouble for helping you know how to get around the requirement."
So I had to hit the books instead of talking to someone who does it. A casinos has a 24 hour period, not necessarily from 12 midnight to 12 midnight and has to report any cash transaction, in or out for one person for that "day". This report doesn’t indicated that you won, lost, or what ever just that you even presented $10K cash to them or they gave you $10K in cash.
This report might trigger an audit of your return and that is why people generally tried to avoid doing $10K of cash transactions in a single day.
I had a client who literally didn’t trust the bank and had accumulated over several years a cash fund. He paid $10,000 cash for a Cadillac and the dealers tried to talk him out of paying cash, but he did and the dealer had to report the transaction.
That form triggered an audit of a return where the total gross income was probably only $25,000 but fortunately I was able to convince the agent that the $10,000 in question had arisen over a long period of time and we got a no change report.
That audit was an insterting experience.
Noah
ACPA coninues with great info
This is going to be the first of several posts on this subject. Generally, I’m going to respond as though the questions asked, or comments made had oocuured in my CPA office by someone asking my assistance.
I was listening to Dave Ramsey financial show one night this week while coming back from the casino and Dave was responding to someone who told Dave that he had done some work for his local church and the church would not be giving him a Form 1099 reporting the cash income.
Apparently the fellows tax preparer had told him essentially "What they don’t know can/t hurt you and was telling the guy that he would not report that income on the tax return he prepared for the fellow.
Dave reactly immediately, essentially telling the fellow run as fast as you can from that preparer and don’t let him touch your return.
I never have to worry about that, as I have a reputations of asking a lot of questions before I will prepare a return for someone and if I don’t think I am getting accurate information, I will and have refused to prepare a tax return for some people.
After that lead, I would say to you John, there is some additional information I would have to get from you, John. It isn’t the net gain that you have to worry about, gross gambling winning (which I’ll disucss later} are reported on the first page of your Form 1040 while your gambling losses are deducted on Schedule A – Itemized Deductions but only to the extent of your wins.
If you don’t itemize you don’t get to deduct any gambling losses.
I have had examples of people who had say gambling winnings of $12,000 and gamblings losses of $15,000, so they had a net loss of $3,000 that had to pay more taxes than they would have had paid if there had been no gambling activity.
More in a subsequent post.
Noah
ACPA continues, The second installment.
From a technical aspect, the specific IRS rules that apply to the taxation of gambling wins and the deduction of gambling losses is contained in Revenue Procedue 77-29.
A literal reading of this Rev Proc would require that each bet that is won be accumulated and each bet that is loss be accumulated so that the winnings can be reported on page 1 of the Form 1040 and the losses, to the extent of reporting winnings, be deducted on Schedule A as itemized deductions.
A literal interpretation is ridiculus for the bets made at a craps table. For example a $5 pass line bet is made and a $1 crap check bet is made. A seven/eleven is rolled so you have $5 in your winning total and a $1 is your losing total.
What I personally do and what I recommend to clients is to keep a diary of your net wins and net losses at least by days, and preferable by casino by days. So on a 3 day trip to the Tunica Jamboree, you would have a net win/loss for Friday at Gold Strike, a net win loss at Horseshoe next door where you played and a net win/loss for any other casino you went to on Friday. The same thing for the three different casinos you visited on Saturday and the four you visited on Sunday.
The Rev Proc suggests that the diary contain at least the following material:
Date and type of specific activity
Name of gambling establishment
Address/location of gambling establishment
Name of other persons at gambling establishment
Amounts won/loss.
The IRS will not automatically accept your diary however, and I’ll talk about what additional support will help your diary be accepted.
I indicated in the previous post that someone with a net gambling loss still wound up with a higher amount of tax because of their gambling wins.
That example was because the couple wasn’t itemizing deductions but was taking a standard deduction of $7,850. They had gambling wins of about $12,000 so they itemized deductions to completely offset the gambling win, but there deductible taxes,interest, contributions, and other deductions pnly totaled about $3,500 so their taxable income was $4,350 higher than it would have been if they had not had the gambling wins/losses.
That can be a bummer.
Noah
ACPA continues, The third installment.
I’ve indicated that you can actually be a net loser from gambling and still pay more taxes than you would if you didn’t gamble at all. The previous example was someone who doesn’t normally itemize deduction on Schedule A but rather takes a standard deduction.
However, before those of you who itemize already think you don’t have a potential problem if you are a net loser, consider the following:
Your gross winnings increase income on page 1 of the Form 1040, where the bottom number is something called Adjusted Gross Income(AGI).
That AGI is used in computing the amount of itemized deduction you can take for medical expenses. If you have told deductible medical expenses of $10,000 and an AGI of $100,000 you have to reduce the $10,000 by 7.5% of the AGI so deductible medical expenses are only $2,500. Using an example of $10,000 of gambling winning and $12,000 of gambling losses, your AGI went up to $110,000 and your allowable deductible medical expenses decreased by $750, so you will pay more taxes even though you lost $2,000 in your gambling activity.
The same concept applied to Miscellaneous itemized deductions. They must exceed 2% of your itemized deduction. So if you had total miscellaneous itemized deductions of $4,000, you would have had allowable miscellaneous itemized deductions of $2,000 without any gambling activity but only $1,800 with the gambling activity described above.
However, don’t think you are home free if you don’t have medical deductions or miscellaneous deductions.
Do you have Social Security income? If your not already paying tax on 85% of your Social Security income, gross gambling winning can increase the amount of your Social Security income that is taxed.
If your AGI is over $137,300 and you file a joint return, or if the gross gambling winnings push AGI over $137,300 your itemized deductions in total may be decreased, i.e. you don’t get to deduct all your contributions, state taxes, interest expense, etc.
If your AGI is over $103,000 or the gross gamblings pust AGI over $103,000 the deductions for personal exemptions may be reduced.
In all the above examples you may pay more taxes even if you had a net loss.
More to follow.
Noah
————————————————–
Earlier, I indicated that you should keep a gambling dairy, but indicated that even if you kept a dairy that contained all the information the IRS itemized in Revenue Procedure 77-29, you are not home free in supporting gambling losses you want to claim.
John,the Rev Proc recognizes that you may be "skimming" your own numbers and I would strongly suggest about you adopting the option of "recording a loss before the end of the year".
You need to supplement your diary in as many way as you can. None of the following thoughts by themself is sufficient it is the perponderous of evidence that you produce to supplement what you recorded in the diary to prove it’s accuracy.
1. Write a check to get the stake you gamble with, either before you leave for the casino, or at the casino.
2. Perhaps establish an amount on deposit at the casino that you can draw against
3. Perhaps establish a line of credit at the casino. Take a marker and pay it off before you leave the casino or by check.
4. Keep records to prove you were at the casino when you say you were, an auto mileage book, hotel bills, airline tickets, gas tickets for the car enroute, etc.
5. Deposit all winning into the bank and indicate where it was from.
6. Request your win/loss records from the casinos you play at.
If you have done all of the above, your tax preparer should have no problem with preparing your return and the IRS auditor should have no problem if you lost the audit lottery.
In the next installment, I’m going to address some of the other misconceptions, some of which have been mentioned by others in this thread.
Dominator Responds
Noah,
When we claim the slot wins against the markers, we always have more markers then we claim because, it is my understanding that you can’t claim any loses. So we are zeroed out. I don’t know if this would help if God Forbid, the terrible happens, but we do have more markers.
Dominator
ACPA Responds, and continues with the fourth installment
Dom,
Your response brings me to what I was planning to say in the next installment, so here goes.
Taking a marker and paying it off after you return home doesn’t mean you had a loss.
Any of you who itemize deductions know that several years ago all your tax prepare asked about your church contributions was generally, did you make the contribution by check, if so you were home free. If not, it was a little more challenging to substantiate that deductions if you didn’t use church envelopes.
Let me tell you a story, a well respected church member who had a store use to go to the office of the church where the collection plate was being counted and would give them a check for all the silver and small bills that were in the collection, because he needed them as change for his store when he opened back up on Sunday.
Logical, and no one questioned him. However, he told his tax preparer that those checks were contributions.
Same thing could happen with markers.
IRS regulations were changed so that if you make a contributions exceeding a certain amount you have to have a receipt from the charity.
Just something to think about..
Noah
ACPA Continues
I think this will be the last installment on this thread.
I want to mention Casino Win/Loss statements and their help in substantiation of win and loss numbers that go on your tax return.
To repeat, the best source for those number is a gambling diary that you yourself keeps that contains as much of the information listed in Rev Proc 77-29 that I discussed earlier.
A casino win/loss statement probably can’t hurt you if you keep accurate records. However, my experience has been that their records don’t agree with mine, particularly as it relates to table play.
Those statement are extremely varied as to what they provide, but I still recommend you get them annually from all the casinos you have played at. Incidentally, if you don’t have a players card that you use or don’t give your name to the pit when you check it, probably none of this applies.
The following comments relate to 2001/2002 statements I have seen.
Harrahs – all properties:
Provides just a single net win/loss number. They say their number is not verifiable and refers you to the IRS requirement to keep a dairy and tells you to consult your tax advisor.
Hollywood – Tunica
Indicates they take the gross amount played, less machine paid win and hand paid jackpots and they provide only a net win/loss figure. Indicates it may not agree with your records.
Gold Strike – probably all facilities since they all use the same One Club Card
Provides Total Coin In, Total Coin Out, and total jackpots
Uses a separate report for table games and provides Estimate Total In, Estimate Total Out, and estimate win/loss. Indicates that amount does not constitute a definite accounting of gambling activity nor do they denote total winnings or losses.
Isle of Capri – Tunica
Provides a separate win/loss number for slot activity and for table activity.
Horseshoe – Tunica
Provides a net number for table activity and indicated IRS requires you to maintain personal records and receipts and suggest you talk with your tax advisor.
Grand – Tunica
Provides all dates you played and gives number of hours, and daily win/loss numbers and total the daily win numbers and loss numbers.
This comes the closest to what you need of any of the casinos.
Sams Town – Tunica
Provides a single number for table games win/loss.
For slot play shows total coin in and total coin out.
Even though the information provided by most of the casinos isn’t what you need for preparing your tax return, I still recommend you obtain it.
Hope the tax thought were insightful to you. And now I’ll edge and say what I provided was general and may not fit your circumstances. Check with your tax advisor.
Noah
ACPA’s final post on Tax .
I intended my last post to be the last one on this thread from me, but I just came back from 16 hours of the 40 that I have to have of Continuing Education and the instructors probably spent 20-30 minutes talking about tax issues of gambling.
Much of it was a repeat of what I have already posted, but there was one tax case that was new to me where the taxpayer didn’t report income from W-2Gs and didn’t have enough other itemized deductions so would up paying tax on the $4,500 of W-2G income.
The other situations involved four different situations where the IRS on looked at the deductions for gambling losses. One of them, the taxpayer had a listing by days his wins and losses and the agent accepted what he had.
The other three situations, the Internal Revuen Agent wrote up an adjustment disallowing some or all of the gambling losses because of lack of substantiation.
Eventually my working through the appeal process, the gambling losses were accepted, but the taxpayer even though he had no net gambling gain paid more tax because of gambling activity. In these three instances the losses ranged from $100,000 to almost $800,000.
Noah
Replies:
No replies were posted for this topic.
