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Ask the Slot Expert: The way we claim gambling losses is not fair

23 December 2011

John,

I just want to add a little input on the way the IRS screws us on taxable gambling income.

I am retired and have moved into an apartment. I had a W-2G showing I won $3,000.00 in 2009, but my win-loss statement showed I lost more. As you pointed out, gambling losses must be filed on Schedule A, but when I itemized my deductions I could only find about $5,000.00 in deductions, including gambling losses. But if I take standard deductions on 1040A I have around $11,000.00 in deductions for my wife and myself. The problem here is I still had to show gambling income on 1040A, so I had to pay tax on my winnings even though my losses were greater. The bottom line I had to pay $640.00 additional tax on my winnings.

I have contacted IRS many times asking why I had to pay tax on income that that offset by losses. I feel if you have to show winnings on 1040A, you should be able to deduct losses on 1040A.

You have a great column.

Thank you,
Paul

Dear Paul,

Thanks for the kind words about my column.

You're absolutely right that the way we have to report gambling winning and losses does not accurately represent a player's true net.

Be careful when you use the numbers from a win/loss statement. Let's say you have a W-2G for $3,000 and your win/loss says you lost $2,000. If the statement does not break out IRS-reported winnings, the $3,000 you won is included in the $2,000 loss. To make the gambling winnings minus the gambling losses you report match the statement, you have to deduct the IRS-reported winnings from the net on your statement. In my example, deduct $3,000 from the $2,000 loss to get a loss of $5,000. Your return should show $3,000 in winnings, $5,000 in losses and that matches the $2,000 loss on your win/loss statement.

This situation is even worse for high-limit players, who rack up W-2Gs every couple of spins. I know high-limit players who have millions of dollars in W-2Gs but have actually lost money playing the slots. They have to keep scrupulous records to avoid having to pay taxes on phantom winnings.

Unfortunately, with our government starved for revenue, don't expect this situation or the $1,200 reporting threshold to be changed anytime soon. It's a good idea to put aside 20-25 percent of any reportable winnings to use for paying the taxes on them.

Best of luck in and out of the casinos,
John


Send your slot and video poker questions to John Robison, Slot Expert, at slotexpert@comcast.net. Because of the volume of mail I receive, I regret that I can't reply to every question.

John Robison

John Robison is an expert on slot machines and how to play them. John is a slot and video poker columnist and has written for many of gaming’s leading publications. He holds a master's degree in computer science from the prestigious Stevens Institute of Technology.

You may hear John give his slot and video poker tips live on The Good Times Show, hosted by Rudi Schiffer and Mike Schiffer, which is broadcast from Memphis on KXIQ 1180AM Friday afternoon from from 2PM to 5PM Central Time. John is on the show from 4:30 to 5. You can listen to archives of the show on the web anytime.

Books by John Robison:

The Slot Expert's Guide to Playing Slots
John Robison
John Robison is an expert on slot machines and how to play them. John is a slot and video poker columnist and has written for many of gaming’s leading publications. He holds a master's degree in computer science from the prestigious Stevens Institute of Technology.

You may hear John give his slot and video poker tips live on The Good Times Show, hosted by Rudi Schiffer and Mike Schiffer, which is broadcast from Memphis on KXIQ 1180AM Friday afternoon from from 2PM to 5PM Central Time. John is on the show from 4:30 to 5. You can listen to archives of the show on the web anytime.

Books by John Robison:

The Slot Expert's Guide to Playing Slots