Stay informed with the
NEW Casino City Times newsletter!
Best of John Robison
The Slot Expert's Guide to Winning at Slots and Video Poker6 March 2002
It's that time of year again. Time to get our records in order and figure out our income taxes. And if you think figure skating judging is inconsistent and open to interpretation, just wait until you look at the history of the IRS and gambling.
You are supposed to report all income you earn during a year, but as a practical matter most people don't bother tracking their gambling winnings and don't even think about how much they may have won when they fill out their Form 1040s. And I think the IRS operates under the presumption that everyone loses when they gamble--in the long run, at least--so this isn't an area that they focus on when they look at compliance with tax laws. Besides, gambling is mostly a cash business and there's usually no W-2 or Form 1099 to use to verify the amount you write on your Form 1040, unlike the verification that can be done for wages, interest, and dividends.
Usually there's no paperwork, but if you hit a jackpot of $1200 or more on a slot or win $600 or more in a drawing, you will be required to supply a social security number and the winnings will be reported to the IRS. You can then deduct losses as a miscellaneous deduction to offset some or all of your reported winnings.
So far, so good. But now things start getting murky. When I claim income from my business, the only number that I report on Form 1040 is net profit. But for gambling we have part of the income reported on one line and "expenses" reported on another. Worse, the winnings you have to report are used in the Adjusted Gross Income calculation, and increasing your AGI may affect the deductibility of medical expenses and anything else based on AGI. And to add insult to injury, some states do not let you offset your winnings with losses on their state income tax forms.
Now, what about cashback and comps? Should they be included in the income we report or should we take them into account when we calculate our losses or should we just ignore them altogether? And what about winnings from drawings? Can we offset those with losses from playing?
Time for a digression: I've read a number of messages on various Internet newsgroups and people have had contradictory experiences with the IRS in these matters. The problem, they say, is that the regulations are vague and so they are intrepreted differently in different cases.
There's no substitute for competent advice. If you have a complex tax situation or hit a big jackpot, you should get an advisor if you don't already have one.
Most of us just have to deal with just a few relatively small W-2Gs, though, so I can tell you what I have done when I have received them.
First, I keep a record of each session I play. I note how much I put in the machine or machines and how much I cashed out. The difference is my profit or loss for the session. Adding up all of the session results gives me my overall net for the year.
Now, if I have W-2Gs or 1099s to report, I deduct that amount from my overall net. The sum of the gambling income forms I received goes on Form 1040, and my overall total net of the amounts on those gambling income forms goes on my Schedule A under miscellaneous deductions. I don't Enronize my results by taking some of my winning sessions "off the balance sheet."
If you haven't kept track of your winnings and losings over the year, call or write the slot clubs to which you belong and ask them to send you a record of your play, called a Win/Loss Statement, for the calendar year 2001. This is frequently just an overall win/loss number, so remember that it includes any W-2Gs you may have received from that casino and you have to net those out. For example, say you have a $2000 W-2G from a casino and they report your overall winnings of $1000. You include the $2000 W-2G on Form 1040 and take a $1000 loss as a deduction.
Time for a rant: These rules and amounts were set when multi-thousand dollar jackpots were unusual. In today's world of high-denomination machines and multi-coin/multi-line machines, a $1200 or more payoff is not unusual anymore. And it is unfair that you can't claim a net win as income instead of having to offset winnings with a deduction on another form. The rules should be rewritten to match the times, but it won't happen anytime soon.
This article is provided by the Frank Scoblete Network. Melissa A. Kaplan is the network's managing editor. If you would like to use this article on your website, please contact Casino City Press, the exclusive web syndication outlet for the Frank Scoblete Network. To contact Frank, please e-mail him at email@example.com.
Best of John Robison