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Best of Mark Pilarski
The taxman cometh20 July 2007
Dear Mark: I have a question regarding winnings from a slot tournament. The casino reported the tournament winnings on a 1099 MISC ($15,000). Can an equal amount of gambling losses be shown to offset the winnings from gross income on Federal 1040; like it can when you receive a W-2G form? Sandra D.
The casino's decision, Sandra, to issue a Form W-2G, Certain Gambling Winnings, or a Form 1099-Misc., Miscellaneous Income, does not affect the nature of the winnings or the deductibility of losses for tax purposes.
Back in 1977 the IRS introduced the W-2G (statement of gambling winnings) to replace form 1099 for reporting gambling wins as well as income tax withheld. Presumably the reason you received a 1099-MISC instead was because your win was considered a "prize" worth $600 or more, and not winnings from a wager. Still, just so long as the value of the prize received was considered an inducement to gamble, it could be rightfully represented as gains from gambling, and offset by gambling losses.
Gambling winnings are reported on tax form 1040 on the Other Income Line. Reportable gambling winnings can come from lotteries, bingo, raffles, horse and dog racing, online poker, casino games and slot tournament wins. Luckily, Sandra, you can offset the taxes by reporting your losses if you keep impeccable records.
As a loss-claimant, you must substantiate your loss claims with a flawlessly documented, descriptive gambling diary. For starters, your gambling diary should have date and type of gambling event, name and location of casino, poker room, racetrack, etc., table or slot machine number where the gambling took place and total dollar amount lost. You are also permitted to use airline tickets, bank withdrawal statements made at the casino, canceled checks, credit-card cash advances, bona fide (see below) losing betting stubs, and yearly statements of your wins and losses from the casino as additional collaboration.
Also, Sandra, you can only offset your wins by loses if you itemize rather than take the standard deduction on your tax return. Gambling losses can be used only to counterbalance gambling winnings during that same tax period. They cannot be carried forward or back to any other tax year.
Remember, Sandra, the burden of proof falls on your shoulders, so the better your records, the better your chances of surviving an audit. And don't emulate a misinformed friend of mine who went dumpster-diving at the racetrack to collect over $10,000 worth of losing tickets over one weekend, and then tried to peddle them off as his own personal loses. The IRS caught a strong whiff of that horse manure, and his legal fees ended up far outweighing his tax liability, penalties and interest.
Final caveat: Being that this subject matter is well above my pay grade, I would still recommend that you consult your CPA or accountant to get the current tax code changes regarding gambling and taxation.
Dear Mark: Can I take advantage of my wife's gambling losses and apply them to my wins for tax purposes? Joe T.
Yes, Joe, married couples can combine their wins and losses for reporting purposes as long as they file a joint return.
Dear Mark: Are the probabilities for various hands the same in Texas Hold'em as they are in Seven-Card Stud, or are they different due to the way community cards are dealt? Also, does it matter how many players are on the game? Randall G.
The probabilities are the same, Randall. Seven random cards out of 52-card deck have the same odds of appearing regardless of how they are dealt and distributed or how many other players are at the table.
Gambling Wisdom of the Week: "The professional gambler bets to win; the novice bets to bet." -- John Patrick
Best of Mark Pilarski