Attitude

[JG EA]

It is all about attitude. Recent client encounters have hurt. Now a long time client unloaded a bombshell. This client is one of a group of families that I do their taxes. As it turns it was from this group that the referral came for the woman who accused me of working for the IRS.

The bombshell was a printout from different casinos with a summary of coin in and coin out. The net was a loss according to the client so I am assuming coin in means money paid to the casino. (A card is used to keep track of all this.)

No W2-G’s involved. I was certain that each had to be reported separately, but promised to do research to make really sure – to see if it could possibly be netted. The amounts are huge, but the losses are higher. To make matters worse, this is the first year in a long time that she cannot itemize otherwise so it makes about $1000 difference in tax on her return. I told her up front that it would be less of a refund for her. Since I was doing research, she left with the parting thought – “ do whatever to give me the best benefit’ – to which I answered I’d call and let her know what I find out. I was unwilling to say yes indeed I work for the IRS and so please tell your whole family that that person you sent to me was right after all.

Of course the research was pretty easy. Report the full amount of winnings and claim your losses. I also printed out a couple of Casino reviews to show that they know that also.

You may wonder why she gave me this since she doesn’t intent to report winnings? Because she thought it would help her on her taxes to have a gambling loss.

My attitude is improving. Cutting my “losses” as they say.

[Jiggers]

Netting of gambling

Check out Chief Counsel Memorandum AM2008-011 dated 12/12/08.

This was on another WebBoard.

Basically it says that you can net "casual" gambling on line 21 of the 1040.

I don't know if this applies in your case, but........................

[JG EA]

Check out Chief Counsel Memorandum AM2008-011 dated 12/12/08.

This was on another WebBoard.

Basically it says that you can net "casual" gambling on line 21 of the 1040.

I don't know if this applies in your case, but........................

Really? I'll check it out.

OK, Checked it out. It does talk about netting the gains and losses for an over all win or loss on a particular occasion. (at the time redeems tokens). And in a case like this, when all I have is totals for the year and the client has no records, can we justify saying that each occasion was a loss? I wonder if the casinos will give a day to day breakdown. I'll find out.)

By the way - thank you very much for this info. I didn't know about this memorandum.

[erchess]

Jiggers

I checked out your cite and it contains nothing new. Casual gamblers who do not itemize may not write off their losses. A casual gambler for these purposes is anyone who places bets but does not qualify as a professional gambler.

[Koss]

Force Print Schedule A

Okay, this is an interesting thread...

I don't have an opinion on the "netting" of gambling winnings and losses. I haven't read the cited memo.

But I do have a suggestion.

Even though your client may not have enough deductions to itemize, you can probably enter all the potential deductions anyway, and then get your software to "force print" Schedule A, without forcing itemized deductions. In other words, on the second page of Form 1040, the taxpayer still claims the standard deduction, but you print out Schedule A nevertheless.

Depending on how (un)sophisticated the client is, you may be able to just loosely walk through the tax return, and show the client that she actually claimed a deduction for the gambling losses. You just don't need to explicitly mention that the itemized deductions turned out to be less than the standard deduction...

Some may see this as rather deceptive, or manipulative, or dishonest. But I respectfully disagree. It really depends on the client. Some clients will never understand it, no matter how it is explained. They simply will not be satisfied unless they perceive that they are getting some sort of benefit... because their sister-in-law's hairstylist told them it was a tax write-off.

Perception is reality. If you don't present the client's tax return in a way that makes them feel good about it, they may find someone else who will. That guy will give them the same tax return, but will find a better way to position it.

As a sidebar...

There are valid reasons to force a print of Schedule A even if the taxpayer is not itemizing. A sophisticated client might actually want to see how close they came. Or... it might be relevant for an exception to the early withdrawal penalty on an IRA. The penalty is waived to the extent that medical expenses exceed 7.5% of AGI, even if the taxpayer doesn't itemize.

BMK

[JohnH]

I like the way you think. This is more or less like entering the tax prep fee on the Schedule A even when you already know they won't exceed the 2% haircut for total deductions in this category. At least when they take a casual look they will see the Tax Prep Fee listed as a deduction...

[DonPriebe]

But I do have a suggestion.

Even though your client may not have enough deductions to itemize, you can probably enter all the potential deductions anyway, and then get your software to "force print" Schedule A, without forcing itemized deductions. In other words, on the second page of Form 1040, the taxpayer still claims the standard deduction, but you print out Schedule A nevertheless.

Depending on how (un)sophisticated the client is, you may be able to just loosely walk through the tax return, and show the client that she actually claimed a deduction for the gambling losses. You just don't need to explicitly mention that the itemized deductions turned out to be less than the standard deduction...

Is this like always showing the Tax Prep fee in the Miscellaneous Deductions area even though the 2% floor makes it meaningless?

[Jesse]

Even though your client may not have enough deductions to itemize, you can probably enter all the potential deductions anyway, and then get your software to "force print" Schedule A, without forcing itemized deductions. In other words, on the second page of Form 1040, the taxpayer still claims the standard deduction, but you print out Schedule A nevertheless.


There are valid reasons to force a print of Schedule A even if the taxpayer is not itemizing. A sophisticated client might actually want to see how close they came. Or... it might be relevant for an exception to the early withdrawal penalty on an IRA. The penalty is waived to the extent that medical expenses exceed 7.5% of AGI, even if the taxpayer doesn't itemize.

BMK

I do this often, Union dues, Tax prep fee and Medical expenses for certain people - they just need to see it in black and white! I don't think it's deceitful, it just saves my time and energy trying to explain it over and over every year!

[S T]

Sched A

I am with Jesse, It takes such a small amount of time to enter, and saves all of the explanation, that I always enter the Misc Deductions on Schedule A. Then there have been times, that I print the Schedule A, even when the Standard Deduction is more, just so the t/p client knows that I did use all of those figures that they provided. My software automatically enters my tax prep fee for the prior year on the Schedule A, so all I have to do are the other items.

Every now and then I am surprised, as the Schedule A will carry to the State as itemized deductions, even if the t/p could not meet the Federal itemized deductions.

Sandy

[JG EA]

Too late, I already told the client that she will have less of a refund this way. But yes, that is what I should have done. And I should not have pointed out that by including the total winnings and itemize that same amount on A that it is worse than not reporting it. But since reporting it is a must I should have been more positive in my approach. Haven't gotten my sea legs yet this year.

[thomtax]

I enter the itemized quite often here in Arkansas, even though it does not come near the federal standard deduction. For example: Federal MFJ is nearly $11,000 but Arkansas only gives $2000 per person. So there is an almost $7000 gap where you can itemize on state but not federal. Of course, in Arkansas, it is almost always better to file Married Filing Seperately on the same return if they both work. So my software figures it both ways and uses the best. I even have it print out a comparasion sheet as a PR thing to show the client that I am working to get them the best deal.

LT

[Gary]

Arizona

In Arizona, all medical expenses are deductible, so it often happens that you can itemize on the AZ return while taking the standard deduction on the federal.

[Kram BergGold]

A suggestion

If the sheet from the Casino is not netted per day then you should see if she can get one.
My interpretation of the new netting rules is you can net per each sitting. So a poker player reports net winnings and losings per each sitting at a table whether it be an hour or 15 hours. Same would go for a slots player. You should tell her to keep a log per sitting and then hope iot matches the casinos printout at year end.

[POCAHONTAS]

printing out schedule A and letting client's think that they are getting all the deductions sounds good except what do you do if client has gotten a quote of the refund earlier from another tax preparer and comes to you hoping to get more. So you put all those deductions on the schedule A and still have the same refund as the other tax preparer. And the client looks at you funny.

how does one deal with this situation??

[Jesse]

You just tell them the truth, you can only try to explain, sometimes they either just don't understand or just don't want to understand.

Some people can't grasp the concept of the standard deduction vs. itemized deductions or that certain deductions are subject to the 2% or 7 1/2%. They just know that they can (or that their friends did) take a deduction for things like union dues, tax prep fees, mortgage interest, etc... so it's just easier if they can see the numbers on the return then it is to try to explain that they are really not receiving any benefit as the standard deduction was used.

Other people do understand the difference and as others pointed out although there is no benefit for the Federal there may be a benefit for the state.