Gambling Income and Losses

[photoman]

I have a questions regarding Gambling. I have reviewed old post and just want to be sure I understand correctly.

1. If client receives w2g for 5000 year 2010 and then has a casino statement showing at least 5000 in losses during 2010 can we just 0 it out . I noticed something about daily winnings and losses and I want to be sure that it's ok or not just to add up all gains and losses for year and take against each other . I realize the gain would go line 21 1040 and losses on A.
2. Other part of question is if a client has a gambling loss say in 2009 that exceeds the gains can they carry over a loss. I read the pubs and this is not explained. My better judgement is no, but just wanted to be sure These are all slot machine winnings and losses

[New York Enrolled Agent]

I have a questions regarding Gambling. I have reviewed old post and just want to be sure I understand correctly.

1. If client receives w2g for 5000 year 2010 and then has a casino statement showing at least 5000 in losses during 2010 can we just 0 it out . I noticed something about daily winnings and losses and I want to be sure that it's ok or not just to add up all gains and losses for year and take against each other . I realize the gain would go line 21 1040 and losses on A.
2. Other part of question is if a client has a gambling loss say in 2009 that exceeds the gains can they carry over a loss. I read the pubs and this is not explained. My better judgement is no, but just wanted to be sure These are all slot machine winnings and losses

First, I would suggest you go to the IRS website and in the search box in the upper right corner enter AM 2008-011. This is Chief Counsel's conclusion on the law. To answer your first question, netting of gains and losses can be done by a casual slots player on a session (presumably a day - the view of most practitioners) basis. The AM clearly shows you cannot net for the year. To your second question, the AM also notes there are no carryovers.

[photoman]

Thanks I will go to the IRS Site and review.

[BOB W]

Here is the url"

http://www.irs.gov/pub/irs-utl/am2008011.pdf

After reading it I am just as confused as before. Is it saying daily Profits can be netted on line 21 if a daily accounting is maintained? And is it only for non-itemizers? Plus many other questions not clear.

[ToledoEd]

My understanding is that you report the winnings on Line 21. Assuming the client itemizes, you report total losses, up to the amount of winnings on Sch A.

The players club statement that shows net losses inexcess of the W2G gives you a solid basis for claiming gambling losseson Sch A, $5000 loss in this case. You would not want to report the total winnings that show on the statement on line 21 and then wipe it out on Sch A because it would cause the taxpayer to owe more state and in some cases city income tax.

You have to be careful that the players club statement shows a net loss more than the amount of winnings if you are going to use it as the basis for your entry on Sch A, but the taxpayer could have additional proof of more gambling losses if it does not.

I have used a players club statement to help prove a client was a professional gambler before. But he also had horse track records and logs to support claim.

[Davc]

Example;

For simplicity's sake gambling money is in a seperate pocket.

5 days in LV at CSEA SS:

Day 1 start with $50, end with $40. Loss $10

Day 2 start with $40, end with $25. Loss $15

Day 3 start with $25, end with $80. Win $ 55

Day 4 start with $80, end with $60. Loss $20

Day 5 start with $60, end with $30. Loss $30


Line 21 = $55

Sched A loss = $55

What happens during each day is not relevant. Even if you won a $5,000 jackpot on day 2 and received the dreaded W-2G.

[jtclark]

Constructive reciept is the issue

For a casual gambler gains and losses are calculated on a 'session' basis. Typically this means day-by-day but this is not necessarily the case; there may be more than one session during the day but as opposed to Davc's opinion, my opinion is that a session can not extend past a single day. The reason involves the issue of 'constructive reciept.'

When the funds from a transaction of any kind are made available to the taxpayer, such funds are constructively received in a manner recognized by the revenue code. In this case, gambling winnings are income. Notice that the ruling bases it's conclusion on when the 'tokens are redeemed.' A player who redeems tokens, walks out of the casino, buys lunch or otherwise uses the money has concluded his or her 'session' and has taken constructive reciept of the winnings.

I have long objected to this punitive view of gambling winnings as it typically penalizes the elderly and can put a substantial crimp on their entertainment budget. The only fair thing would be to allow the taxpayer to net these winnings out on an annual basis without regard to wether or not that taxpayer itemizes, something that only adds insult to injury.

[BOB W]

I understand all that is said above in this thread. What I don't understand is how it gets reported on line 21 for daily win/loss inclusion or not. W-2G goes on Line 21 through input screen. Do you then list on other income screen the net gaines on a daily basis and enter a negative figure for the W2-G that was part of the netted daily win/loss portion????

Is my question off base?

[Gary2]

I understand all that is said above in this thread. What I don't understand is how it gets reported on line 21 for daily win/loss inclusion or not. W-2G goes on Line 21 through input screen. Do you then list on other income screen the net gaines on a daily basis and enter a negative figure for the W2-G that was part of the netted daily win/loss portion????

It sounds like you're asking a question that's more about your software and not the tax situation. Tax-wise, line 21 gets a single number. How you do the math doesn't matter, as long as you get the right answer. You don't need to list each day separately, though it could be useful as a record. The main reasons for doing the W-2G separately are a) to enter any withholding; and b) to facilitate any match-up (and I'm making a big assumption that electronic filing transmits all of the relevant W-2G data).

[Gary2]

When the funds from a transaction of any kind are made available to the taxpayer, such funds are constructively received in a manner recognized by the revenue code. In this case, gambling winnings are income. Notice that the ruling bases it's conclusion on when the 'tokens are redeemed.' A player who redeems tokens, walks out of the casino, buys lunch or otherwise uses the money has concluded his or her 'session' and has taken constructive reciept of the winnings.

I'm not sure I would emphasize the constructive receipt aspect. Otherwise the implication is that you can't apply the session rules to slot machines that pay in real coinage. I think the author of that memo was just looking for some precedent to hang his hat on, so that it didn't look like it was total fabrication.

The real issue seems to be a pragmatic compromise on what would be a reasonable level of tracking.

[BOB W]

It sounds like you're asking a question that's more about your software and not the tax situation. Tax-wise, line 21 gets a single number. How you do the math doesn't matter, as long as you get the right answer. You don't need to list each day separately, though it could be useful as a record. The main reasons for doing the W-2G separately are a) to enter any withholding; and b) to facilitate any match-up (and I'm making a big assumption that electronic filing transmits all of the relevant W-2G data).

You are correct in how this functions with in my tax software. If I don't match W-2G earnings it will surely cause a mail audit, at the least.

[Jesse]

Example;

For simplicity's sake gambling money is in a seperate pocket.

5 days in LV at CSEA SS:

Day 1 start with $50, end with $40. Loss $10

Day 2 start with $40, end with $25. Loss $15

Day 3 start with $25, end with $80. Win $ 55

Day 4 start with $80, end with $60. Loss $20

Day 5 start with $60, end with $30. Loss $30


Line 21 = $55

Sched A loss = $55

What happens during each day is not relevant. Even if you won a $5,000 jackpot on day 2 and received the dreaded W-2G.

So if you won a jackpot on day 6 would you net on 21 also? If so would you attach an explanation of why you are reporting a different amount than is reported on the W-2G ($1,200) on line 21?

Day 6 start with $500, end with $1,200. Win $700

Line 21 = $755
Sched A loss = $755

[Davc]

but as opposed to Davc's opinion, my opinion is that a session can not extend past a single day.

Say what? In the example each day is a session. The five days are the travel day, the cushion day, and the 3 CSEA SS days.

[Davc]

So if you won a jackpot on day 6 would you net on 21 also? If so would you attach an explanation of why you are reporting a different amount than is reported on the W-2G ($1,200) on line 21?

Day 6 start with $500, end with $1,200. Win $700

Line 21 = $755
Sched A loss = $755

1. Yes.

2. Yes

Your example is what I would do assuming I ever get a client with actual records. When the only real record they have is the W-2g and a printout from one casino I don't take losses. However, the OR lottery doesn't seem to payoff that often and our local Indians are a cheap bunch so it doesn't come up frequently.

[DonB]

only one casino statement

Why not take losses if you have only one casino statement? Who's to say there's no more even if you have three? IMHO, 99% of regular casino gamblers are net losers over a years time. I haven't seen a LT winner yet. I believe this is the most unfair provision in the code.