Gambling Losses - Documentation

[JohnH]

We've had lots of discussion about what type of proof and/or client statements we might be comfortable with for mileage, contributions, and other related items for the upcoming year. But what about gambling losses?

It seems almost everyone loses as much as or more than they won, and they get to offset the losses up the amount of winnings on Schedule A, but what level of proof do you feel comfortable with?

For several years I've had them sign a separate statement for gambling losses, but I'm beginnig to wonder if I need to ask them to show me logs or other documentation, or is their signed statement enough? Common sense tells me that most people who win $2K, $5K, $10K, etc at the slots are probably cycling that much or more back in, but at what point do we begin asking questions or requesting more. Is anyone planning to require more proof on this type of deduction for 2007 returns?

[Gary]

We are not Auditors

A signed statement should protect you. We are not auditors.

Gary

[Roland Slugg]

Player's ID cards

Most casinos now have those "Frequent Player" ID cards, like a credit card, that people insert into slot machines. Then at year-end, the casinos will mail a summary of winnings and losses ... or will do so upon request.

For table games like Craps, Blackjack, Poker and Roulette, I don't know if casinos can do something similar, but I've not seen it ... even though I live in Reno, Nevada! In those cases, I would advise such clients to maintain a contemporary log/journal, listing the date, time played, game played, casino name, and amount won or lost. In the event of an audit, an IRS agent might be satisfied with that, if he believed it was genuine. He might also compare losses to bank records to see if there were checks cashed or cash withdrawals right before the claimed losses. If someone claimed he lost, say, $2000 on a certain date, but there was no withdrawal from his bank account(s) right before that, it would be hard to explain and might even trigger a referral to the fraud division.

For horse racing, people should keep their losing betting coupons. When I go to horse races, I often see people picking up discarded coupons by the handful, presumably for this reason, and I've often wondered if that impresses the IRS.

[S T]

Horse Racing Betting Losses

There at one time was a rumor , that IRS looks at the horse racing betting coupon to see if there are any "shoeprints" on it to determine whether it actually belongs to the taxpayer or one that the taxpayer might have retrieved from discards!

Maybe, while not perfect, a lot of transactions take place via credit cards at the various casinos and other establishments of betting. Could these be used?

Sandy

[Donald Rihn, EA]

Gambling Winnings

The problem with reporting gambling winnings and using the Casino's "Player's Cards" information to show the losses, is that the taxpayer wants to report only the W-2G income. All income is to be reported. That means all the "winnings" shown on the casino's statement, not just the amounts on the W-2G.

Reporting all the income can cause a problem with taxable SS benefits and AMT.

[JohnH]

Shoeprints not allowed

You mean shoeprints on the receipts render them invalid?

But my client keeps telling me he always lays them on the floor and does a dance on them (just before the race) for good luck!

[joanmcq]

The problem with reporting gambling winnings and using the Casino's "Player's Cards" information to show the losses, is that the taxpayer wants to report only the W-2G income. All income is to be reported. That means all the "winnings" shown on the casino's statement, not just the amounts on the W-2G.

Reporting all the income can cause a problem with taxable SS benefits and AMT.

For slots, what I've seen the player's cards show is coins in/coins out which is not the same thing as wins and losses. For example, I put in a $20 bill, play one round and cash out $19.25. I didn't win $19.25, I lost $.75.

[newbie]

For slots, what I've seen the player's cards show is coins in/coins out which is not the same thing as wins and losses. For example, I put in a $20 bill, play one round and cash out $19.25. I didn't win $19.25, I lost $.75.

So does one need to look at in transaction seperately if this statement is brought in and if it's a $20 in and $25.75 out you need to add $5.75 as income?

[joanmcq]

Maybe. Is the 'out' on the W2-G?

[S T]

More Win/Loss Statements

I found this very, very long article about the Casino Win/Loss Statements, Gambling Winnings and Losses, examples and some Cites included.

http://www.allbusiness.com/accounting/corporate-taxes/4509452-1.html

Sandy

[newbie]

S T - that is an excellent article, haven't had time to read it's entirety, but helps to explain a lot!! Thank you for the excellent research.

[taxxcpa]

Gambling losses

It is probably impossible to document losses for most gamblers. Anyone who gambles frequently in a casino is certain to lose more than they win. I have a client who is a 'lurker' and has large winnings, but he claims to lose just as much as or more than he wins.

He watches a slot machine whle someone loses over-and-over. The' lurker' then starts playing the machine after the loser gives up. His theory is that sooner or later a payout is due.

In his case, he must itemize to deduct the losses. If he did not gamble, he would use the standard deduction and pay less tax. He also has to pay non-resident state tax since the nearest casinos are in another state. The state does not allow him to deduct his losses.

He brings in a hundred W-2Gs and I add them. I don't know if he ever loses one, but he has never been questioned about underreporting and has never been questioned about deducting the losses.

I've had a few people who claim their gambling winnings exceed losses. When I asked one of them about his losses, he said he didn't have any losses. He just walked in, played once or twice and won, then left.