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Gambling remains an ever-popular U.S. pastime. But it's more than just fun and games -Your Privacy
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gambling can also have serious tax implications. Here are the most important issues involving
the federal tax treatment of an amateur gambler's winnings, losses and gambling-related
expenses, along with information on a recent favorable development from the IRS.
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Report Winnings in Full
Theoretically, the full amount of an
amateur gambler's winnings must be
reported as gross income on the
miscellaneous income line of Form
1040. Winnings include cash and prizes
collected from lotteries and raffles, as
well as installment payments.
For most types of gambling at legitimate
gaming facilities, you'll be issued Form
W-2G, "Certain Gambling Winnings," if
you win $600 or more and the amount
won is more than 300 times the amount
wagered. However, a $1,200 taxreporting threshold applies to winnings
from slots and bingo, a $1,500
threshold applies to keno winnings and
a $5,000 threshold applies to poker
tournament winnings. When winnings
exceed $5,000, federal income tax
withholding is generally required,
except for winnings from slots, bingo or
keno.
Important Note: Because the IRS also
gets a copy of Form W-2G, make sure
gambling winnings reported on your
return at least equal the collective
amounts reported on Forms W-2G.
Limited Deduction for
Wagering Losses
An amateur gambler's wagering losses
can be claimed only as a miscellaneous
itemized deduction. Losses for the year
can't be netted against winnings for the
year with only the net figure reported as
gross income on page 1 of Form 1040.
IRS Proposes New Rules for
Electronically Tracked Slot
Machines
In March, the IRS released Notice 2015-21,
which proposes an optional safe-harbor method
for slot machine players to determine wagering
gains and losses for federal income tax
purposes.
The proposed rules, which are summarized
below, indicate that the IRS won't challenge a
taxpayer's use of the per-session method to
calculate wagering gains and losses from
electronically tracked slot machine play if the
taxpayer meets these requirements:
Uses Electronically Tracked Play System.
This is controlled by the gaming establishment
(such as through the use of a player's card or
similar system) and records the amount a
player wagers and wins on slot machine play.
Uses the Same Session of Play Definition.
This is defined as a period that begins when the
player places the first wager of the calendar day
Amateur gamblers who don't itemize
can't claim gambling loss deductions.
In addition, the itemized deduction for
wagering losses is limited to the
amount of gambling winnings. Any
excess losses for a year can't be
carried forward. For a married couple
filing jointly, the wagering winnings of
both spouses are combined to
determine the allowable itemized
deduction for combined wagering
losses incurred by both spouses.
There's no requirement for losses to be
from the same types of gambling
activities as winnings. For example, slot
machine losses can be deducted
against poker winnings, subject to the
losses-cannot-exceed-winnings
deduction limitation.
For example, suppose you go to Las
Vegas several times in 2015 to gamble.
Early in the year, you win $10,000
playing poker and blackjack. Later in
the year, you have a cold streak playing
the slots and lose $15,000. On your
2015 federal tax return, you must report
the $10,000 of winnings as
miscellaneous income. You then report
the $10,000 allowable wagering loss
(equal to your winnings for the year) as
an itemized deduction. However, the
$5,000 excess loss can't be deducted in
2015 or carried forward.
No Deductions for Out-ofPocket Expenses
on a particular type of game and ends when the
player completes the last wager on the same
type of game before the end of the same
calendar day. A session always refers to a
specific 24-hour period that starts at midnight
and ends no later than 11:59 PM. The same
session of play is continued if the player stops
and then resumes electronically tracked slot
machine play within a single gaming
establishment during the same calendar day.
For each gaming establishment, a player must
use the same definition of "session of play" for
all electronically tracked slot machine play
during the same tax year.
Tracks Gains and Losses. To determine
wagering gain or loss from electronically
tracked slot machine play at the end of a
session, a player must:
1. Recognize a gain if the total dollar amount of
payouts exceeds the total dollar amount of
wagers placed during that session, or
2. Recognize a loss if the total dollar amount of
wagers exceeds the total dollar amount of
payouts during that session.
If the IRS finalizes the proposed rules, the
regulations generally would be effective for tax
years ending on or after the date of publication.
However, some adjustments are possible. For
example, many gamblers would appreciate a
more flexible definition of "session of play,"
because play often isn't interrupted by the end
of a calendar day. Contact your tax professional
for the latest news on reporting online gambling
activities.
Only the cost of an amateur gambler's losing wagering transactions are considered gambling
losses. Out-of-pocket gambling-related expenses -- such as transportation, meals and lodging - don't count as gambling losses and can't be written off. They're considered nondeductible
personal expenses.
Documenting Wagering Losses
Gambling wagering losses must be adequately documented to be deductible. Under IRS
Revenue Procedure 77-29, an amateur gambler must record the following information in a log
or similar record:
1. Date and type of specific wager or wagering activity,
2. Name and location of the establishment, and
3. Amount won or lost.
Also record the names of any other people present with you at the gaming establishment.
Obviously, this isn't possible when gambling at a public venue, such as a casino or race track.
The guidance allows taxpayers to substantiate income and losses from wagering on table
games by recording the number of the table played and keeping statements showing casino
credit issued to the player. For lotteries, you can document winnings and losses with winnings
statements and unredeemed tickets.
Keeping Records by Gambling Session
Until recently, the IRS claimed that an amateur gambler must report the full amount of winnings
from each roll of the dice and every spin of the slot machine on page one of Form 1040. This
results in higher adjusted gross income (AGI) than just reporting net winnings from each
gambling session. It also can potentially trigger undesirable AGI-based phase-out rules. For
example, it could reduce college tuition tax credits or decrease tax-free Social Security benefits.
Of course, nobody actually tracks each roll of the dice and every spin of the slot machine.
Thankfully, the IRS allows casual slot players to simply record the net winning or net loss from
each gambling session. A session is deemed to end when the player cashes out or runs out of
money. At that point, it's possible to calculate how much was won or lost during that session. If
the player then reports the sum total of the net winnings from all winning sessions as gross
income on page one of Form 1040 and keeps track of the sum total of the net losses from all
losing sessions for purposes of claiming the itemized deduction for gambling losses, the IRS
will consider that methodology close enough to recording winnings and losses from each spin
of the slot machine.
In a 2009 decision, the Tax Court appeared to endorse this per-session approach to
recordkeeping for casual slot players. (Shollenberger v. Commissioner, T.C. Memo 2009-306)
Presumably, the concept of recording per-session net winning and loss may also be considered
sufficient for other forms of amateur gambling.
Gambling on Your Taxes Can Be Costly
There's no place for gambling when it comes to preparing your federal tax return. Play it safe
and contact your tax professional today about how to accurately track gambling-related
winnings, losses and expenses on your 2015 federal tax return. Start tracking your winnings
and losses as soon as possible. Waiting until year end to recreate the required records can be
difficult and time consuming.
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