I live in Reno, Nevada, where gambling is very popular. While there are thousands of other things to do in and around Reno, gaming is still what people think of when they think “Nevada”. That is probably because there are casinos and slot machines EVERYWHERE; I’m not kidding, the slot machines are even in grocery stores. With the prevalence of gambling in this area, many people will be claiming winnings and losses on their tax returns. You didn’t think I’d lead you anywhere other than a tax subject, did you? First, we’ll go over how to record your winnings and losses on your tax return, and then I’ll tell you about a possible new election that you may want to make if you are an avid gambler.
Winnings are claimed as “Other Income” on the face of your 1040, the front page of your tax return. Generally, if you win over $1,200 on one game or machine, you will receive a W-2G from the casino at which you won the money. This form simply shows how much you won, the date you won, and the type of game you were playing. These forms are given to you and are also sent to the IRS so they have this information. Therefore, if you don’t report this income, the IRS will know and you will be required to file an amended return in many cases. However, if you win a couple hundred bucks, the casino is not required to file a W-2G for you. Even though you don’t receive a form, it is your responsibility to keep track of all those winnings throughout the year and claim them on your tax return. Hiding this information from the IRS could get you in deep trouble so I’d advise just claiming the income and getting it over with. Also, if you have a lot of winnings, it is likely that you may have high losses as well which are also deductible on your return.
Your losses are claimed on Schedule A. This means, you can only claim your gambling losses if you itemize. If you use the standard deduction, you cannot claim your losses. If you don’t already know what the Schedule A is, click here, here, or here to read my other posts describing all aspects of Schedule A. Currently, there is no “lumping” allowed. This means if you win $5,000 and casino X, but lost $6,000 also at casino X, you cannot net the two together. You must report the income and deductions, in full. You cannot net them to a loss of $1,000 and report nothing on your tax return. However, this could possibly change.
The IRS has proposed a new safe harbor election related to gambling winnings and losses. This procedure only applies to electronically tracked slot machines which means you use a player’s card or another method for tracking your activity. This proposed procedure also specifically defines a “session of play” which has not been done previously. A session of play is defined as a full calendar day from 12 am to 11:59 pm. For example, if you walk into a casino at 1 pm and start playing a slot machine, leave at 4 pm, and come back at 6 pm to continue playing slots until 8 pm, that is all considered one session. If you play through the night until 2 am, 12 am to 2 am is considered a new session. Additionally, if you leave and go to another casino to gamble, that is considered a new session of play; one session of play cannot overlap between gambling establishments. This new procedure allows the taxpayer to net together gambling gains and losses in one session of play. For example, if you won $5,000 during one session of play as defined above, but spent $3,000 during that time, you would be permitted to net the two together and claim $2,000 in winnings on your return. Without using this election, you would be required to claim $5,000 in winnings and $3,000 in losses. The taxpayer still must keep very good records in order to substantiate their winnings and losses. As you can see, this election does not affect other types of gambling such as lottery, horse races, etc. If this proposed election is approved, it will go into effect for the tax year beginning January 1, 2016. Click here to see the full, official proposal
Leaves any questions you may have below, and stay tuned to The Tax Bleep for more important updates!