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Blackjack Insider Newsletter, Feb. 2004, #49

Jean Scott, the Queen of Comps, is the country’s best-known low-rolling casino player. Her first book, The Frugal Gambler, was a national bestseller. She has appeared on countless television and radio programs about gambling and her written work has been published in numerous gambling magazines. She also has Frugal Video Poker Software, her new book More Frugal Gambling , and her latest book co-authored with Marissa Chien, Tax Help for The Frugal Gambler. All of Jean’s products can be purchased in our online store.

What should I do about those W2G's when I hit a big jackpot at a casino?  What gambling records does the IRS require me to keep?  What is a gaming diary?  Is there a possibility I am paying more taxes on my gambling wins than I need to?

So many players asked me those and many more questions about taxes and gambling that I decided a couple of years ago to research the subject and write about it. I planned to make it a chapter in my recent book, "More Frugal Gambling." However, I found the subject so complex that I asked my accountant and a gambler herself, Marissa Chien, to join with me and help with the technical details – and our efforts became "Tax Help for the Frugal Gambler," a whole book of its own.

I found that most gamblers (and many tax preparers) had a lot of erroneous ideas in their mind about taxes and gambling such as: "Paying taxes on my gambling wins? You’ve got to be kidding. Sure, sometimes I win, but my losses are always much larger than my wins by the end of the year. So I don’t have to mess with it on my federal or state tax returns."

In the book I say, wrong! You probably should "mess with it," especially if you hold any of the following common, but MISTAKEN beliefs:

• I can lump together all my wins and losses for the year and, if I have a net loss, I don’t need to put wins or losses on my income tax returns. After all, I didn’t have any gambling income.
• The IRS can’t "catch" me, even if I win a lot of money gambling, as long as it’s done slowly over a considerable period of time in different gambling venues and I get no official forms like a W-2G or 1099.
• Federal and state tax agencies know most gamblers lose over the long term, so they aren’t very interested in auditing gamblers.
• If I don’t get any W-2Gs, I don’t have to report any gambling wins on any income tax forms.
• If I do get a few W-2Gs, I can just count that total as my gambling income for the year and be safe in an IRS audit.

This faulty thinking needs the facts – and we give them. First, we cover the basics, discussing why gambling wins must be reported on your tax return, what a gambling session is and how it can vary depending on your personal circumstances and what games you play, and what player recordkeeping is necessary. I even include samples of my own gaming diary in the book. We review casino win/loss statements and why the courts have ruled that these cannot be your only records if you are audited. We discuss the implications of cashback, comps, tournaments, and casino drawings may have on your taxes.

We also discuss filing as a recreational gambler - which most players would do - and the requirements for filing as a professional gambler including providing sample tax returns to help you make the decision on which way you should file. We provide information for the table game player, machine player, live poker gambler, and for players who form gambling partnerships.

Federal tax regulations and requirements are reviewed plus we provide a whole section on state taxes, with a chart giving information for residents of all 50 states and/or visitors who gamble out of their home state. The IRS stresses that you cannot add up all your winning sessions and all your losing sessions and give a net win/loss figure at the end of the year. Since many states follow the federal reporting form but do not allow deductions for gambling losses, many gamblers are taxed heavily on the state level. We discuss how this leads some gamblers to file as professionals, although that is an area fraught with danger.

I guess we could have called the book "everything you wanted to know about gambling and taxes but were afraid to ask"!

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