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Gambling as a Business and Taxes


Some players are now handling their casino gambling as a business because believe it or not, those winnings you finally managed to get at your casino are taxable. The use of a player's club card is an ideal start when playing any casino game, and also because any loses you might accumulate over the course of a calendar year can be used to offset any big wins you might have.

There are several inequities in the way winnings are taxed at casinos, but you can't fight the IRS on them (well, you can, but you might not be able to win). All in all, it's better to be prepared and live with a tax form than to be surprised and frustrated by a big win and have no way to knock that win down to bite size.

Gambling Winnings

First off, all gambling wins are taxable! Section 61(a) of the U.S. Tax Code defines gross income as "all income from whatever source derived." That includes gambling. If you want to avoid paying taxes on your winnings, keep a log or personal ledger of your gambling with date, location, and your win or loss for each session.

It doesn't matter where the wins come from, the IRS wants its cut. Consider it juice. If your losses are larger than your wins, you don't have to pay - but you have to substantiate your loses, so keep that log, and keep losing tickets (dog and horse race, sporting events, even Keno tickets). After the start of the year you can head to your player's club desk and ask for a win/loss statement. They'll print you a copy of your total action in that casino, and you can also use that for your taxes.

Unfortunately, you can't just deduct your loses and enter what's left of your win, that would be too easy. Instead, you report the full amount as miscellaneous income on line 21 (Form 1040). You then take your total losses (up to what you won) and report them on Line 28 of Schedule "A" for itemized deductions. If you don't itemize, you do not get a write-off.

Claiming Gambling as a Business

Until the 1980's, the IRS did not want to accept that some gamblers actually win money on a regular basis. Now certain players are able to deduct their expenses (transportation costs, meals, and lodging, tournament fees, etc.), but just who is eligible is a bit murky.

If you are keeping a professional-style log with your wins, losses, and expenses, and you devote a substantial amount of your time to gambling (sure, that's a lot of regular players too) and you depend on your gambling winnings as a real and meaningful source of income, you may indeed be a professional and be able to claim your gambling as such.

When you do this you use Schedule "C" and can deduct your business expenses. The IRS will make the final call on exactly how much you need to earn to be considered a meaningful source of income. Best of luck to you. Fortunately there are many professional poker players these days, and the IRS is getting used to the idea that they really do play poker for a living.

The Dreaded W2G Form

There is never so much squawking after a player hits a jackpot as when they are informed the IRS will know about their hit and that a W2G form is necessary. The casino will produce the tax form with the help of your current ID and a copy of your Social Security card. They will let you sign a W-9 form that gives them your Social Security number without presentation of your card, but the IRS is going to get a copy of that too.

The ruling for the W2G is: any slot win over $1199 is taxable, and any Keno payoff over $1499 is taxable. In the table games department (Lucky Ladies or Pai Gow Bonus, Let-it-Ride straight flush or royal, etc.) that meets two requirements is taxable. The payoff odds have to be at least 300 to 1 and the payout must be at least $600. If both requirements are met - here comes the W2G. You will not be paid without your Social Security number!

The 1099 Form

Wins of any type in other departments are likely to involve a 1099 form, even for small amounts. This can involve any drawing or player gifts that are given out. If you happen to have your name drawn and win a cash prize of $500, you'll get a 1099. If you win a $2,000 big screen TV, expect the same.

Poker players over the past few years have gotten used to receiving a 1099 form with their prize money, regardless of the amount won. In fact, tournament winners in other table games such as blackjack and craps have also seen an increase in the handing-out of 1099 forms. These forms alert the IRS that you have received cash or other consideration from the casino. Yes, you have to claim these on your tax form at the end of the year.

Regardless of whether you can claim your gambling as a business or show a profit from your play, it's a good idea to keep track of all your wins and loses. If noting else, you'll have a good idea how much your casino entertainment is costing you by the end of the year. By keeping accurate records you may find that certain games are more friendly to you, and you'll then want to make an adjustment to your play schedule!

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