US Gambling Taxes Guide 2016
Table of Contents
Whether you gamble every day, or every fortnight, you need to understand Federal Income Taxes. Here is a quick checklist to make sure you are covered:
- Learn the difference between a "professional" and "amateur" gambler and decide which type you are.
- Ensure that you keep track of all your winnings and losses, regardless of how often you hit the tables.
- Fill out the correct tax forms, whether you are given one by the casino or not, and remember that your local laws for gambling may differ.
The information below will help you understand what type of gambler you are, and what guidelines you should follow, in order to make sure that you abide by the rules and regulations of Federal Income Taxes.
Professional Versus Amateur
As a professional gambler, you have to pay taxes whether you are a poker, slots, or craps player, or you prefer to bet on horse racing. However, one of the primary differences between the professional and the casual amateur is that professional gamblers can deduct expenses. Remember that luxury suite you enjoyed while in Atlantic City, or the penthouse in Vegas? But be careful: lodging that was compensated or "comped" doesn't count. Only those items that you actually pay for are allowed as tax deductions.
Items Professional Players Can Claim as Deductions
- Items that are "ordinary and necessary"
- Online training sites
- Poker materials and coaching
- Flights and other transportation
- Hotel rooms (but not if comped)
- Registration fees
- Technology necessary to play online
- A portion of your residence, if you can show that you work from home (online)
- Gambling losses (but losses cannot exceed winnings)
What does all of this really mean and how do I know if I am a professional gambler or a casual player? According to United States Federal law, gambling activity can be considered a trade or business if it is pursued full time, in good faith, and with regularity to make income for a living, and not merely as a hobby. Professionals should claim winnings, losses, and expenses on the IRS Schedule C form.
Factors That Determine Professional Status: Trade or Business
The following mnemonic will help you remember whether your play qualifies you as a professional gambler:
T - Time and effort spent by individual
A - Amount of the profits compared to time spent
X - Expectation that the investment will lead to appreciation in value
E - Expertise and level of ability
S - Signs that the activity is not exclusively for pleasure
One of the most important things for a professional player to do is to keep precise records and evidence of spending, receipts, dates played, and especially any documents that were given to you by the casinos. There are those who suggest that if at the end of the year you add up all your daily wins and losses and they are equal, i.e. "a wash," then you might as well just not claim either. But that's not the legal truth. You still must claim your wins, and you will want to claim your losses. (Note that this is primarily related to casual players, but all the same it is good to remember.)
It is extremely important to understand the local laws where you reside. Although the information that is being shared here relates to Federal Income Taxes, it may not be the same articulation to your state of residence.
Casual Amateur Gambler
Unlike the professional gambler who uses their skills at gambling as their primary source of income, the casual amateur enjoys the game for pleasure and the rewards that come as a result of their play. While professionals can deduct expenses as outlined earlier, the casual participant is only allowed to claim losses along with claiming wins. It is important to remember that losses cannot exceed wins, but wins can exceed losses. The truest hope of every weekend warrior is to walk away with more than they started with.
Did you know that items that are comped should be included as income for professional players and frequent casual players?
Speaking of wins and losses, imagine that you won $5000 in 2014. That sounds great right? But then you get your win-loss statement from the casino and you discovered that you lost $8400 along the way. Well, you are only able to deduct losses totaling the amount you won. That is both good and bad. It is good because you didn't really win anything; it is bad in that you sure do wish you could get Uncle Sam to feel your pain over the $3400 you lost. But just think of how much fun you had!
For taxpayers who are non-professional gamblers:
- You must be able to substantiate any losses claimed. This is when a player card comes in handy, as casinos will keep track of the wins and losses associated with it.
- Casual gamblers need to itemize deductions in order to capitalize on deducting their losses.
- Gambling losses are deductible only to the extent of gambling winnings reported on line 21 of IRS Form 1040.
AGI: Adjusted Gross Income
We all want our income increased. Well, until we have to pay taxes on it, right? Winnings will increase a taxpayer's AGI. But, sadly, because the winnings are added in first, they will increase your tax rate regardless of what comes later in the deductions section of taxpayer's filing. In other words, winnings increase AGI, but losses do not decrease AGI except for a professional gambler.
Don't let the fact that you might not receive a specific tax form from a casino keep you from claiming your wins. The truth is that even if you don't receive a W-2G or other documentation from the casino or gambling establishment, you are still required to file those wins. Keep track of all income and losses to protect yourself from audits and fines.
Wins and Losses: the Proof
Every gambler - whether pro or amateur - needs to keep track of their wins and losses. Documentation is going to be your protection. You will also want to keep these documents safe for a number of years as safeguards in the event of future audits. Remember that too much information is never too much.
Wins of any kind are to be included as income. That includes money or the fair market value of bonds, trips, cars, and additional property of any type.
Gambling Tax FAQs
If I am a professional, how do I list my profession on my taxes?
"Professional Gambler" is fine. In the end, be certain to record everything on your Schedule C.
Can I carry over my losses from year to year?
No. The year in which you sustained losses is the only year you can claim those losses.
Are coaching and online instruction eligible deductions?
Yes, provided you are filing as a professional gambler.
How long should I keep my gambling records?
It is recommended that you keep your tax records for as long as seven years. Many say that the IRS typically does not go back more than three years.
Do I have to report my comps?
In most cases, yes. If you accept rewards such as a car, extravagant trips, or other such property, you should claim their market value as income. There are some exceptions, so check with your tax professional to be sure
Is there any way for a casual player to avoid increasing their Adjusted Gross Income (AGI) when claiming winnings?
No. Unfortunately, you claim income before you begin to figure deductions, etc. The rates of deductions are based upon your AGI. So even if your winnings and losses are the same, your winnings will affect the rate of taxes that you will pay in the end.
Do I report online winnings differently than live casino wins?
No. A win is a win. Income is income, so be certain to keep track of all the great places you have played online so that you do not overlook wins and losses. This might be a good reason to find a few favorite trusted online casinos and keep good records. When it comes to playing at live casinos, if you plan on claiming losses against your phenomenal jackpots, then you should use a players card at all times.