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Taxation of Casino Gambling Winnings And Losses

In light of the recently-opened Rivers Casino & Resort in Schenectady, NY, we thought we’d take the opportunity to remind taxpayers of their obligations and opportunities as it relates to recreational gambling activities.

Gambling winnings are reported on the first page of your federal income tax return and added to your other income (wages, dividends, interest, pensions, etc.) to determine your total income. However, gambling losses are reported on Schedule A of your federal income tax return as a

miscellaneous itemized deduction. As noted, the amount of this deduction is limited to your gambling winnings and is only deductible if you itemize your deductions on Schedule A. If you do not have enough personal deductions to itemize and claim the standard deduction, then

your gambling winnings are taxable in full with no offsetting loss deduction.

One may conclude that if one has gambling losses equal to gambling winnings, and itemizes deductions, that there is a zero income tax impact. Unfortunately, there are several tax benefits that are affected by total income which can be reduced as total income rises. These include the child tax credit, medical deductions, passive real estate losses, itemized deductions, personal exemptions, and college tax credits, as well as increased taxable portion on social security income. So, even if your gambling losses zero out your gambling income, the result of no gambling net income can, in some cases, increase one’s income tax burden.

The IRS is notified if you win big, as because the casino will give you (and IRS) a Form W-2G when you win $1,200 or more at slots or bingo or $1,500 or more at keno, net of your bet. The tax rule for claiming deductions is the requirement that you keep adequate books and records. This rule includes the deduction for gambling losses. The easiest way to meet this rule is to use a player card at the casino. This puts your gambling winnings and losses into the casino’s computer and often will generate a report from the casino at end of year summarizing your gambling activities. Otherwise, keep an accurate diary with evidence of your gambling winnings and losses; including date and type of wager, name, and address of casino, names of persons present, if any, and amounts won or lost.


 

By: Daniel C. Ertel, CPA
AllSquare Wealth Management, LLC.

Daniel Ertel is a Schenectady-based CPA whose firm recently merged with AllSquare Wealth Management in order to provide its clients with a broader array of services, including financial planning, investment management, estate distribution planning, risk management strategies, etc.

Daniel Ertel’ s CPA firm designed accounting records first used by Schenectady Off Track Betting, later to become part of Capital OTB. (Schenectady was the first City in the United States to establish an OTB Branch in 1972).

AllSquare Wealth Management is a Federally Registered Investment Advisory Firm.
AllSquare Wealth Management, LLC is a registered investment adviser.

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