How to report losses to the IRS

QUESTION: I have a question regarding winnings from a slot tournament. The casino reported my tournament winnings on a 1099-Misc. Can an equal amount of gambling losses be shown to offset the winnings from gross income on federal 1040, as it can when you receive a W2-G form? -- Sandra D.

ANSWER: The casino's decision to issue a Form W2-G for certain gambling winnings, or a Form 1099-Misc., Miscellaneous Income, does not affect the nature of the winnings or the deductibility of losses for tax purposes.

Back in 1977, the IRS introduced the W2-G to replace Form 1099 for reporting gambling wins and income tax withheld. Presumably the reason you received a 1099-Misc. instead was because your win was considered a prize worth $600 or more -- and not direct winnings from a wager. Still, so long as the value of the prize received was considered an inducement to gamble, it could be rightfully represented as a gain from gambling, and offset by gambling losses.

Gambling winnings are reported on your federal tax form 1040 on the Other Income Line. Reportable gambling winnings can come from lotteries, bingo, raffles, horse and dog racing, online poker, casino games and slot tournament wins. You can offset the taxes by reporting your losses -- if you keep impeccable records.

As a loss claimant, you must substantiate your loss claims with a flawlessly documented, descriptive gambling diary. For starters, your gambling diary should have date and type of gambling event, name and location of casino, poker room, racetrack, etc., table or slot machine number where the gambling took place and total dollar amount lost. You are also permitted to use airline tickets, bank withdrawal statements made at the casino, canceled checks, credit-card cash advances, bona fide losing betting stubs and yearly statements of your wins and losses from the casino as additional collaboration. The burden of proof is on you.

Also, you can offset your wins by losses only if you itemize rather than take the standard deduction on your tax return. Gambling losses can be used only to counterbalance gambling winnings during that same tax period. They cannot be carried forward or back to any other tax year.

Since Gambling is prohibited in the State of Alabama most Alabamians do not have to be concerned about these guidelines. However for Alabama residents who have travelled to Tennessee, Florida or some other state and played the casino they should take note of the guidelines.

Taxpayers should consult their CPA for more details. If you are in Nevada, find a Lake Tahoe CPA.They have vast experience handling returns where gambling is part of income. You should keep a good record of your wins and losses for tax purposes.

You should consult your CPA for more details.

MARK PILARSKI survived 18 years in the casino trenches. He's a university lecturer, reviewer and contributing editor for numerous gaming periodicals and is the creator of the audiocassette series on casino gambling "Hooked on Winning." E-mail him questions at pilarski@markpilarski.com; for more Q&A, see www.freep.com/pilarski.

Other Usefull Tax Articles

Most Viewed Articles