Ladies and gentlemen, please allow me to introduce myself.
I am a tax attorney/CPA from Oklahoma. In Oklahoma, the Indian tribes operate 20% of the all the casinos in the USA. One of the casinos, just north of Dallas, TX, is one of the 5 largest casinos in the world. Because of the needs of our clients, I wrote the Lady Luck Gambling Diary.
The IRS has a very good summary of their current position on Gambling Winnings and Gambling Losses - It is IRS Chief Counsel Advice Memorandum 2008-011. You can find it here: http://www.ladyluckdiary.com/irs-info/irs-chief-counsel-advice-memorandum-2008-011/
I would also suggest that you refer to IRS Revenue Procedure 77-29. You can find it here: http://www.ladyluckdiary.com/irs-info/irs-revenue-procedure-77-29/
I also have PowerPoint presentation which discusses "gambling sessions." If you will contact me, I would be glad to email a PDF version of it to you.
The Courts have frequently asked, does a taxpayer have to record every pull of a slot machine, every roll of the dice, every card drawn? The answer has always been "no." But, you just can't net everything for the entire year either. That is why the IRS dislikes/disallows reports based on Player's cards and win/loss statements - because these reports just net everything together.
So, the courts, tax preparers and the IRS have devised a method that uses a "gambling session." Let me give some examples. You play slots at one casino in the morning and play slots at another casino in the afternoon - 2 gambling sessions. If you play slots, poker and blackjack at the same casino - a minimum of 3 gambling sessions. If you go to the race track, each horse/dog race is a separate gambling session.
So that is why you need to use a gambling diary or gambling log to track your gambling sessions. Or write a spreadsheet that breaks it down by "gambling session."
Remember, the gambling winnings (I chose not to call it gambling income) is reported on Page 1, Line 21 as "Other Income." Your gambling losses are reported on Schedule A (if the taxpayer itemizes). This bifurcation increases your Adjusted Gross Income (AGI), and results in what I call the "Gambler's AGI Penalty." A lot of adjustments, deductions, credits, etc. are based upon your AGI. So, the higher your AGI, the fewer adjustments, deductions and credits your can take.
There have been several court cases where the only change the IRS made was to "un-net" the gambling winnings and gambling losses - which then resulted in a higher tax liability for the taxpayers due to the Gambler's AGI Penalty.
One other quick observation, given the small number of returns that the IRS actually audits this days, the IRS is relying more on the "matching" capability of their computers. So for example, if the casinos have reported gambling winnings of $100,000 on W-2G's for the taxpayer, and the taxpayer has reported $100,000 on Page 1, Line 21 "Other Income - Gambling Winnings", the taxpayer return will not be "flagged" for audit. But, if the taxpayer "nets" together the $100,000 of gambling winnings and gambling losses and doesn't report anything, then the IRS will have $100,000 of W-2G's that don't match anything. I would venture to guess the taxpayer has just won a free audit.
Also, the above discussion is for casual/recreational gamblers. Professional gamblers reported their wins AND losses on Schedule C - but that is a whole other thread.
Hope this helps!
For a limited time and while supplies last, for tax-return preparers that are reading this thread - if you will fax your name and mailing address on your letterhead to me, Reece B. Morrel, Jr., @ 918-663-1383, I would be glad to mail a Lady Luck Gambling Diary to you free of charge. Thank-you.
