you ever tried and failed to stop, cut down, or control your gambling hobby?
Do you ever gamble to relieve feelings of guilt, anxiety, helplessness, or depression?
If your answer is YES to more than two of those, you just might be a person — one of many — who is vulnerable to gambling’s dangerous charms. Check out Appendix B for more resources that can help you with gambling addiction.
Understanding Taxes and the Law
Hopefully, you remember the old saying: Only two things are certain in life — death and taxes. In casinos, two outcomes are also inevitable. First, the house always wins in the long run. Second, when gamblers somehow turn the tables and get lucky in the short run, Uncle Sam wins too.
You may wonder how the federal government actually gets its share. This section covers all the important tax-related issues of gambling and helps you keep complete records, so you aren’t scratching your head when tax day comes around.
Deducting your losses and taxing your wins
First problem: Classifying taxes on gambling winnings is a complex subject. Another problem: The tax code often changes from year to year. So, if you’re a regular gambler, consulting with your CPA or accountant each year is critical. I’m not a tax advisor (and don’t play one on TV).
Does that mean you pay 24% tax on that win? No. Like the tax withholding on your paycheck, 24% is the share of winnings that gets withheld or sent to the IRS as a down payment on your annual income tax. If you have ever had a job that paid out a bonus, you’ll be familiar with automatic withholding requirements. What you actually owe is something you calculate at tax time.
So if you do your tax return and find your marginal tax rate is lower than 24%, the IRS will return some of those dollars back to you that the casino sent them earlier in the year. It’s also possible you’ve made so much money that your marginal tax rate is higher than 24%. That’s after exemptions, deductions, write-offs, and other accounting techniques to lower your taxes. If your marginal tax rate is more than 24%, Te Salute, Don Corleone. Just keep in mind that, unlike your paycheck, where you choose (roughly) how much is withheld, the casino has no choice in the matter. They are legally obligated to send 24% to the IRS. The government will kindly hold on to your dough until you prove you deserve some of it back next April.
For example, say you had winnings of $4,300 for the year and losses of $5,000. You may assume that the higher losses cancel out the win, so you don’t owe any tax. But when your total deductions (including your gambling losses of $5,000) are less than the standard deduction (for a married couple filing jointly, that’s $25,100), you can’t take any of those losses on your return because you aren’t itemizing. Unfortunately, you still must pay taxes on your winnings, even though you actually lost. Confused? Welcome to the crazy world of the tax code.
Unreported winnings: Don’t fool the IRS
It’s a known fact that casinos typically report some activity to the IRS — but not all. In almost every setting, the house alerts the IRS with a Currency Transaction Report by Casinos (CTRC) when a player buys in or cashes out for $10,000 or more in one day. The same is true if you make a $10,000 bet on a horse or a sporting event.
Hopeful gamblers may believe they only have to pay taxes on winnings that the casino reports to the IRS. Not true. All gambling winnings are subject to taxation, whether they come from a foreign country, the Internet, your neighbor’s poker game, a church bingo night, or a casino. Many players ignore this law, however, figuring Big Brother won’t find out about their small wins.
Counting comps for tax purposes
Comps (the free perks that casinos give to gamblers) pose a gray area in tax reporting. Technically, casino comps are income, but the government is likely to care only when you receive substantial gifts or luxury merchandise, such as an expensive watch or a new speedboat.
Few gamblers lose enough money to have casinos ship them a luxury car for Christmas. Most comps are soft — meaning the casino doesn’t incur a hard cost for them. Examples of soft costs are hotel accommodations or the dinner buffet. (Check out Chapter 20 for ways to score comps.)
Lowering your gambling tax
For most recreational gamblers, there aren’t many ways to reduce taxes on winnings. If gambling is a hobby, which is true 99.9 percent of the time, then you can’t deduct any expenses — only your losses. Professional gamblers can deduct expenses, but a rigid list of requirements prevents all but a handful of diehards from qualifying as professional gamblers.
