Article Highlights: Winnings W-2G Reporting Losses Social Security Income Health Care Insurance Premium Subsidies Medicare B and D Premiums Online Gambling Accounts Gambling takes many forms: casino games, horse racing, sports book betting, lotto tickets, scratchers, bingo, etc. For virtually everyone, gambling is a recreational activity and, as such, is done for fun. For most gamblers, their losses for the year will exceed their winnings, and since losses in excess of winnings are not deductible, most gamblers don’t bother to report either, which isn’t in line with the tax law’s filing requirements. If your winnings at one time hit certain levels, the government requires the gambling establishment to collect your Social Security number and report your winnings to Uncle Sam on a Form W-2G. Gambling establishments will issue a Form W-2G if you: Win $1,200 or more on a slot machine or from bingo. Win $1,500 or more on a keno jackpot. Win more than $5,000 in a poker tournament. Win $600 or more from all other games, but only if the payout is at least 300 times your wager. Reporting Winnings – Many individuals believe that they only have to report the winnings for which they receive a Form W2-G. Unfortunately, the IRS has a different viewpoint. Although you may be able to offset your reported gains with gambling losses, the IRS anticipates that you will also have had gambling winnings that were under the W2-G reporting threshold and will raise this issue during an audit. Gambling Losses – The good news is that you can deduct gambling losses if you itemize your deductions but only to the extent of your gambling income. In other words, you can’t have a net gambling loss on your tax return. Bad news: if you don’t itemize your deductions, you will have to pay taxes on the entire winnings, even if you have a net gambling loss, as is the case for most individuals. GAMBLING GOTCHA #1 – Since you can’t net your winnings and losses, the full amount of your winnings ends up in your adjusted gross income (AGI). The AGI is used to limit other tax benefits, as discussed later. So, the higher the AGI, the more the tax benefits may be limited.GAMBLING GOTCHA #2 – If you don’t itemize your deductions, you can’t deduct your losses. Thus, individuals taking the standard deduction will end up paying taxes on all of their winnings, even if they had a net loss. The recent tax reform brought us significantly higher standard deduction amounts and, for itemized deductions, limited the deduction for state and local taxes and eliminated the deduction for unreimbursed employee business expenses and investment expenses, among other changes. The anticipated result is that fewer taxpayers will be itemizing their deductions and more gamblers will be paying taxes on their winnings. Documenting Losses – The next logical question is: how are you going to document your gambling losses, if audited? Don’t rush down to the track and start collecting discarded tickets, since they generally aren’t acceptable documentation because of their ready availability. The IRS has published guidelines on acceptable documentation to verify losses. They indicate that an accurate diary or similar record that is regularly maintained by the taxpayer, supplemented by verifiable documentation, will usually be acceptable evidence to substantiate wagering winnings and losses. In general, this diary should contain at least the following information: (1) the date and type of each specific wager or wagering activity, (2) the name of the gambling establishment, (3) the address or location of the gambling establishment, (4) the names of other persons (if any) present with the taxpayer at the gambling establishment, and (5) the amounts won or lost. Save all available documentation, including items such as losing lottery and keno tickets, checks, and casino credit slips. You should also save any related documentation such as hotel bills, plane tickets, entry tickets, and other items that would document your presence at a gambling location. If you are a member of a slot club, the casino may be able to provide a record of your electronic play. You might also obtain affidavits from designated gambling officials at the gambling facility. With regard to specific wagering transactions, your winnings and losses might be further supported by: Keno – Copies of keno tickets you purchased and that were validated by the gambling establishment. Slot Machines – A record of all winnings by date and time for each machine that was played. Table Games – The number of the table at which you were playing as well as casino credit card data indicating whether credit was issued in the pit or at the cashier’s cage. Bingo – A record of the number of games played, the cost of the tickets purchased, and the amounts collected on winning tickets. Racing – A record of the races, entries, amounts of wagers, and amounts collected on winning tickets and lost on losing tickets. Supplemental records can include unredeemed tickets and payment records from the racetrack. Lotteries – A record of ticket purchase dates, winnings, and losses. Supplemental records can include unredeemed tickets, payment slips, and winning statements.