Tax Season Talk

I am getting many questions from casino players who are worried about the tax law changes enacted by Congress at the end of last year and how it might impact how they have to treat gambling reporting on their tax returns.

First, I need to correct some misunderstandings.  This new law will not affect how you report your gambling figures on your 2017 return, the one you are probably working on now.   You will probably follow the same reporting path as you did on your 2016 return if your financial situation, particularly the gambling details, have not changed much.

Second, the new law actually doesn’t change the basic rule for how recreational gamblers can report their wins and losses.  You put your wins under “Income” on page 1 of your return.  Then you have two choices when deciding how to report your losses.  You can add those losses to other deductions you report on a Schedule A, but there is a limit – you can only put down a loss figure that is not higher than your win figure on page 1.  However, many people will use a second option because their deductions, even including the gambling losses, is not as high as the standard deduction.  Therefore, they will take the standard deduction.  This second option has always been painful for gamblers, since that means that they will be paying taxes on their gross wins rather than the net win after they deduct their losses.  However,  for most gamblers who play at the lower denominations, they just consider this a small “entertainment expense.”

BUT – why is there always a government “but”?  Now that I’ve explained what has not changed for gamblers in the new tax law, I will need to explain what has affected many gamblers big-time!  Although this isn’t a specific change addressed to gamblers, it is something that many gamblers will need to carefully consider this year even though it doesn’t kick in until 2018 returns have to be filed.  Then that standard deduction I talked about in the last paragraph will just about be doubled.  That will make that second option a little less painful for those light gamblers with smaller win/loss figures because they will make up some of the loss they incur for having to pay taxes on their gross wins with the tax savings of a bigger standard deduction.

However, it will hit hard those heavier players with large gambling figures, especially those that are also being hit with reduced deductions, like mortgage interest or state taxes.  In our next edition of Tax Help for Gamblers (which will come out in time to help with your 2018 returns), Marissa and I will have to revise this former advice on which option to use, “Many [taxpayers] find they need to figure it both ways to see which has the lowest overall tax obligation.”  Sad to say fewer gamblers will find it better to itemize than to take the standard deduction, and they will end up paying taxes on their large gross wins.

So, what are many high-level recreational gamblers doing this year?  I’ve been talking to some of them.  This is not a happy group! Many are already being slammed in their home state that doesn’t allow deductions for gambling losses.  Now this seems like a fatal blow.  Perhaps they will just take up another hobby, they say.  More are considering dropping down in denomination to avoid those pesky W-2G’s although they are full aware that they should report all winnings whether there is a paper trail to the IRS or not.  A few think they could continue playing at high levels if they switched to the category of “professional” gambler, aware that the IRS rules for this are strict and involve gray areas that might have to be challenged in tax court.  But if they qualify, this would solve the main problem since they could net out their gambling income on a business Schedule C  – although the thoughts of this advantage would be tempered by the knowledge that self-employment taxes would be a hefty cut in their profits.

And speaking of filing as a professional gambler brings me to one notable change in the new tax law that specifically refers to this small category.  Although these professionals can still deduct business expenses related to gambling, such as travel costs to casinos, these expenses added to gambling losses can no longer total any more than the win figure.  Professionals now will run into the basic federal income tax rule that has always plagued the recreational gambler, that there is no way you can claim a net gambling loss for any one tax year, no matter how much you have actually lost.

Any hope for gambling tax breaks in the future?   Actually, there is a surprising supporter of the beleaguered gambler – casinos!

Say what?

The American Gaming Association (AGA), the lobbying organization advocating for the casino industry is putting out strong words about slot tax reform:

Outdated slot tax reporting requirements are cumbersome and costly for patrons, casinos and the government. AGA will unleash an aggressive campaign to modernize these outdated reporting requirements.

Go back to my December 22 blog where I discussed my hope  – if I can possibly live long enough – that I will someday see gambling tax relief.