Taxes

A last-minute response to some of the tax questions gamblers have sent me.  Almost all of them required more than a simple one-sentence answer.  Tax issues are always complex and when you combine them with gambling issues they become doubly complicated.  So many of the needed details in the IRS publications are murky or missing, so the answers often depend on your personal financial circumstances.

If you are panicking because you haven’t filed your return for 2017 and the deadline is this coming Tuesday, the current e-book edition of Tax Help for Gamblers can be downloaded immediately at this website.  Most gambling tax issues are covered, no matter what game you play, and many of the common tax questions are answered there.  If your situation is so complicated that you are still confused, then I suggest you file for an extension and then see a professional tax preparer who is knowledgeable about gambling issues.

If you have questions about how the new tax changes will affect your filing of your 2018 returns, help is on the way as there will be a new updated edition of my tax book later in the year.  In the meantime, I have discussed in some of my recent blogs some of those changes that affect gamblers specifically and talked about some of the techniques that players are using to mitigate their negative effects.  One reader suggested using multi-line lower-denomination games instead of higher-level single-lines to avoid W-2Gs.  That is a great idea but often one that is not an option because there are no games readily available with the same good pay tables at every level, and it really doesn’t solve anything since the IRS expects you to pay taxes on your wins whether you get any paperwork or not.   Another reader suggested that I talk about using the session method for this purpose.  That might be a good way but, until the IRS changes the way it looks at gambler returns, you might not want to face the hassle of explaining your figures in an audit.

I discussed taxes on a recent “House of Cards” radio show, Episode 53

And unrelated to taxes, you can read a recent interview I gave about casino freebies.  I wasn’t given the opportunity to vet or edit it – so remember the author bears full responsibility for all the material there.

 

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.

An explanation from the American Gaming Association (AGA) from a press release I was e-mailed  – with my comments in [ ]:

What Does Federal Tax Reform Mean for Casino Customers?

Background

Congress recently enacted extensive changes to our nation’s tax law. Among the changes contained in the final bill were a reduction or elimination of many deductions for both individuals and businesses. This document is intended to address questions about how changes to the law will impact casino customers.

Rules for Deducting Gambling Losses

• Under the new law, those who itemize deductions will continue to be able to deduct gambling losses up to the amount of their total winnings. For example, a slot player who wins $25,000 in jackpots may deduct up to that amount in verifiable gaming losses when they fill out an itemized tax form. After making this calculation on the form, the player will only be responsible for paying taxes on any net income they have received from gambling. If losses are greater than winnings, the customer would have no tax liability for their gaming income. [This deduction was “saved” at the last minute.]
• The new law will impact those who meet the IRS’s narrow definition of a “professional gambler” by capping their deductions for both wagering losses and expenses to the amount of their winnings. As an example, a professional gambler who has $50,000 in winnings can deduct up to that amount in combined losses and expenses such as travel, meals and hotel stays. Prior to these recent changes, professional gamblers were allowed to separately deduct expenses incurred in carrying out wagering transactions without regard to their wagering wins and losses. This limitation will expire after 2025 unless Congress chooses to extend it.

Other Changes to Consider

•  Another consequential change made in this bill was to significantly increase the standard deduction taxpayers may claim (now $12,000 for individual filers, $18,000 for heads of household and $24,000 for joint filers). As a result of this change, estimates indicate 90% of tax filers will no longer choose to itemize deductions under the new regime. For those among the two-thirds of taxpayers who already chose to take the standard deduction, this increase in the standard deduction is likely beneficial and shouldn’t impact current treatment of wagering wins and losses. Casino patrons who itemized previously, however, should consult a tax professional to determine whether they will continue to achieve the greatest tax benefit from itemizing under the new law.

Legal Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their specific situations.  [Very important suggestion – don’t depend on personal opinions you read on Internet gambling forums!!]

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In another release, the AGA talks about future concerns that need to be addressed:

While there were wins, there are other areas where we will need to continue to engage to protect and promote the industry as “fixes” are considered in 2018 and beyond. High priority targets include:

1.  Lifting the Slot Tax Reporting Threshold: The $1,200 slot tax reporting threshold was set in the 1970s. The tax reform debate provided us an opportunity to introduce this topic to legislators and pave the way for adjusting the threshold in a favorable way for our members and customers. I encourage your continued engagement to help us make a compelling case for how a higher reporting threshold will help lower administrative costs and provide our customers an improved experience when they visit your facilities;

2.  Promulgating Regulations that Work for the Industry: Legislation of this size and scope will undoubtedly require significant details to be determined by the IRS and the Treasury Department. AGA will remain vigilant to ensure any rulemaking by executive agencies is consistent with industry practices and priorities; and

3.  Assessing and Addressing the Impact of Certain Changes: It may take some time to fully understand the effect some changes have on the industry and our customer base. For example, doubling the standard deduction for individuals will likely result in fewer taxpayers electing to itemize and net their gambling income/losses. AGA will need your continued input to know whether this has a measurable effect on customer behavior, and we stand ready to work with Congressional champions to help address any unintended consequences that threaten the health of the industry.  [Maybe lead to being able to use NET win/loss figures and use “session” records that can show lower numbers than W2-G jackpot figures???  I plan to live a long time but I would be surprised to see this in my lifetime! 🙂 ]

 

 

 

 

Many of you are starting to work on your 2016 tax returns and have questions about how to handle your gambling figures for the year. If you are a new gambler and/or have gotten some W-2Gs for the first time, you need a lot of basic information. This is why Tax Help for Gamblers was written. It will give you and/or your tax preparer valuable details you need as you work on your returns, including both federal and state for many of you.

If you are experienced in handling gambling figures on tax returns and/or you have heard about the recent IRS ruling, you may have specific questions about possible changes for 2016. Here is the actual 25-page IRS document discussing the regulations proposed earlier – and many vehemently protested by both casinos and players – and why or why not they made it into the final document.  Fortunately, the most problematic for gamblers, lowering the W-2G issuance from $1200 to $600, was scrapped.

Unfortunately the one issue we players wanted settled, specifically approving the “session method” of reporting our wins/losses did not make it into this final document; the IRS stated it is still “considering” Notice 2015-21, which would give a “safe harbor” for this logical method.

Therefore, we cannot yet change the advice we give in the latest edition of Tax Help for Gambler. In the section titled “1040, Line 21 Problem” (which may now be a different line!) we discuss at length this problem of deciding what a “session” is and whether the IRS will kick out your return if you use it instead of your W-2G total. Although there have been an IRS memo and a court ruling validating this method – and many have been using it with no problems – there have still been many cases where gamblers have had to endure much back-and-forth argument and even needed professional advocating before they could prevail. Some gamblers just deathly fear the hassle and won’t use the method even if it would be the most cost effective. So we all hope that the IRS will soon put out a clear directive on this issue.

Another resource I can recommend is a recent good article by my friend Mark Gruetze that discusses IRS and tax issues for gamblers.

The latest edition of Tax Help for Gamblers is available only as an eBook but is immediately accessible to download for a very frugal price – $7.99. It can be ordered through iTunes, for the Kindle and for the Nook.

 

A big thanks for all the recent birthday messages. I feel blessed to be surrounded by so many thoughtful friends and well-wishers.

And a big surprise – even the IRS decided to give me something nice for my birthday, new gambling regulations that will make easier my future book-writing life – as well as my personal financial situation. These new regulations wiped out some scary proposals from the IRS in the past, particularly dropping the bad idea of changing the $1200 W2-G threshold to $600. They also addressed some other technical issues for which the casinos had been pushing. I haven’t read the official IRS regulation document, but when I do, I will share all additional pertinent details.

Speaking of taxes, I want to clarify that the 3^rd edition of Tax Help for Gamblers, only available online as an eBook, is the only edition with current information. 

I haven’t researched the tax time promotions this year, but Scot Krause has and he has a good list in Gaming Today.  Good job, Scot!

 

Q:  Does your tax book address the Medicare and Social Security implications of gambling income? I am approaching Medicare age and just recently became aware of the effects of gambling income on Medicare premiums. I believe there are some Social Security implications as well.

A:  I don’t discuss this subject at length because so much depends on your total income.  If you have high non-gambling income, adding gambling income to your AGI can become very expensive.  I write:  “Seniors may find that they have to pay taxes on more of their SS income.”  There can be higher Medicare payments also.  I give a whole long list of other negative effects for recreational gamblers who have to include gross gambling win figures in their adjusted gross income.  This is why some who qualify will file as professional gamblers on a Schedule C.  There is a whole section on the “1040 Line Problem.”  As I say so often, when your financial situation becomes more complex, you probably will need to see a professional tax preparer who is knowledgeable about tax issues connected with gambling.  And many times the taxpayer will need to tell them about Tax Help for Gamblers!

Q:  I have your 2^nd edition 2012 paperback of Tax Help for Gamblers. I see your updated 2015 edition is only available online.  Do I really need to buy that?

A:  That depends.  The 2012 edition covers the basic well, but there have been quite a few changes in the last three years.  Here is a list of some of the subjects that are new and/or have been updated in this  3^rd edition

It’s that time again, gathering up all the paperwork from the previous year and crunching the numbers. And for 2015, we are facing an unusual situation, for only the 2^nd time we have to chalk up a loss. We had a very small one in 2002, but this last year’s was a much larger number.

A gambling loss is never a happy number, especially if you have played only when you had an advantage. If you have played in negative-expectation circumstances, you hope you will get lucky and win but if you are being realistic you should expect losses.

An advantage player has to be realistic too, accepting that your expectation to win is based on the long term. And the gambling gods do not specify how long the “long term” is. They certainly do not co-ordinate with the IRS and define it as running from January 1 through December 31.

Because we are doing plays with smaller edges than in the past, we aren’t overjoyed with a yearly loss but we understand it and aren’t discouraged or tempted to change course. For one thing we can look back over 30 years of casino gambling and see a huge plus number for that very long term. The 2015 loss suddenly looks very insignificant, a very small percentage downturn.

But more interesting is to add the 2014 and 2015 totals together. In 2014 we had the second biggest win in our 30 years. Add the much smaller loss in 2015, average the two years, and we came out ahead with about the same average yearly amount as we had the last 10 or so years. Looking back through our records, we saw immediately the reason for the difference in the two years was the number of royals we hit – or didn’t hit. For us the long-term unexpectedly meant two years instead of the usual one year. And if you don’t play very often, your long term may be many many years.

Speaking of taxes, I’d like to remind you of my book Tax Help for Gamblers, which gives complete information for both the recreational and professional gambler. It will answer a lot of questions for new gamblers who are getting their first W-2Gs and for more experienced gamblers who may be thinking of moving to the professional category. Many players who have accountants who are not gamblers themselves will recommend this book to them. Marissa and I updated it  last year and nothing of major importance has changed for the gambler this year. This updated version is only available online. Go here  to check out the Table of Contents and a sample chapter – you might need to scroll down before they appear. You can order directly from Amazon Kindle, Nook, or iTunes.

I have changed my mind – asserting a woman’s prerogative!

Recently, when asked about the IRS proposal to lower the figure for W-2Gs on slot wins from $1200 to $600, I wrote the following:

Some are suggesting a mass write-in effort by gamblers to protest, but I don’t think there would be enough participation to be influential. More successful will likely be the casinos’ efforts. They hate this idea as much as the players do and their lobbyists are already busy in Washington citing the problems of increased paperwork, irritated customers, and added costs, to name just a few. So I’m going to sit back and quit worrying about what might happen in the future. There’s time enough to deal with any negative tax changes if/when they do happen.

However, I have been receiving emails from the American Gaming Association (AGA) that have convinced me that there needs to be a strong grass-roots protest.  Here is part of the most recent email, with some specific recommendations on how we each can individually effectively join this protest:

We believe it is critical that the IRS hear from American consumers who enjoy the first-class entertainment experience that the U.S. casino industry provides and from the millions of U.S. workers whose job depends on gaming.  With a looming June 2 deadline for public comments regarding the IRS’ potential consideration to lower the slot gaming winnings threshold from $1,200 to $600, it’s imperative that the IRS hears from a wide array of voices about the negative implications that any reduction would have.

Their recommended message:

• The IRS could soon force casino guests to dramatically increase the level of paperwork, which would severely undermine the customer experience.

• Specifically, the IRS may consider lowering the tax reporting threshold on slot machines from $1,200 to $600. 

• Not only has this $1,200 threshold existed since 1977, but when accounting for inflation indexing the threshold should actually be nearly $4,700 today.

• This potentially burdensome requirement, for taxpayers and for the IRS, would cost states and cities significant tax revenues that pay for vital public services, such as teachers, firefighters and road improvements.

• Please tell the IRS not to reduce the slot gaming winnings threshold from $1,200 to $600 because it would severely harm the customer experience and reduce state revenues.

Here are ways to spread the word: