We have received most of the documents we need and are starting to work on our 2013 tax returns. You probably are doing the same and needing the most up to date information you can find relative to your gambling data. If you are a new gambler – or have gone up in denomination and been getting more W-2G’s – you may find yourself with many questions. I, with the help of Marissa Chien, herself a gambler and Enrolled Agent, wrote the book Tax Help for Gamblers for players such as you. We discuss the basics of record-keeping and filing, for both the recreational and professional gambler who plays any casino game, including live and online poker. We also cover state gambling tax laws for all 50 states. You can go to http://www.shoplva.com/products/tax-help-for-gamblers-2nd-edition-ebook to find more details covered in the book and to order it as a hard copy or eBook.
Many of you already have the latest version of this book (2012), but are wondering if there are any recent changes or updates. There are a few in the state tax section. Kansas needs to be added to the states that automatically withhold state taxes from any jackpot that generates a W-2G – a hefty 4.5%. Plus they put in a change for 2013 that affects gambling losses and other itemized deductions. You will only be allowed to take 70% of your itemized deductions (except for charity which will remain at 100 %.) Then starting in 2014 you will not be able to deduct gambling losses at all.
Ohio is another state that is trying to balance their budget on the backs of gamblers. As well as withholding a 4% state tax from all W-2G jackpots, each city with a casino assesses and withholds a city tax from their residents – and some also withhold from non-residents. But here is the gotcha from the state authorities: after passing a law before the Ohio casinos opened saying that residents could get a deduction for gross gambling losses to offset gross wins on state returns (like the federal law), they changed their minds and passed a law in June of 2013 saying you can NOT get a deduction for your losses. The final salt in the wound: they made this retroactive to the beginning of the year. There ought to be a law forbidding this sort of trick!
Under the Oregon listing, the two entries should be combined into this one paragraph: “Gambling losses from federal Schedule A must be added back as income on Oregon tax returns. Lottery winnings of $600 or less from a single ticket are not considered gambling wins.”
One recent development in the tax field might impact high-income and/or heavy gamblers. You can now add Obamacare taxes to that list of what can be affected negatively by having to include your gross gambling win figure in your adjusted gross income. An AGI over 200k-single/250k-married will now subject one to the new 3.8% Obamacare investment income surtax.
A more positive development, important to professional gamblers, came in January of 2011, due to the decision of the Tax Court in the Mayo case. http://ustaxcourt.gov/InOpHistoric/Mayo.TC.WPD.pdf The IRS has appeared to acquiesce to the Tax Court in allowing the deduction of work-related expenses (i.e., travel, tips, professional fees) beyond gambling gains. This was a major change of direction by the IRS as they had long held that these expenses of professional gamblers were disallowed by 165(d). Now these gamblers can use these deductions to offset non-gambling income, even when it results in a net operating loss. And just like other businesses, that loss can be carried back or forward to other tax years.
But probably the most important tax development came recently, in April, 2013, in a case settled by The U.S. Court of Appeals for the District of Columbia Circuit. http://www.cadc.uscourts.gov/internet/opinions.nsf/0/F80DD179A16F848285257BA3004EA6D1/$file/12-1058-1445657.pdf I call it an offside play since the core case, overturning a decision from the U.S.Tax Court, was whether the IRS should treat foreign gamblers the same way it taxes U.S. bettors. Judge Brett Kavanaugh, in writing his opinion for the unanimous three-judge panel, said: “After a night of gambling, it’s no fun to walk out of the casino a loser. But it’s even worse when the IRS, on your way out, tries to tax you on each individual bet that you happened to win over the course of your losing night.”
Even though the judges were ruling on a different issue –how to tax non-resident alien gamblers – they spent a lot of time discussing the difference between the per-bet and per-session accounting. He writes that the IRS allows the later for U.S. citizens. He actually uses the word “session” numerous times – as opposed to the fact that the IRS has never used it in their basic tax regulations.
This Tax Court decision actually validates our long-term recommendation for the session method of computing wins and losses. Of course, the next battle will now be as to what actually defines a session. But it seems the IRS may be heading – at least with baby steps – in a more sensible direction on this issue.
The law that says you can’t deduct losses from winnings unless you itemize means that gamblers with W-2Gs are faced with two horrible choices: pay taxes on gambling “income” when they actually LOST money gambling during the year, or itemize and throw the standard deduction out the window (and if your itemized deductions are less than the standard deduction, you lose the difference by itemizing!). I have actually REFUSED to count W2-Gs as income statements and filed my gambling income as “zero” in those years when I had a net loss. I’ve only been bothered once, and my accountant actually convinced them to accept the session accounting method, even though I wasn’t a Schedule C filer for THAT activity. Moral: push back against the most egregiously unfair practices, and be prepared to stand up for yourself, through an audit and even tax court if you must. It’s better than bending over and paying taxes on your LOSSES! (The gummint wonders why so many people evade their taxes–it’s because the tax code is so criminally unfair!)
After having a very good year in Indiana, which take the state tax before paying you automatically, we have come to learn that they will not give it back to you if you live in Illinois, which is where we live. Now of course Illinois wants their share too. So we are being hit twice for state taxes when we only live in one state! It was a real shock to our accountant. He said it was like a little secret that you don’t discover till you file an out of state form. The same with Wisconsin. it really stinks since we prefer to gamble in Indiana.
I am done with high stakes gaming in the USA. The tax issues are not worth it. Taxing players instead of casinos is ridiculous. I think if we could start a movement the tax laws would change. The taxable amount of $1,200 is outdated. From now on quarter video poker is enough.