Unfortunately, on rare occasions the editing process results in a response being published that inadvertently is different than that which the author/consultant intended. In the light of feedback received from several readers, Marissa Chien has penned a new response to today's QoD, which we hope will clarify any doubts. Please accept our apologies for any prior confusion.
Generally speaking, when you win the $10,000 seat, that entry fee should be considered income. Similarly, when you get knocked out of the tournament and are out of the money, it's considered a $10k loss. However, the tax treatment of these items will definitely depend upon your individual situation. First and foremost, are you a professional or a recreational gambler? Professional gamblers would report this information on different sections of Schedule C of Form 1040, whereas recreational gamblers would report the $10k, along with any other gambling winnings, on line 21 of Form 1040 and deduct the loss along with other gambling losses on Schedule A - Miscellaneous Itemized Deductions.
Furthermore, you can only deduct gambling losses to the extent of gambling wins. As our readers have pointed out in the short time that the original response has been posted, there are other factors to consider, like what happens if one wins the seat in 2005 for the 2006 WSOP. Another factor to consider is whether or not one lives in a state that does not have itemized deductions. Yet another consideration is whether or not the deduction would be subject to phase-out limitations. The list goes on and on.
In short, there are many factors that come into play when dealing with the tax treatment of gambling wins and losses and we would always recommend you seek professional tax advice. The responses that are published here, and the material in the book I wrote with Jean Scott, will try to address the ones that most people will face and help you be better informed about the issues that apply to your situation and how best to manage your gambling wins and losses from a tax standpoint.
Marissa Chien, EA, is co-author, with Jean Scott, of "Tax Help for the Frugal Gambler," available from our online store ShopLVA.com. They will have a new book out twoards the end of the year that will address many of the scenarios that have been brought to our attention by our readers today.
