So, in Nevada, gambling is almost considered a part of life. So many folks do a little bit, from dropping spare change in a slot at the grocery store, to hanging out at a large casino complex and getting more involved in various types of gaming activities.
The IRS considers “gambling income” to include lotteries, raffles, keno, sports wagering (including office pools) – even bingo at the church or online fantasy football bets. (How many of you were thinking at the beginning of this column, “This article isn’t about me.”? Still think that?)
There is a provision in the tax law for deducting gambling losses. But they are limited to the gambling winnings and must be done as a part of itemized deductions.
It is important that you have some way of documenting your gambling losses. The most effective is, when at a casino complex, use their “player’s club” system. They will provide you with a printout of all your wins and losses. When you have this printout, the IRS is happy to allow your gambling losses without any further proof.
In other situations, cancelled checks, credit card statements, cash receipts, AND keeping a daily log of all gambling activity. Your log should state the date and type of gambling activity, the name and address of the places where your gambled, other folks that were with you while you were gambling and of course, the amounts of wins and losses.
Remember, you only get to deduct your gambling losses up to a maximum of your gambling winnings. Any excess losses are … well, they are lost. Have you ever noticed those large casino resorts don’t exist by letting anybody walk out with more than they came in with? The system is rigged to let you have a good time, but eventually, you lose. Over all my years preparing tax returns, I have yet to prepare a return where the gambling winnings exceeded the losses. Once I had an elderly couple come in and show me their winning statements. They totaled over $1.1 million! I thought maybe this was the one that would break that exception until they showed me their players club printout showing they lost $1.2 million. Ouch!
Remember I said you had to itemize to take your gambling losses? What if your standard deduction is $27,500 but your actual itemized deductions come to only $10,000? Normally, you would be happy to take the standard deduction. But in order to take your gambling losses, you have to itemize, so the next $17,500 of gambling losses are used up just getting you to exceed the standard deduction threshold, no actual additional tax benefit. Ooops! In this example, let’s say there were only $5,000 of gambling winnings, which then allows a maximum gambling loss deduction of $5,000. There would not be enough to itemize. Thus, in this scenario, the gambling income actually increases taxable income, no extra deduction for gambling losses.
Have you heard? Ecclesiastes 9:11 says, “I returned and saw under the sun that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favor to men of skill; but time and chance happen to them all.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com. Also on Facebook.