Gambling Winnings And Losses

[FlyingRon]

I mentioned the standard deduction issue, but that can't account for the magnitude of the difference for even a joint filer. The tax on 24,000 isn't going to be 14,500.

 

[LdiJ]

Um, that is what I asked, exactly, if was his intended statement. Not sure what benefit you answering for him is.


But to continue my train of thought


What I read from the op coupled with my layman’s perspective on taxes (which appears to fall inline with the op’s understanding of the issue)

The basic underlying question is: if one is allowed to negate gambling winnings with gambling losses, then how in any situation could end up paying additonal taxes on a zero income attributed to gambling. Are there situations where one is not allowed to negate gambling winnnings with gambling losses?

I thought perhaps that you were not familiar with win/loss letters and what they meant. Otherwise I didn't think that you would have needed to ask the question.

 

[LdiJ]

I see the thinking: if the losses are allowed to offset the gains how can there be more tax? After all, there is no new addeded income. But you have to look at how dealing the gambling situation affects the entire return. The problem is that in order to do that offset, you have to itemize the deductions to get the losses accounted for.

So, as a starter, if the OP was using the standard deduction to reduce his/her income, that deduction is now gone. If the OP is single, that means his income goes up $12,000 right there. If it was a married filing jointly then that means their income shot up $24,000 from the loss of the standard deduction. And all those excess gambling losses do nothing for that.

Another potential problem here is that the gambling winnings are added into adjusted gross income (AGI) while the losses are subtracted out via the itemized deductions later. That matters because adding all those winnings into AGI can result in the taxpayer getting phased out of various credits and deductions he or she may have claimed. So if the taxpayer was eligible for one or more deductions or credits that are subject to income limitations, adding in that gambling income may well have bumped him/her over the limit, resulting in the loss of those deductions/credits. Even though the gambling losses do effectively get backed out later, it's too late to stop the loss of those AGI sensitive items.

I could go on with other potential ripples effects of this, but without knowing the details of the OP's situation I cannot say what all the those would be. The bottom line though is that this is not just a simple wash of income and expense, like you get on Schedule C. Congress has never wanted to encourage gambling; plenty of federal laws reflect that. And the treatment of gambling winnings fits well in that scheme. You can lose money gambling and still owe Uncle Sam more tax because of it.

I have had to explain that to a lot of people. I like your use of the words "ripple effect". I am probably going to borrow that.

 

[justalayman]

I thought perhaps that you were not familiar with win/loss letters and what they meant. Otherwise I didn't think that you would have needed to ask the question.

Thanks but I was simply seeking reassurance that was the ops situstion before going further. Obviously the winnings are reported on the w2g. Losses are simply not required to be reported to anybody. The gambler is charged with documenting the losses as best they can themselves

There is a failing in the system such that I believe the law should be that any given gambling entity that issues a w2g issues a net winnings/loss statement rather than a winnings only (and tax withholding if any) statement currently as the w2g provides for. Of course this would mean a change in the law and would circumvent the intent taxing matters addressed but it would make the issue more technically correct but it’s not likely to happen.


Dreams and wishes generally fall prey to greed and control

 

[justalayman]

I mentioned the standard deduction issue, but that can't account for the magnitude of the difference for even a joint filer. The tax on 24,000 isn't going to be 14,500.

Yes I recall that but as taxing matters has described, it isn’t just a matter of tax on the added income but the factoring of possible losses of deductions due to exceeding thresholds due to the added income. The fact the losses are not a direct subtraction from winnings prior to adding gambling income to the calculation seems to be a sneaky way of penalizing those wicked gambling folks.

 

[LdiJ]

Thanks but I was simply seeking reassurance that was the ops situstion before going further. Obviously the winnings are reported on the w2g. Losses are simply not required to be reported to anybody. The gambler is charged with documenting the losses as best they can themselves

There is a failing in the system such that I believe the law should be that any given gambling entity that issues a w2g issues a net winnings/loss statement rather than a winnings only (and tax withholding if any) statement currently as the w2g provides for. Of course this would mean a change in the law and would circumvent the intent taxing matters addressed but it would make the issue more technically correct but it’s not likely to happen.


Dreams and wishes generally fall prey to greed and control

All of the casinos in my state (and the ones in Ohio too) issue win/loss statements. The problem is, is if the player doesn't swipe their card to record playing, the win/loss statement ends up not being accurate. The players are particularly bad about that when they are playing slots.

 

[FlyingRon]

Yes, the idea thing is to make sure the losses all offset the gains before they make it to the W-2G. However, gamblers (especially losing ones) don't tend to always think things through.

 

[LdiJ]

Yes, the idea thing is to make sure the losses all offset the gains before they make it to the W-2G. However, gamblers (especially losing ones) don't tend to always think things through.

They don't do it that way here. Every win gets a W2G. They are not netted of losses. They issue the win/loss statement to reflect the losses. So, when the taxpayers go to do their tax returns, they must present both the W2G and the win/loss statement.

 

[FlyingRon]

I guess it depends what the game is and what you consider a win. If you're sitting down at a table game for four hours, cashing out that is different than counting playing slots I guess. I don't even think they know (well given surveillance and computers, perhaps they do), what my individual wagers were. They just know I started with $200 or whatever and I cashed out $320.

 

[justalayman]

All of the casinos in my state (and the ones in Ohio too) issue win/loss statements. The problem is, is if the player doesn't swipe their card to record playing, the win/loss statement ends up not being accurate. The players are particularly bad about that when they are playing slots

.

I live in the Midwest gambling capital up here by the big pond. I have four casinos less than hour from me and two only about 15 minutes from me. I understand what you’re saying

yes, IF the gambler utilizes a card, there is a record of their wins and losses.

They don't do it that way here. Every win gets a W2G. They are not netted of losses. They issue the win/loss statement to reflect the losses. So, when the taxpayers go to do their tax returns, they must present both the W2G and the win/loss statement.

But that still doesn’t mean the net gain is the only reason for an increase in tax liability. With the system failing to accept a direct application of net gain, the ripple effect TM spoke of can cause an increase of the tax burden beyond only what the increase due to the net gambling gain would cause. It really does seem unfair and a rule based on punishing the morally corrupt.

 

[LdiJ]

.

I live in the Midwest gambling capital up here by the big pond. I have four casinos less than hour from me and two only about 15 minutes from me. I understand what you’re saying

yes, IF the gambler utilizes a card, there is a record of their wins and losses.




But that still doesn’t mean the net gain is the only reason for an increase in tax liability. With the system failing to accept a direct application of net gain, the ripple effect TM spoke of can cause an increase of the tax burden beyond only what the increase due to the net gambling gain would cause. It really does seem unfair and a rule based on punishing the morally corrupt.

Right, I was not disagreeing with that at all. Ron and I just got into a little side discussion about W2gs and win/loss statements.

 

[justalayman]

I guess it depends what the game is and what you consider a win. If you're sitting down at a table game for four hours, cashing out that is different than counting playing slots I guess. I don't even think they know (well given surveillance and computers, perhaps they do), what my individual wagers were. They just know I started with $200 or whatever and I cashed out $320.

I am curious as to how it’s reported. I can see using several different methods to arrive at different totals for wins and losses.

 

[LdiJ]

I am curious as to how it’s reported. I can see using several different methods to arrive at different totals for wins and losses.

Here, the smallest win that gets reported on a W2G is 1200.00. So any wins lower than that don't get reported except on the win/loss statement (assuming they used their card). I always assumed that was nation wide. There may well be a variation between table games and slots. I do not play myself so I don't have that experience first hand. My experience is from the tax end.

 

[justalayman]

are you referring to a single event win (like one hit at a slot or the cash out from a table game) or some accumulated winnings?


If it’s a single event, then I can see many ways to beat the system and not have a reportable level of winnings. Even if accumulative, depending on the period of accumulation, I can still see ways to result in a zero winnings situation.

 

[davew9128]

OP should be grateful they aren't in MA with those gambling winnings. MA doesn't allow for any deduction for losses, only the cost of winning lottery tickets.