Financial Freedom

What if your life could change after reading one book? Try Financial Freedom by Merlon Harper

What do the Feds Say about Gambling Income?

Are you a casual gambler pressing your luck despite your odds? If you are, there are some tax rules you should become familiar with. First, gambling income is taxable and includes lotteries, raffles, horse races, and casinos, but is not limited to these activities. If you win, based on the amount and type of winnings, the payer may give you a Form W-2G Certain Gambling Winnings. The payer also sends a copy of the W-2G to the IRS. Even if you don’t receive a W-2G, you are required to report your winnings.

 

Gambling winnings are considered “other income” on your Federal Tax form and can be itemized. For additional guidance see Publication 529.  You can only deduct the expenses that you can verify, limited to the amount of gambling income you report on your tax return.

 

The mistake the infamous Chicago gangster Al Capone made in 1931, in defense of his tax evasion case, was epic. Al Capone was on trial for failing to file tax returns from the year 1924 through 1929. The Treasury Department was able to prove that the gangster had to have a substantial amount of income to live his bejeweled life style. In his defense, Capone’s lawyer argued that he lost as much money gambling as he earned, with six bookies testifying that he lost over $327,000 over a six year period.

 

The individual income tax system, created after the ratification of the 16th amendment in 1913, was in its infancy stage at the time. So perhaps his lawyer wasn’t abreast of the newfangled tax law which only allows you to deduct losses against winnings from the same year. Capone was sentenced for 11 years on charges of tax evasion; his gambling loss defense was not effective.

 

If you don’t have your bookie available to testify to your gambling losses, here are a few tips you can use to off-set the tax on your winnings.

 

  • Keep a gambling log or diary, receipts, statements or tickets.
  • Maintain specific information in your log or diary
    • The date and type of your specific wage or wagering activities
    • The name and address or locations of the gambling establishment
    • The name of other persons present with you at the gambling establishment
    • The amount(s) you won or lost.

 

 

 

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