TAX HELP FOR GAMBLERS
By Jean Scott & Marissa Chien
Seasoned gambling pro Jean Scott and Enrolled Agent Marissa Chien (also a gambler, but more importantly, a professional tax consultant) have compiled the most comprehensive, authoritative, and up-to-date book available on the subject of gambling and taxes titled, Tax Help For Gamblers: Poker and Other Casino Games. The big was just released. Below is an excerpt kindly provided by Jean Scott. We have added this valuable book to our online store and priced it at a huge discount Ė only $21 (retail price $25.95). Click here for details.
Chapter 1 - The Basics
""Paying taxes on my gambling wins? Youíve got to be kidding. Sure, sometimes I win, but my losses are always much larger than my wins by the end of the year. So I donít have to mess with it on my federal or state tax returns."
Wrong! You probably should "mess with it," especially if you hold any of the following common but mistaken beliefs:
- I can lump together all my wins and losses for the year and, if I have a net loss, I donít need to put wins or losses on my income tax returns. After all, I didnít have any gambling income.
- The IRS canít "catch" me, even if I win a lot of money gambling, as long as itís done slowly over a considerable period of time in different gambling venues and I get no official forms like a W-2G or 1099.
- Federal and state tax agencies know most gamblers lose over the long term, so they arenít very interested in auditing them.
- If I do get a few W-2Gs, I can just count that total as my gambling income for the year and be safe in an IRS audit.
- If I gamble online, the IRS doesnít get any records of this so I donít have to report any of my winnings.
- If I gamble on a cruise ship in waters three miles from U.S. soil, I donít need to report my winnings.
- If I play poker only in home games, I do not have to report my winnings.
- Winnings from illegal gambling are not taxable."
Chapter 2 Ė Player Record Keeping
"I'm sorry to report that the huge majority of gamblers do not keep any sort of record of their play. The truth is that a good gaming log is hard to keep up to date. When you finish gambling, youíre often tired, maybe a bit bug-eyed, or even intoxicated. If youíve won, youíre on a high and want to celebrate, not write in a log. If youíve lost, the last thing you want to do is record it for posterity. Perhaps, if you think about it at all, you figure that, whatever your result, youíll remember it if a time ever comes when you need to. Or you actually do write down your resultóon a cocktail napkin that comes clean in the wash. Or you actually record your win or loss in a small spiral-bound pocket notebook, the kind reporters carry around, but you donít note enough details of your gambling session to appear authentic in any IRS audit.
Sure, keeping a log isnít easy. But trust me on this: Itís easier than having to pay more in taxes than youíre liable for, or worse, trying to justify a claim of gambling losses, without adequate documentation, to a steely-eyed bean-counting representative of the U.S. government."
Hereís a quote from Henry Tamburin that appears on the back cover of the book:
"I got a letter yesterday from the State of Alabama Department of Revenue requesting: ĎDocuments to show your gambling winnings and losses for 2006.í Thank God I read your book and have a detailed gambling log."
(Note from Henry: The above is true. I copied the pages in my Gambling Log that my wife and I religiously maintain for all of our gambling sessions, and mailed them to the Department of Revenue. I havenít heard a peep from them so I assume they are satisfied with my record keeping of winning sessions, and most importantly, my losing sessions. I have Jean to thank for training me on the importance of maintaining a Gambling Log in the event of an audit. Thank you, Jean.)
Chapter 6 -- Tax Help for the Poker Player
In an audit, the session method you use, in the absence of specific IRS guidance, has to be based on consistency, reasonableness, and practicality and depends on the circumstances in each individual case. The more conservative you are, the finer you should define a session. The most conservative definition (and the safest in an audit) for a poker player is to treat each table at which you play as an individual session. Although that sounds like a record-keeping challenge, it really isn't. There are great computer programs on the market that can keep track of your wins and losses by table. ("Poker Tracker" is by far the best and most recognized program on the market.)
(Note from Henry: For my blackjack and video poker log, I define a session as the time I sit down and play to the time I quit playing. If Iím in Vegas for several weeks (which I often am), my log contains many entries for each session I play. I record the start and ending time of each session, who played (me or my wife), name of the casino, how much we won or lost in each session and other game-related information, such as for BJ play, the game conditions, penetration, any heat, etc., and for video poker, the game played, machine denomination, and Player Points earned. I keep a small notepad with me to record this information and then transpose it every evening into a hard bound log book. Once you get in the practice of doing this, it becomes easy.
Chapter 8 Ė STATES ADD INSULT TO INJURY
If youíre a gambler, youíre lucky if you reside in one of the six tax-haven (or tax-heaven, in my opinion) states that donít have any form of state income tax (Washington, Nevada, Texas, Alaska, South Dakota, and Wyoming). This is also true if you live in the near tax-haven states, like Florida, which only tax intangibles, or in Tennessee or New Hampshire, which only tax investments. Why are you lucky? You wonít have to pay your state any taxes on your gambling wins.
However, youíre not completely safe from all state income taxes. You may gamble and hit a jackpot in another state, one that does have a state income tax, a few of which automatically withhold state taxes from any win that generates a federal W-2G, regardless of the residency of the jackpot winner. This list of the latter (and the percentage that they withhold) includes:
Mississippi (3% withheld for all W-2G wins, but this is what they call a non-refundable state income tax - see further explanation in this chapter)
Michigan (3.9% in 2007. This withholding is for non-residents only and covers winnings from casinos, racetracks, and off-track betting.)
Connecticut (5%) No withholding for anyone unless federal withholding is required, i.e., non-resident aliens.
(Note from Henry: Besides playing in Vegas, I also play video poker in Mississippi. When I hit a royal at or over the $1200 threshold, the state immediately deducts 3% of my winnings. So when I recently hit a $2000 royal flush, the casino staff gave me only $1940 along with the W-G form. In my case, I canít claim the $60 on my Alabama income tax because they donít reciprocate with Mississippi (and I canít file to get it back from Mississippi either - Jean explains why in her book.)
Summarized below is the bookís Table of Contents, so you get a flavor of all the topics covered in the book.
Table of Contents:
Foreword by Phil Gordon
Part I Federal Taxes
Part II State Taxes
Final note from Henry:
"Hey, nobody likes to mess around with taxes. But unfortunately, like death, itís inevitable that we must file, and by law, we must pay taxes on gambling winnings otherwise we could be in a heap of trouble (just ask my friend and fellow publisher Anthony Curtis about IRS audits). April 15th will be here sooner than you think. Now is the time to get started on understanding the tax implications of winning (and losing) at gambling, and you can by reading Scottís and Chienís easy to understand book. Whether you are a recreational player, or professional player, or a retiree on Social Security, this book is a must read if you gamble. Highly recommended."
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