Gambling and Tax Liabilities

If you're just getting around to putting together your 2000 state and federal income tax information in preparation for filing your returns, you may have come across the receipt you received from the slot attendant for winning that $1,600 jackpot on a Double Diamond slot machine way back in January of last year. You probably just tucked it away in your desk drawer and forgot about it.

Income tax time means that it's time to remember it again. Uncle Sam certainly will! That $1,600 will have to be entered as income in the form of gambling winnings on your return. If you are eligible to itemize and you kept accurate records of your casino visits during the year and documented your losses and wins, you are eligible to deduct losses up to but not surpassing the amount you won. That's the good news. The bad news is if you didn't take the time to keep records, it's too late now.

If you are serious about gambling as a recreational and leisure time activity, you'd be wise to be prepared if Lady Luck ever smiles on you and you hit a slot machine jackpot, or you win a bonus award while playing Caribbean Stud Poker or Let It Ride. It isn't all fun and games when it comes time to reporting those winnings as income. The IRS is going want to its share!

If you really want to get the low down on the income tax laws as they affect your gambling, pick up a copy of Publication 529, "Miscellaneous Deductions", from the Internal Revenue Service. Inside you'll find a section titled "Gambling Losses Up to the Amount of your Winnings". It makes for very informative reading for anyone who gambles for fun.

The publication advises you that you are required to report the full amount of your gambling winnings for the year on line 21 of Form 1040. (Remember that the only time the casino will inform the IRS of your winnings is when you win a slot jackpot of $1,200 or more.) You may deduct your gambling losses for the year on line 27 of Schedule A of Form 1040. You are cautioned that you cannot deduct gambling losses that are more than your winnings.

Then there is a paragraph of information highlighted with a caution sign and exclamation point: "You cannot reduce your gambling winnings by your gambling losses and report the difference. You must report the full amount of your winnings as income and claim your losses (up to the amount of winnings) as an itemized deduction. Therefore, your records should show your winnings separately from your losses.

The advice the IRS gives you to maintain a record of your gambling activity is to keep a diary of your wins and losses. The publication advises you that the diary should contain at least four categories of information: 1. The date and type of your specific wager or wagering activity. 2. The name and address or location of the gambling establishment. 3. The names of other persons present with you at the gambling establishment. 4. The amount(s) you won or lost.

In addition to your diary, you are are also advised to maintain accurate proof of your wins and losses in the form of supporting documentation. You will already have in your possession Form W-2G, Certain Gambling Winnings, Form 5754, Statement by Person(s) Receiving Gambling Winnings. That's what you received from the slot attendant when you won the jackpot.

Other forms of documentation include wagering tickets, canceled checks, credit records, bank withdrawals, and statements of actual winnings or payment slips provided to you by the gambling establishment. If you use a player's club card every time you play slots, the casino will have a computer record of your coin-in, coin-out activity on the slots. At year's end you can write a letter to the casinos at which you played to request this information to support your income tax claims.

Next week I'll continue my discussion of the income tax laws as they apply to recreational gamblers. In the April edition of Midwest Gaming and Travel magazine I have written an in-depth report titled "Gambling Can be a Taxing Proposition" that will prove interesting reading for anyone who takes their casino activity seriously.

For information write Midwest Gaming and Travel , 409 Tenth Street S.E., Suite 100, Waseca, MN 56093 or call 507-835-1662.