Ask The Slot Expert

I have the typical tax newbie question. In June I received my first ever W2G, hitting a $5,000 royal flush on a 50-cent Pick 'Em Poker machine at Mohegan Sun. I elected not to have them take the taxes out, having read in many publications that at the end of the year, I can declare gambling losses up to the amount of winnings.

My question is, how do I do this? I keep accurate records of wins and losses, but what guarantee does the IRS have that they are accurate? Casino players don't get slips like sports or horse players do.

Any advice would be appreciated.

Mark

Dear Mark,

First, congratulations. A royal flush on a Pick 'Em Poker machine is a rare event indeed.

The issuance of a W-2G for winnings of $1200 or more is perhaps the most unkindest cut of all delivered to the slot or video poker player. Even though table game players don't encounter any government paperwork until they hit $10,000, machine players get hit with paperwork for a little over a tenth of that amount.

A warning: According to a tax accountant active on the Skip Hughes video poker list, the regulations governing the W-2G and the treatment of gambling wins and losses are not very detailed and IRS agents may interpret them differently. What I'll describe here is the "generally accepted" method of handling the W-2G. Some people have been successful in being more aggressive.

Yes, you can declare losses up to the amount that you declare in winnings. You can't claim an overall loss from gambling unless you can qualify as a professional gambler.

When I do my taxes, I add up the W-2Gs I received throughout the year and put that total on the appropriate line on Form 1040. I then take my win/loss record for the year and compare it with my W-2G total. If I've won more than my W-2G total, I should report the total win on my tax return. This hasn't happened to me yet, but if it does, I think I would just report the W-2Gs.

If I've won less than my W-2G total or show a loss for the year, I take my win/loss record and subtract the value of my W-2Gs. That gives me my win/loss net of the W-2Gs. This is the amount that I can deduct as a loss, up to the amount of the W-2Gs.

Now, here's one problem. Losses from gambling are a miscellaneous deduction on Schedule A. You must itemize deductions in order to claim the loss. Depending upon your situation, the standard deduction may be more than your itemized deductions.

And here's another problem. The amount of your W-2Gs goes into your Adjusted Gross Income (AGI). Having a higher AGI may affect your eligibility for some deductions.

Your own, contemporaneous records are exactly what the IRS wants to see to prove your loss. There is no guarantee that they are accurate, but if your records are questioned you can provide corroborating evidence, such as toll receipts, ATM withdrawal receipts, cancelled checks or markers, and win/loss statements from your slot clubs.

Best of luck in and out of the casinos,
John

Send your slot and video poker questions to John Robison, Slot Expert, at slotexpert@comcast.net.

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