Deal Me In: Using this lotto write-off ruse is ill advised

Dear Mark: I have a tax liability from a slot jackpot win from this past November of $20,000. Because I have never won any sizable amount in the past, I didn’t do what you have suggested multiple times, that is, keep accurate records of my play. All I have is the tax form from the casino and no documented losses to offset that win. On eBay, I have seen that you can buy losing lottery game tickets, good for a tax write-off on your 2014 gambling losses to offset your winnings. Is this legal? Tim H.

You’re right about one thing, Tim. I have harped incessantly about keeping accurate records so that you can counterbalance your tax liability on your wins by deducting your losses. When keeping law-abiding records while you play, the IRS will accept as documentation your written log detailing the date of your wagers, the location, amount of the bet, type of gaming, and wins and losses. That includes lottery play and losing lottery tickets which can also be used by a loss-claimant to substantiate their loss claims. However, these better be losses incurred by Tim H. of Scranton, Pennsylvania rather than valueless scratch-off tickets from a party store in Escanaba, MI.

Now, Tim, accepting your query as you meant it, let’s discuss your contrived solution of showing increased loss totals by buying thousands of dollars worth of losing lottery tickets online.

Yes, you can go online and buy $20,000 worth of losing lottery tickets to cover your $20,000 jackpot win. From eBay to Craigslist, some sellers believe repurposed lottery tickets can serve as documentation if Uncle Sam comes a calling. These shady online ads tend to state, “Yes, you can use them for taxes.”

The problem with that is that every lottery ticket is coded with a date, time and location. How are you going to explain to the IRS that you have thousands of dollars worth of losing tickets from some other state? Any IRS agent worth his salt can easily use his forensic CSI skills to determine that the losses you are claiming are not yours but someone else’s. You can try it, Tim, but I figure you are going to get into some deep doo-doo if you ever find yourself being audited.

Additionally, you really didn’t expect me to step into cow pie myself by recommending to you to buy boatloads of losing lottery tickets in a nationally syndicated newspaper column, did you?

Since you didn’t keep records and you are up against the clock, that being April 15, you might check to see if – that is, if you used a Player’s Card – you can get a win/loss statement from the casino where you hit that jackpot. Unfortunately, gambling losses can only be used to offset gambling winnings during that same tax period. Future losses, like those incurred this year, cannot be carried back to neutralize your November 2014 jackpot.

Oh, and one final thought, Tim. Figure Uncle Sam for having knowledge of your $20,000 score as the IRS also received copies of your W2-G’s from the casino.

Gambling Wisdom of the Week: “The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin.” – Mark Twain