Gambling documentation changes could reduce state taxable income
In the past, casinos would issue W-2Gs showing the total winnings for all jackpots won and then the taxpayer would deduct any losses as an itemized deduction. This meant that taxpayers could offset most of the winnings with losses for federal income tax purposes. However, since the state does not allow a deduction for gambling losses, taxpayers paid state tax on gross gambling winnings.
Now, the IRS allows you to report gambling activity as a “net” of each gambling “session” and thus report “net” winnings rather than “gross” winnings for a particular gambling “session”. This change will not significantly reduce your federal taxable income, but could potentially reduce your state taxable income.
In order to qualify for this type of reporting there are specific guidelines to be followed and documentation that needs to be kept:
Summary of new rules:
- Gambling winning are reported on Page 1 of the 1040 (same as before).
- W-2G is not necessarily the amount of “winnings” to be reported (new “session” reporting is available).
- “Winnings” is the net gain of a “session”(if proper documentation is kept).
- A “session” begins when a wager is placed on a particular type of game and ends when the last wager is placed on that type of game at the same establishment.
- A net loss session cannot offset a net gain session. But a net loss session can be reported as gambling losses as an itemized deduction (subject to the overall gambling loss limitation).
Record-keeping per IRS guidelines:
Slot machines: a player card should be used and a log should be kept with the following information for each session at each casino:
- Date
- Time started to play slots
- Name and location of casino/gaming establishment
- Amount of money started with
- Amount of money walked out with
- Time finished playing slots
- Note any jackpots within a session
- Note the names of any persons present with you
- Use frequent player card and request a win/loss statement from the casino (at greatest interval as possible, some casino will do monthly, or quarterly)
Other gambling (for each type of game, and at each table):
- Date
- Time started to play
- Name and location of casino/gaming establishment
- Type of game (blackjack, roulette, etc.)
- Table number, or other identifiers
- Time stopped play at that specific table
- Note any major wins within a session
- Note the names of any persons present with you
While this is a lot of information to maintain, it is important as it may significantly reduce your state income taxes on gambling winnings.
For more information, contact a ShindelRock tax professional.