KEEPING TRACK OF GAMBLING ACTIVITY

Do your vacation plans this summer include a trip to the casinos in Las Vegas, Reno, Atlantic City, New Orleans, St Louis, Bethlehem or Mt Airy PA, etc, etc, etc, (Gott in Himmel – they are everywhere!) to play the slots?

If the answer is yes be sure to keep proper track of your gambling activity for tax purposes, just in case you come home a winner.

The first thing you should do is join the casino’s “Players Club” and get a membership card, which you can use to track your slot activity at that casino.

You will receive a Form W-2G for each individual slot machine win of $1,200 or more. But you do not have to report as gross income on your Form 1040 the total on all the Form W-2Gs you receive for the year, as had been done in the past.

The Tax Court, in TC Memo 2009-226 (Ann L Laplante v Commissioner of Internal Revenue) has agreed that a gambler’s aggregate (i.e. “net”) winnings for the day per casino are includible in income rather than individual winnings on a slot machine.

Gambling winnings are included in Adjusted Gross Income, which can affect a multitude of other tax deductions and credits and can increase the portion of your taxable Social Security or Railroad Retirement benefits. Gambling losses, to the extent of winnings, are deducted as Miscellaneous Expenses on Schedule A, but are not subject to the 2% of AGI exclusion. The smaller the amount you report as winnings on Page 1 of the 1040 the better.

According to the Tax Court decision referenced above –

“Respondent nonetheless agrees with petitioner’s theory of recognizing slot machine play on the basis of net wins or losses per visit to the casino. Specifically, respondent states the following:

[T]he better view is that a casual gambler playing a slot machine, such as the petitioner, recognizes a wagering gain or loss at the time she redeems her tokens. The fluctuating wins and losses left in play are not accessions to wealth until the taxpayer redeems her tokens and can definitively calculate the amount above or below basis (the wager) realized. See Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955).”

The Court decision also states-

“No valid reason exists for taxpayers engaged in wagering transactions not to maintain a contemporaneous gambling diary or gambling log”.

Just as a person who uses his/her car for business must keep a contemporaneous record of business mileage, a gambler must keep a contemporaneous record of daily activity. A simple pocket notebook will do. You would indicate the date, the name of the casinos visited, and the net activity from each casino for the day.

When you enter a casino have your money in two separate pockets – one pocket for your gambling activity and the other pocket for your other purchases (food, beverage, souvenirs, etc). Keep the money separate for the entire day.

Let’s say you spend this week-end in Atlantic City. On the morning of July 16th you began your gambling at Bally’s Wild West on the Boardwalk. Make the following entry in your notebook –

7/16/2011 – Atlantic City NJ

(1) Bally’s Wild West

Beginning Cash = $200.00
Ending Cash = $315.00
Net Win/(Loss) = $115.00

You may have won $1,300.00 in one slot pull while at Bally’s on July 16th, but you put $1,185.00 back into the machines before leaving the casino. So instead of $1,300.00, as appears on the Form W-2G you got from Bally’s, you would report only $115.00 as actual gambling winnings on your 1040.

On the same day you also gamble at Ceasar’s. You would make the following entry -

(2) Ceasar’s Palace

Beginning Cash = $315.00
Ending Cash = $290.00
Net Win/(Loss) = ($25.00)

Net Daily Activity

Wins = $115.00
Losses = $25.00
The next day you return to Bally’s -

7/17/2011 – Atlantic City

Bally’s Wild West

Beginning Cash = $290.00
Ending Cash = $240.00
Net Win/(Loss) – ($50.00)

Net Daily Activity

Wins = 0
Losses = $50.00

You did not win enough in one pull to receive any additional Form W-2Gs at Ceasar’s or the next day at Bally’s. The $75.00 in net losses would be deducted as a gambling loss on Schedule A.

By reporting $115.00 as gambling winnings on Page 1 of your Form 1040 instead of $1,300 you reduce your AGI by $1,185.00. While your net taxable income would be the same whether you reported $115 or $1,300 on Page 1 and were able to deduct all of your losses on Schedule A – your actual tax liability may very well be less by claiming the lower amount of winnings. And if you are not able to itemize and claim losses you will certainly pay less federal income tax by claiming only $115.00 as your winnings.

You would make similar entries each time you visit a casino during the year.

Not being a gambler I do not know how detailed is the information you get from using your Player’s Club cards. It is possible that print-outs would support the individual activity by date that you have entered in your book. Do not, however, assume the print-out of card activity is enough proof – you should still maintain your own contemporaneous gambling log.

So, Russ, did I get it right?

TTFN