Gambling Tax Reporting

earlier today I was reading on gambling sessions. The example was somebody started with $100 ended up with $500 they won $2000 and received a W-2 G but their net from the session was only $400 and that is what was reported before you’re AGI was calculated.

Somewhere on the first part of the taxes when you’re entering your income they entered a negative number so their net session only ended up $400.

 

They just make it too damn difficult. I have two w2gs this year that add up to maybe $2800. I track EVERY session….money I brought, money I leave with. I’m down 31,000 for the year. To accurately claim that I’d have to say what, that my income was 150,000 more than it really was because of free spins etc? The whole system just sucks. I am going to find some way to get more money back this year though. To me if I g9 in with 1500, and leave with 150, I had a losing session and no income to be reported.

 

Removed due to incorrect info.

 

is the session method worth it?
having a high AGI is bad for things.
but not reporting the full W2g amount and only
entering the net session would trigger a red flag??

 

Session based reporting requires that you keep a paper log written in pen with certain details about where you gambled, what you played, some other crap, and how much you won or lost (per day has been accepted, but letter of the law is per start/stop which means if are playing then leave for dinner that's the end of the session). You must then add up ALL your winning sessions in the log and put that on line 8, not your net for the year. Then you can deduct the sum of all your losing sessions up to the amount of winnings on line 8. This is generally a lower number than the sum of all your W2Gs, unless you had some odd huge winning days where you never won more than $1199.99 per spin. You still need to attach all your W2Gs/enter them into the software. Almost every tax return software will put the sum of all your W2Gs on line 8. You have to override that number and put in your new number from the log. This will most likely trigger an AUR (Automated Under Reporting) to be mailed to you saying you under reported and you owe $X plus interest, at which point you return the AUR stating that you are using 'session based reporting' for gambling winnings. Then either it will just be done, or they will trigger an audit. If you are audited, you need just provide a copy of your log and that will clear up the gambling discrepancy. However, they can look into other stuff once an audit is triggered, so hopefully everything is in order.

The enter all your W2Gs in line 8 then deduct the exact amount to leave only your winnings as added taxable income is theoretically wrong, BUT it won't trigger an AUR. If you do get audited, but have a proper log showing the net increase in taxable income is accurate, but the line entries are wrong. I'm no tax law expert, but I believe you're safe as you paid the proper tax liability, but made incorrect entries. Now if those incorrect entries impacted your tax in your favor then it might become an issue, but if the number if higher than the 'correct' entry then it can't really be in your favor. FYI, casino Win/Loss statements have been thrown out in court cases as proof of win/loss. They are just for marketing purposes.

 

Session based isn't net win for the year reported as winnings. Its the sum of all your winning sessions(Session being a day) then you itemize if that number was > your net win for the year to reduce taxable income to the net you actually won for the year. This number is almost always lower than the sum of your W2Gs, but larger than your net win for the year. So it might lower things enough to still take the standard deduction.

Example:
You gambled for 3 total days. Day 1: You won $200 and no W2G. Day 2: You lost $800 but got a W2G for $1200(you were down $2000 when you hit that handpay). Day 3: You lost $500.

You gambling income on line 8 would be $200(the sum of all your winning days). The sum of your losses was $1300. You can deduct up to $200 through itemized deductions(or just take the standard deduction). Your net winnings for the year would be $0 but you still have to claim $200 in winnings in this example. Putting $0 and getting audited would end badly.

So basically gamblers get screwed on part or all of the standard deduction and end up paying taxes on their winnings up to the tax on the value of the standard deduction. For me the sum of my winning sessions is usually greater than the standard deduction, but I only have 2 winning years in the past 14 years. In 2022 my net win is $0(loss on the year unless some crazy crap happens) but I will lose out on being able to take the standard deduction because the sum of my winning days is greater than $12,950. Now if I'm in the 24% tax bracket then I'm paying $3108(the amount I'd get refunded if I had no gambling income.) more in taxes for the same net taxable income just cause I'm a gambler.

 

Yeah, you're right, I don't know what I was thinking.

Session reporting = sum of all winning sessions on Line 8 and sum of all losing sessions (but not more than Line 8) on Sch A.

 

This post gets it right - for session reporting.

I have bolded a few particular parts.

You most likely WILL get the automated audit because it looks like you have not reported your W2-g numbers. (even though you did). A simple letter explanation usually clears it up. Been there a few times and easy stuff.

 

The simple answer is:
Do it the wrong way, unless you have a significant impact due to higher AGI.
The wrong way (Sum of W2Gs, then deduct appropriate amount to net you true winnings as increase in taxable income) will not trigger an AUR. Less likely to trigger an actual audit too. Even if it does, you should still be good on the gambling part as you paid the appropriate amount of taxes.
The right way (Session Based per Day) will most likely trigger an AUR, which if you kept your log will be easy to handle. However, the AUR can still trigger an actual audit and might increase your chances for that to happen. A full audit is a PITA to deal with even if your accounting is all in order. So only do this if you 1) really care to follow the letter of the law, or 2) decreasing AGI will have a significant impact to you finances/life situation. If its just going to save you a couple thousand in taxes and that's it, I'd say just do it the wrong way and take the tax hit as the cost of gambling(if you have more than the standard deduction in W2Gs you can afford it) cause anything that increases the chance of an audit isn't worth it. The amount of crap they can nitpick on is insane and they don't care about that you have a job and can't get them paperwork in some short period of time. Its just not worth the headache.

 

My accountant includes a statement (on form 8275) as part of my return saying session accounting was used (referencing the case law) and saying my W2G total was X but my session wins were Y.
So far I’ve never received an AUR. (Having said that, I’ll probably get one tomorrow.)

 

My losses have ALWAYS exceeded my W2-g. Never had an issue and guessing most folks here would agree. So, if you are going to itemize anyways, really no need to have taxes taken out unless you just want to get them back next year.