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Tax expert discusses gambling winnings and the IRS
March 28, 2008
By John G. Brokopp, Gaming columnist
If you play the slots, the only time the Internal Revenue Service knows you win is when you hit a jackpot of $1,200 or more.
That's because the casino is required to issue you what is known as a W-2G (Certain Gambling Winnings), making it official that the jackpot becomes part of your reportable income for the year.
You are obligated to report that income on your tax return. Failure to do so means Uncle Sam eventually will come calling because casino officials already let him know you won.
Unlike the days when people could only collect slot jackpots in Nevada and Atlantic City, N.J., now there are gambling jurisdictions all around the country, which means more people than ever have W-2Gs to report.
This increase in activity has coincided with stepped-up efforts on behalf of the IRS to hold winners accountable.
If you are able to itemize deductions, you can offset tax liability on gambling winnings by proving that you lost money up to the amount you won.
But, according to tax expert Richard LaGrant, a partner with Denis Gioletti in Park Ridge-based Consolidated Tax Services Inc., you better be prepared with the right proof.
"The IRS always has the upper hand in disallowing a deduction merely because you didn't substantiate the loss," LaGrant told me.
"They can always say, 'Look. We believe you lost this money, but you didn't keep the records.' That's how they get you."
LaGrant said you should keep a log to track your gambling activity and to document every casino visit you make, including all monetary transactions such as in-casino automated teller machine activity and marker requests from casino credit.
You also should log the date, the time, the type of machine you played, the machine's serial number and the amount you gambled.
"(The IRS) are serious about it," LaGrant said.
"They can disallow deductions and tell you to come back when you can support them with the records they need. (Then) they'll gladly refund the money. But in the meantime, pay up."
LaGrant holds the title of enrolled agent, which means he is qualified to represent clients before the IRS.
"I have seen more audits on gambling. There's gambling (virtually) everywhere now, and it's lucrative for the IRS," he said.
Obtaining a simple win-loss statement at the end of the year from the casinos you patronized isn't good enough anymore.
Some states, Illinois being among them, do not recognize deductions that you take on your federal tax return. Instead, the states begin with your gross income, which means losses against gambling winnings cannot be taken.
At the time you win a jackpot, you can request that the taxes be taken out. If you can substantiate losses at tax time, you will be issued a refund.
LaGrant recommended that one has the taxes taken out on substantial jackpots in the thousands of dollars.As a practical matter, he said, discrepancies are never settled at the audit level because auditors are trained to accept nothing less than the maximum amount of proof before they will allow a deduction.
Getting to the next level can take years and, according to LaGrant, it's no cinch you'll win.
"If at the appellate level they feel your proof is somewhat substantive - that logic seems to say you've lost some amount of money and you've taken reasonable steps to support it - they have the power to negotiate a deal," he said.
"It doesn't necessarily have to be all or nothing. But there's no guarantee that you'll prevail at the pretrial level. If the numbers warrant, they'll go to court because the law's on their side. They made the law."
John G. Brokopp is a freelance casino gaming columnist and author. He can be reached at [email protected].
March 28, 2008
By John G. Brokopp, Gaming columnist
If you play the slots, the only time the Internal Revenue Service knows you win is when you hit a jackpot of $1,200 or more.
That's because the casino is required to issue you what is known as a W-2G (Certain Gambling Winnings), making it official that the jackpot becomes part of your reportable income for the year.
You are obligated to report that income on your tax return. Failure to do so means Uncle Sam eventually will come calling because casino officials already let him know you won.
Unlike the days when people could only collect slot jackpots in Nevada and Atlantic City, N.J., now there are gambling jurisdictions all around the country, which means more people than ever have W-2Gs to report.
This increase in activity has coincided with stepped-up efforts on behalf of the IRS to hold winners accountable.
If you are able to itemize deductions, you can offset tax liability on gambling winnings by proving that you lost money up to the amount you won.
But, according to tax expert Richard LaGrant, a partner with Denis Gioletti in Park Ridge-based Consolidated Tax Services Inc., you better be prepared with the right proof.
"The IRS always has the upper hand in disallowing a deduction merely because you didn't substantiate the loss," LaGrant told me.
"They can always say, 'Look. We believe you lost this money, but you didn't keep the records.' That's how they get you."
LaGrant said you should keep a log to track your gambling activity and to document every casino visit you make, including all monetary transactions such as in-casino automated teller machine activity and marker requests from casino credit.
You also should log the date, the time, the type of machine you played, the machine's serial number and the amount you gambled.
"(The IRS) are serious about it," LaGrant said.
"They can disallow deductions and tell you to come back when you can support them with the records they need. (Then) they'll gladly refund the money. But in the meantime, pay up."
LaGrant holds the title of enrolled agent, which means he is qualified to represent clients before the IRS.
"I have seen more audits on gambling. There's gambling (virtually) everywhere now, and it's lucrative for the IRS," he said.
Obtaining a simple win-loss statement at the end of the year from the casinos you patronized isn't good enough anymore.
Some states, Illinois being among them, do not recognize deductions that you take on your federal tax return. Instead, the states begin with your gross income, which means losses against gambling winnings cannot be taken.
At the time you win a jackpot, you can request that the taxes be taken out. If you can substantiate losses at tax time, you will be issued a refund.
LaGrant recommended that one has the taxes taken out on substantial jackpots in the thousands of dollars.As a practical matter, he said, discrepancies are never settled at the audit level because auditors are trained to accept nothing less than the maximum amount of proof before they will allow a deduction.
Getting to the next level can take years and, according to LaGrant, it's no cinch you'll win.
"If at the appellate level they feel your proof is somewhat substantive - that logic seems to say you've lost some amount of money and you've taken reasonable steps to support it - they have the power to negotiate a deal," he said.
"It doesn't necessarily have to be all or nothing. But there's no guarantee that you'll prevail at the pretrial level. If the numbers warrant, they'll go to court because the law's on their side. They made the law."
John G. Brokopp is a freelance casino gaming columnist and author. He can be reached at [email protected].