Making Taxes Easy, One 1040 at a Time

Reporting Gambling Winnings and Losses

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Congratulations! You’re probably here because you won some type of prize, lottery, or game of chance. You’re also here because you now realize that Uncle Sam needs his share of your winnings.

Gambling

Gambling Winnings

Gambling winnings are reported on line 21 of the 1040 (other income). Many taxpayers incorrectly believe that they only have to report what is reported to the IRS via form W-2G. Actually, you need to include ALL income derived from gambling activities, not just what was reported to you on a form W-2G.

Different types of gambling income include:

Raffles
Bingo
Slot Machines
Table Games
Lottery Tickets
Prizes and Giveaways (such as a car)

Every dollar that is derived from those various activities needs to be reported. Luckily, as you will see in the next section, you can deduct gambling losses up to your winnings on your itemized deductions.

Gambling Losses

As we mentioned before, gambling winnings are included in your income. Thankfully, if you have gambling losses, you can use them to offset some of your winnings. These losses are reported on line 28 of Schedule A (itemized deductions).

So basically, you can deduct you losing scratch-off lottery tickets, money that you lost at the slot machines, etc. Also, keep in mind that you can only deduct losses up to the amount of your winnings. For example, let’s say you had $60,000 in gambling winnings and $70,000 in losses. You can only claim $60,000 in losses on your Schedule A. As you will see in the next section, in order to claim these losses, you need to keep impeccable records.

Record Keeping

The tax law states that you must keep records (a diary) of all your winnings and losses due to gambling activity. The winnings and losses need to be listed separately and you cannot just have a letter from a casino showing your net profit or loss.

Your gambling diary should include all of the following:

The date and type of your specific wager or wagering activity
The name and address or location of the gaming establishment
The names of other persons present with you
The amount you won or lost

Yep, you read that right. You need to document all of that. It’s best to get into the habit of documenting each win and loss while gambling, right down to the last scratch-off ticket!

Mental Note: Don’t Bribe IRS Agent With Pizza and Cash

in Tax Fraud

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Recently, I applied for a position with the IRS as a Revenue Officer. It wasn’t until after I read what they do that I decided that it wasn’t for me. Basically, a Revenue Officer is the Government’s bill collector. They are the ones on the front line that go to businesses and individuals to collect past due tax bills, even if it means seizing property. Want to know what the deciding factor was for me? They are not allowed to carry weapons. You mean to tell me that I am going out to some guys business (that he built over the past 30 years) to seize his property without a gun? Are you kidding me? Don’t you think he will do almost anything to protect his business?

I told you all of that to talk about a story that I read yesterday. Apparently, a Texas restaurant owner has been sentenced to 2 years in jail for trying to offer an IRS agent free pizza and a job. I guess he was a more friendly business owner.

It all started when, you guessed it, the owner decided to not pay his taxes. He owed $49,000 in back taxes for the years 2004 to 2007. When the IRS agent showed up, the owner offered the agent $2,500 (and all the pizza they wanted) in exchange for having the tax liability reduced from $49,000 to around $500. During these subsequent meetings, the IRS agent recorded their conversations and that was all that was needed for a conviction. The owner is a citizen of India and will be deported after his sentence is up.

So to those who think they can bribe their way out of a tax liability, think again!

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in Filing

The IRS just released a list of the 9 most common mistakes on recently filed tax returns. Make sure you check each one of these as you send in your taxes over the next few days.
1. Recovery Rebate Credit
Many returns filed in 2009 have errors involving the Recovery Rebate Credit, a credit for people who [...]

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IRS Has $1.3 Billion For People Who Have Not Filed a 2005 Return

in Charity, Credits, Deductions, Dependents, Education, Estate, Filing, Filing Status, IRS News, Income, Investments, Organization, Property, Refunds, Rental, Retirement, Small Business, Tax Fraud

According to the IRS, there are around $1.3 billion in unclaimed refunds from the 2005 tax year. These unclaimed funds are for individuals who did not file a tax return in 2005. Due to the three-year look back, individuals have until April 15th, 2009 to claim these refunds or they may be gone for good.
IRS [...]

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Tax Trouble Tuesday – Willie Nelson

in Random

Every so often, I will be looking at a different person who has been in the news (past or present) for tax troubles. Maybe they forgot to file, felt entitled not to pay or skipped town. Either way, they have been careless with their taxes and had to face the wrath of the IRS.
Willie Nelson

Willie [...]

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in Organization

One of the most frequently asked tax question is how long you must keep tax documents. You want to know the answer? It depends. Isn’t that the answer to everything these days? Anyway, here are some general rules for keeping your records straight with the IRS.
Three Years Might Be Enough
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