It’s No Gamble! The Lesson is: Keep Good Records

Tax law requires, it should be no surprise, that all winnings from gambling be reported as income. In fact, those gross casino winnings you may have are to be reported on the “other income” line on page 1 of Form 1040. And we know you’ll be disappointed to hear that your costs of gambling are deductible, but only as “miscellaneous itemized deductions” if you itemize, and even then they are limited to the amount of gross earnings from gambling. In other words, if you had a net loss for the year from gambling activities, you may not deduct the loss—no carryovers, no carrybacks, nothing!


Here’s another thing for you to consider. The IRS expects you to keep a record of both your winnings and your cost of gambling (wagers). As is the case for most income and expenses, you must be able to substantiate what you are reporting. This is usually not much of a problem for the income, as the payer is to provide you with a W2-G for gambling winnings. The amounts won which require reporting differ depending on what type of betting is done, but slot machine winnings must be reported if they exceed $1,200 on a wager.

But the documentation of the wagers is not as easy: you should keep a log showing date, winnings and wager expense for each wager. Although you might make it through an IRS audit with less documentation, you shouldn’t count on it. In fact, you would not want to operate as the taxpayer did in a Tax Court case last year. The taxpayer, Jacqueline D. Burrell, in the words of the Court, “frequented gambling casinos for recreation several times each week, primarily playing slot machines. (She) gambled in cash; she did not track her daily winnings and losses.”

Ms. Burrell, the taxpayer in Burrell v. Commissioner (T.C. Memo 2014-217, October 14, 2014) was audited and Ms. Burrell’s gambling activity was one of the areas the IRS examined and made changes to.

In the examination, to substantiate her gambling losses, Ms. Burrell provided documents for 2 of the 3 years under audit, which listed the dates she gambled, the names of the casinos, and the daily amounts of cash she brought to the casino. She also provided ATM receipts and cash advance receipts from the casinos frequented, and a letter from 3 of the casinos for several of the years, stating the amounts the petitioner lost in some of the years being audited.

In the end, the auditor allowed all of the loss amounts reported on the casino letters, as well as the amounts set forth in the ATM receipts and cash advance receipts. Ms. Burrell did not get to deduct the rest. She had other (non-casino) issues with the IRS as well, and in the end owed $115,916 in tax, and $23,184 in accuracy related penalties, and of course paid interest on it all.

But be wary of this: the Tax Court said, in part: “Taxpayers are required to maintain “permanent books of account or records***as are sufficient to establish the amount of gross income, deductions, credits, or other matters required to be shown by such person in any return…” And, “On the basis of the casino letters and other documents, as well as petitioner’s oral explanations and the virtual certainty that she had slot machine losses during the years involved (emphasis added), the IRS conceded that petitioner was entitled to deduct approximately…70% of the aggregated reported gambling losses for the three years involved. The evidence in this case is not sufficient for us to hold that petitioner is entitled to deductions for gambling losses in amounts greater than those (the IRS) conceded.” The message is clear: even though the Court believed that it was virtually certain that Ms. Burrell lost money in her gambling activities, the Court accepted the IRS conclusion that she wasn’t entitled to deduct as much as she won because there was insufficient evidence for it.

The lesson is this: if you don’t have evidence, and the IRS doesn’t agree with you, the Tax Court is very unlikely to do so.

So take our advice, and that of the IRS and Tax Court, and if you gamble, keep very good records at the time of what and when you win and what and when you wager. You’ll be glad you did at tax time, and ecstatic if you get audited.



Emergency Strategies for Retirement

There's still time to make your retirement happy.

Is your retirement looking as happy as you planned?

I stumbled upon this interesting article, You Can Still Retire Even If You’ve Saved Nothing, posted on the Bottom Line Personal in June. It is a topic many baby boomers are unfortunately being faced with: RETIREMENT. Of course we would all like to think of retirement as a time to relax and enjoy the fruits of our labor, but due to the economic climate we understand that dream or idea appears to have become less obtainable as time passes. The article itself is geared towards a population that, to quote the article, “haven’t saved a dime” for retirement, but I believe this article relates to a larger demographic who have been affected by layoffs, high unemployment percentages, or any other financial hardship that has caused a significant decrease or depletion of their bank and retirement accounts.

So if you have little to no money saved for retirement, there are some emergency strategies that you can start now to prepare.

The first thing to consider would be the Tax Code Catch-up provision, which allows individuals 50 years of age and older to increase their 401K and retirement savings plans contributions.

The second course of action would be to establish a new budgetary process and spend differently. Yes, it can be difficult to refrain from continuing bad habits, but starting a path of healthy financial decisions today can have a lifelong effect.

Lastly, and perhaps most difficult, would be a change in your expectations or adjusting your idea of retirement, including where you’ll retire. You may have to decide to retire later than expected, enjoy retirement in a state without a high cost of living, and change your plans of what you’ll be doing in retirement.

Simply put, you can still make decisions today that will help you afford a comfortable retirement tomorrow.



The Dirty Dozen

IRS Says: Here are the Top Tax Scams for 2014


taxscamEach year the Internal Revenue Service issues its “Dirty Dozen” list of tax scams, urging taxpayers to be cautious, particularly during tax season. We share them with you here, with the hope that by being informed you may protect yourself.

  • IDENTITY THEFT    This occurs when someone uses your personal information, such as your name, Social Security Number or other information, without your permission. This can occur in many ways, but the IRS naturally is most interested when someone uses your “digits” to fraudulently file a tax return and claim a refund. If you believe you are at risk of identity theft due to lost or stolen personal information the IRS asks that you contact them at the IRS Identity Protection Specialized Unit at 800-908-4490 so they can secure your tax account.
  • PERVASIVE TELEPHONE SCAMS     In this scam, callers pretend to be from the IRS in hopes of stealing money or identities from victims. The IRS reports learning of many variations ranging from instances such as the caller says the victim owes money or is entitled to a huge refund. The victims are sometimes threatened with arrest or driver’s license revocation, and are sometimes paired with follow-up calls from people saying they are from the local police or the state motor vehicle department.