Hello,
I am going to use rounded off numbers here to keep things simple...
I received my first 1099K from Paypal this year, and I have a few questions.
The 1099K is in the amount of $38k. I have not received any W2g forms from any sites because I have never had a single win large enough to trigger one to be generated. I live in Michigan if that is useful info.
I have a spreadsheet where I track every deposit to these casino sites and every withdrawal from these casino sites. According to this spreadsheet, my total deposits were $42k and total withdrawals were $44k (net winnings of $2k). There is ONE site that doesn't take PP, so that site makes ACH deposits and withdrawals from my bank account (not PP account). This one was therefore not reported on 1099k since it was outside of the PP system (total of 5900 in and 6400 out - net gain 600).
My assumption is that the withdrawals of $44k exceeds the 1099k amount of $38k because I would often leave the funds received from casino sites in the PP account and make further deposits to casino sites from that PP balance. The transactions outside of PP also contributed to this difference.
So my question is how to deal with this? From reading other similar posts on this community forum, it looks like it has been suggested that you would enter the 1099k data, and then enter a negative misc income representing the deposits ($42k)? This isn't accurate, as it would make it look I had a net loss of $4k.
Since I have no W2Gs, it seems to me that the more accurate way to represent the gambling winnings/losses is to enter the 1099k info, zero it out with a negative misc income (label it "1099k correction - gambling win/loss reported separately"), and then from my spreadsheet, enter the total deposits as gambling losses, and the total withdrawals as gambling winnings. This would correctly reflect the net gain of $2k for the year.
All the above applies to federal taxes (assuming I itemize). Michigan tax law doesn't allow "casual" gamblers to reduce their AGI by gambling losses at all, so this 1099k threw me for a loop. It seems I will end up paying 4.25% tax on $37k (or possibly $44k based on real transaction data?) This seems like a nail in the coffin of online casinos in michigan when people start realizing the tax implications. I won a total of $2000, and will pay tax of $1570-$1870 making it hardly worthwhile (looks like a tax rate of over 75%). Had I "broke even" on the year, I would have come out $1500 in the hole...
EDIT: I did some more digging about the michigan tax code, and it looks like they changed it to allow for losses to offset winnings. So may be OK there!
