Gambling winnings and losses reporting

[tp1986]

I’m trying to plan for best way to file my 2022 taxes and am caught up on correct way to report gambling winnings and deduct losses 

hypothetical round number example of problem:

player received $100,000 on W2G forms

player has end of year statement and bank receipts showing total annual loss of $50,000. 

is player entering $100,000 as gambling winnings from W2G and deducting $50,000 in losses. Or is player entering $100,000 as gambling winnings from W2G and deducting $100,000 in losses since they were negative on the year ?

[rjs]

How are you "negative on the year" if you have winnings of $100,000 and losses of $50,000? That looks like a net (positive) profit of $50,000 to me.

How could you be "deducting $100,000 in losses" if you only have a "total annual loss of $50,000"? You can only deduct your gambling losses once, not twice.

You have to enter your W-2G forms showing $100,000 of winnings. You can deduct your $50,000 of gambling losses as an itemized deduction.

[tp1986]

Hypothetically: W2G winnings are $100,000

so let’s say player wagers $1,050,000 and is returned $1,000,000, net loss $50,000. 

some of those winnings generated w2Gs in the amount of $100,000.  

as for backup, player only has annual win/loss statement showing the wager/winnings/net result, plus record of bank withdrawals and deposits only. No daily or session diary 

[tp1986]

Hypothetically: W2G winnings are $100,000

so let’s say player wagers $1,050,000 and is returned $1,000,000, net loss $50,000. 

some of those winnings generated w2Gs in the amount of $100,000.  

as for backup, player only has annual win/loss statement showing the wager/winnings/net result, plus record of bank withdrawals and deposits only. No daily or session diary 

[Opus 17]

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@tp1986 wrote:

Hypothetically: W2G winnings are $100,000

so let’s say player wagers $1,050,000 and is returned $1,000,000, net loss $50,000. 

some of those winnings generated w2Gs in the amount of $100,000.  

as for backup, player only has annual win/loss statement showing the wager/winnings/net result, plus record of bank withdrawals and deposits only. No daily or session diary 

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If you have winnings of $1M and losses of $1,050,000, then you report the winnings as gross taxable income.  The losses are itemized deductions on schedule A, you can't enter more than your winnings.  Because the losses are itemized deductions on schedule A, you may not get the full benefit of the deduction depending on whether you normally use the standard deduction and whether or not you have other itemized deductions to claim, like gifts to charity or mortgage interest.  Also, because the winnings are gross taxable income, they are included in your adjusted gross income (AGI) and may affect your eligibility for certain tax deductions and credits that have income phase-out limits.  (This is true because you show a high gross income, even if you have a net loss after looking at deductions.)

[tp1986]

Makes sense. I guess my hang up is on whether documentation would survive scrutiny of audit. Since the only records for winnings and losses are end of the year statements and bank records to substantiate the loss claim.  As opposed to session by session journal. 

maybe notable, this is an all online scenario and I know IRS hasn’t updated any guidance when it comes to the highly tracked online industry with fairly detailed reporting that doesn’t rely on a player using their player club card every time to have accurate records. 

[Opus 17]

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@tp1986 wrote:

Makes sense. I guess my hang up is on whether documentation would survive scrutiny of audit. Since the only records for winnings and losses are end of the year statements and bank records to substantiate the loss claim.  As opposed to session by session journal. 

maybe notable, this is an all online scenario and I know IRS hasn’t updated any guidance when it comes to the highly tracked online industry with fairly detailed reporting that doesn’t rely on a player using their player club card every time to have accurate records. 

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For some of that, you may need to contact the online gambling service.  I don't really know how they handle things or how they should handle things.  For example, if you place 100-$10 bets on Sunday football, and most of your bets lose but one comes in big at 100:1, is that reported as $1000 win and $990 of losses, or is that reported as a $10 loss?  If you get a W-2G for the $1000 win, who tracks the losses, you or the bookie?  It sounds like you need to ask the bookie.  

Here's what the IRS says.

https://www.irs.gov/taxtopics/tc419

Certainly, for any deduction, contemporaneous records are always better documentation than trying to reconstruct from year-end financial statements.  I suppose that if you can show you paid the bookie $1.05M (in your example) and you have W-2Gs equaling $1M, that implies a $50K loss.  

Here's an article that describes a recent tax court case, and a link to the case.

https://ashleyquinncpas.com/irs-tough-on-gambling-loss-documentation/

https://www.courtlistener.com/opinion/4562761/renner-v-commr/

Here's a Turbotax blog post

https://turbotax.intuit.com/tax-tips/jobs-and-career/can-you-claim-gambling-losses-on-your-taxes/L4l...

[tp1986]

Very helpful. The online sites just basically provide an annual total: sum of all winnings - sum of all wagers = net win/loss. Some don’t even provide the winnings/wager part and just give the end net number.  So it’ll be interesting to see how the IRS deals (or doesn’t deal) with that with the proliferation of online gaming in a bunch of states now. 

I would hope we see some kind of guidance update since this will probably be a common occurrence to some extend (maybe not on same scale as described but general concept), but I doubt any updates guidance will come before April. 

I think it might be a messy, confusing tax year for a lot uninformed (like myself) players. Some are in for a shock. 

[tp1986]

Oh and for your example, I know how that it reported 

“For example, if you place 100-$10 bets on Sunday football, and most of your bets lose but one comes in big at 100:1, is that reported as $1000 win and $990 of losses, or is that reported as a $10 loss?”

this would show up on a summarized statement as $1,000 in wagers, $1000 in winnings. Net statement: $0. There’s really no loss column to be had. Wager is your cost basis, regardless of outcome. Winning is your result, regardless of cost basis.  Bet $10 on a slot machine spin and it only returns $5 ($5 losing spin) that would show up as Wager $10, Win $5. 

you could get a bet by net print out that shows  each individual outcome,and for a small time player that might be possible. But any extended play, especially when slots or fast pace table game is involved would have a really large list of individual results, most of which are only available 10 results per page at a time on a website, and not in some downloadable form 

[rjs]

@tp1986 

Opus 17 said: "If you have winnings of $1M and losses of $1,050,000, then you report the winnings as gross taxable income." I want to make it clear that what he is saying, and he is right about this, is that you have to report all your gambling winnings, whether or not they are on W-2G forms.

Since your deduction for gambling losses will be so high, $1,000,000, you don't have to worry about other itemized deductions. The gambling losses alone are much more than the standard deduction. You will get the full benefit of the deduction whether or not you have any other itemized deductions. The deduction for gambling losses will cancel out the total amount of gambling winnings. But you will have the problem of an inflated AGI that Opus 17 described. Itemized deductions are subtracted after AGI is calculated.

Also note that you do not report the net loss on your tax return. You report total winnings and total losses separately (but the losses cannot be more than the winnings). The net loss shown on the statement from the gambling site is meaningless as far as taxes are concerned.

You wrote: "I guess my hang up is on whether documentation would survive scrutiny of audit. Since the only records for winnings and losses are end of the year statements and bank records to substantiate the loss claim."

If you claim a deduction of $1,000,000 for gambling losses, but you can only document losses of $50,000, you will definitely have a problem if you get audited. See the article that Opus 17 referenced.

[tp1986]

So wouldn’t it work both ways in this situation? 

the annual statements typically show total wagers, total winnings, and then the net result of the 2. So for one random account it would appear something like:

winnings: $200,000 (sum of all wins for year regardless of basis $1 bet returns exactly $1, that counts as $1 winning even though the result is net $0)

wagers: $205,000 (total of all bets, regardless of outcome)

win/loss: -$5,000

So if the IRS would accept that statement as proof of $200,000 top line winnings, wouldn’t they have to accept that same report showing that $205,000 in wagers to substantiate that on that specific account, player reportable loss must have been $205,000

[tp1986]

I’ve attached a statement for example. This is how all of the sites are typically reporting. 

this shows

Bets = $16,857

Wins = $13,611

net = -$3,246

so while I understand documentation is critically important, this is the way documentation appears for just about all online gaming sites in the US. 

[tp1986]

Also should note, thanks for the input and fact based responses. At this point I’m not arguing or debating what is right, I get it. I’m more just commenting on the information all of these new online sites provide is probably inadequate for tax purposes. Not to mention the complete mystery of how “match Play” is considered. Like deposit $100 get $100 free promotions etc. 

Just more now commenting that tax law hasn’t caught up to the online gaming environment and states a pushing expansion very fast, and even with all of the data available, limiting what is actually reported to the player to a possibly unusable extent