Is this considered the definitive conclusive answer now @turbotax? I have received at least 5 different answers from your staff and I never know which is right. Here is where I think the issues lies and what creates confusion:
Taxpayer A who itemizes taxes plays at a social casino; although he has total redemptions of $20,000, he spent $24,000 to purchase the currency needed to gamble online. The social casino sends a 1099 MISC (which is diabolical to begin with - if you had to spend cash to get cash equivalent credits to play with, it's gambling, not "prizes") for the amount of $20,000 - this doesn't account for net earnings, just gross winnings.
Taxpayer A files this amount as part of their taxes using the "amount not received on a W2G" method. Subsequently, TurboTax adds this amount to Form 1040, Schedule 1, Line 8b. When Taxpayer A adds their losses to their total gambling losses within TurboTax, TurboTax adds this amount to their itemized deduction on Form 1040, Schedule A, Line 16. All is well, right? That is not clear.
If Taxpayer A enters this same 1099 MISC onto the 1099 entry page within TurboTax, there is no option to deduct these losses. TurboTax adds this income to Form 1040, Schedule 1, Line 8i "Prizes and Awards", even though this amount is neither prizes or awards. If you scan through TurboTax replies on these forums and others, or if you chat with TurboTax, about 70% of people will tell you that this would not be the proper way to do it.
Taxpayer A determines that the first option is fundamentally right, they have documentation to justify that money was risked and required to play on the social casino (i.e. gambling), they were net losers which enables the ability to deduct the full amount of losses (up to a maximum amount of their wins) if they itemize taxes, and file their taxes through TurboTax.
Now comes the ultimate twist - Taxpayer A is fearful that filing with the first option poses a risk - they have accounted for the income on the 1099 MISC, but because they entered it as gambling, will the IRS know that part of the gambling total links directly to this 1099 - they didn't enter the Tax ID number from 1099 MISC because they entered the amount as "gambling winnings not on a w2g". But wait, does TurboTax even report the tax ID numbers when they electronically file your taxes? If Taxpayer A was filing by paper, they would NOT be required to provide a copy of a 1099 MISC, right?! How would the IRS even know the tax ID numbers to correlate the numbers in that case? Does the IRS correlate just the total amounts reported on all W2s, W2Gs, and 1099s to make sure you've reported everything? If so, then Taxpayer A met that burden by reporting the income as gambling winnings, right??!
