I had a question on gambling winnings for 2018. From my research a casual gambler can use the session accounting method to track winning and losing sessions (winning sessions entered under Miscellaneous Income for Schedule 1 and losses entered as an Itemized Deduction). My questions is about how to enter information into Turbotax when using the session accounting method if you have received W2G's for 2018.
Let me share an example:
On 01/15/2018 I received a W2G for $1,300 however from my session for that day ended up as a $1,000 loss.
How would I handle the entry of that into Turbotax? In years past I would enter the W2G for the $1,300 then an itemized deduction of $1,300 ( capping the loss to extent of win). Under the session accounting methodology I should technically not have to enter anything for Miscellaneous Income since my net session result was a $1,000 loss.
This year it is highly advantageous for me to use the session accounting method as it will result in tax savings for my state taxes (my state also recognizes the use of session accounting for gambling wins).
Can turbo tax handle this methodology for tracking gambling income?
In Turbo Tax, you can enter your winnings as Gambling Income. To report the losses- in Miscellaneous Income go to Other Reportable Income. Write “Revenue Procedure 2015-X” as the description and enter the amount of session losses as a negative number. This will net the session losses above the line, but still report the total winnings.
NOTE: The rule of losses not exceeding winnings still applies so you are audited, you MUST provide the IRS with a written log which includes the date, winnings and losses for each session (so no individual loss can be more than the winnings per session)
Under the safe-harbor, a taxpayer would recognize a wagering gain if, at the end of a single session of play, the taxpayer’s total gains exceeded his or her losses and would recognize a loss if, at the end the session, the total amount of wagers exceeds the amount of payouts. A session would be treated as beginning when a gambler places the first wager on a particular type of game and ending when the same gambler completes his or her last wager on the same type of game before the end of the same calendar day, i.e., beginning on or after 12:00 a.m. and ending at 11:59 p.m.
Does this mean that in a single session in which I won $42,000 (13 w2g's on one machine) and continued to play that machine until leaving with a net gain of $5,000, I would have to pay taxes on the $5,000 even if I returned the next day and lost it all?
I do not think they ever finalized the 2015-21 safe harbor act (reference to using Revenue Procedure 2015-X).
I think the correct method, for session reporting, is to attach IRS FORM 8275 with the following language:
"My reported gambling winnings don't match the W-2G total because I used session accounting to arrive at the total for winnings, as per Chief Counsel Memorandum 2008-011 and Shollenberger v Commissioner, which established that wins and losses should be tracked by session, and that 'The Form W-2G that reported their gross winnings from the $2,000 jackpot should not be reported on line 21 as $2,000"
If you want to read every article & reference on this subject of gambling session reporting:
This person has compiled EVERY source & article on this complex subject.
Also, most recreational gamblers may not know they can deduct "expenses incurred in connection with the conduct of the gambling activity, such as travel to and from a casino" - see IRS PUB 529 (DEC 2019), Section Gambling Losses Up to the Amount of Gambling Winnings.
Is it possible for me to contact you (MaryK1) about this by phone?
I still have questions about this, and the other TurboTax agents I've talked to by phone didn't know about the proposed safe harbor and couldn't help me.
Under the Internal Revenue Code, "... individuals must include on their tax returns and pay tax on all income, including all gambling income, ... taxpayers, with the exception of some professional gamblers, are not allowed to ‘net’ their wins and losses"
You will have to report your gambling winnings reported to you on Form W-2G when you prepare your tax returns. You may report your gambling losses as an itemized deduction on your tax return. However, if you do not itemize your deductions then you can nor claim your gambling loss.
We're not talking about "netting wins and losses" as in taking all the wins and all the losses from the year and netting them to come up with a single number for gambling winnings.
What we're talking about is the safe harbor method that the IRS proposed a few years back (Internal Revenue Bulletin: 2015-12; Notice 2015-21), which referenced the case of Shollenberger v. Commissioner (2009; also other cases), in which the IRS recommends subtracting your wagers from your payouts PER SESSION (one calendar day at one venue on one type of game) to determine whether you have a gain or a loss FOR THAT SESSION, and then reporting gains on Form 1040 and losses on Schedule A.
I'm getting REALLY sick and tired of the contradictory answers I've been getting about this topic and the general lack of familiarity with this method among the "Tax Experts" working for TurboTax. It has been causing me a lot of trouble and caused me to miss the filing deadline for lack of reliable information, despite my paying a few hundred dollars for the "expert" support.
Here, we finally got an answer from one of the ones who knows about this (MaryK1), and it needed just a little bit of extra clarification, but instead we got another "expert" jumping in and contradicting her, and confounding everyone's attempts to make sense of this.
You guys need to brush up on the latest information about this topic, specifically the IRS bulletin I mentioned and its proposed safe harbor method.
Lots of people gamble, and TurboTax needs to crack down on the confusion about how to report it properly. They need to research this more and put a definitive answer in their literature, and make sure that their "experts" know all about how it works.
You said everything that I was thinking. Thank you. Can the "tax experts" get it together please. You are literally saying opposite things of each other within the same post.
OK, lets talk about all methods, I know about, of filing a gambling SESSION for RECREATIONAL GAMBLER and how to alleviate a high W2G amount for daily SESSION reporting and how to file the tax return:
Going to start with an extreme example so the point is better understood. Joe, a recreational gambler, is 80 years old on social security and starts gambling with $500 and wins $200,000 (gets a W2G for $200,000) then Joe has a few drinks, on the same day (in same casino), then losses everything – he loses his $500 plus the $200,000 back to casino ON THE SAME DAY (The same DAY is important as it becomes the gambling SESSION)
SAME DAY IN SAME CASINO: Joe starts with $500 to gamble
SAME DAY IN SAME CASINO: Joe wins $200,000 and gets a W2G
SAME DAY IN SAME CASINO: Joe loses all $200,000 plus his initial $500
Now Joe has a dilemma as he lost $500 net e.g. started with $500 & ended with $0 but Joe got a W2G for $200,000 but he put all that money back and lost it all (SAME DAY SAME CASINO)
Most, UNINFORMED accountants would report this as $200,000 gambling income and $200,000 gambling loss (you cannot report a loss of $200,500 as gambling losses cannot exceed gambling income). The accountant seems to think it is required to report the $200,000 W2G and the established losses as the rules seem to indicate that "... individuals must include on their tax returns and pay tax on all income, including all gambling income”
If W2G is reported as $200,000 income then Joe (80 years old on Social Security) has an increased AGI (Adjusted Gross Income) of $200,000 now 85% of Joes social security is taxed and Joes Medicare costs go up $423.41 / month or $5,081 for the year (plus he is taxed on 85% of SS) – YIKES BUT JOE LOST MONEY HOW IS THIS POSSIBLE – this is what is so unfair to recreational gamblers – higher AGI has other costs, with how taxes are calculated, so even if you lose money you pay more money when you gamble– crazy but true.
OK now let’s enter the discussion of Gambling SESSION reporting to resolve this issue and lower Joes taxes:
While Joes $200,000 W2G was income the money was “Recycled” and lost on the same day in the same casino (occurred in same SESSION). The IRS determined in multiple cases that SESSION reporting would be allowed as it would be unfair to the taxpayer to have a higher AGI for an event that occurred in a same day SESSION. I will refer to these cases below – but this subject is well documented.
Now using SESSION reporting Joe can report ZERO $0.00 W2Gs on LINE 21 and ZERO $0.00 Loses – nothing to report, thereby Joe SS is not subject to taxation, but Joe must reference WHY he did NOT report the $200,000 W2G or the IRS is almost certain to send Joe a letter – IRS keeps track of W2G income and if a tax payer does not report the W2Gs – IRS computers will flag Joe as not reporting his $200,000 of income.
Now enter the complicated nature of Gambling SESSION filing of your tax return and accepted methods on how to prepare the return.
Above EXPERT MarkK1 says to report gambling SESSION amounts using a reference on other reportable income “Revenue Procedure 2015-X” – see her post above for details – using this SESSION method you would report the W2G $200,000 as income then under other gambling income put a NEGATIVE (-$200,000) netting the gambling income to $0 and referencing session reporting “Revenue Procedure 2015-X”. This would solve Joes AGI problem and no increased taxes from gambling but I do not think the IRS ever finalized the 2015-21 procedure and from reading from two gambling tax experts (I am talking about gambling tax experts not the TurboTax experts)
Let me clarify about the safe harbor act for gambling SESSION report using “Revenue Procedure 2015-X” – this was proposed as IRS NOTICE 2015-21 and others have mentioned it in these discussions. My comments on this are that when the IRS proposed 2015-21 they asked the casinos if they could provide detailed daily session records, for players using a players card as this would have required the casinos to keep and provide these daily records in event the IRS wanted to audit the gambler. The IRS NOTICE 2015-21 reporting also required the player to be playing with a player’s card. Now, the casinos, with their attorneys screamed and kicked and said this was almost impossible – they had comment meetings in Las Vegas where casino attorneys presented why the burden of a casino reporting detailed player card daily records was unreasonable. So, my understanding is that the IRS 2015-21 was never finalized.
Now I am going to list what I think is the best way for Joe to report this gambling SESSION based on information I have read from two well know gambling tax accountants:
Joe would not report any gambling income or loss but would attach FORM 8275 along with his gambling session LOG with the following language:
FORM 8275 Language = "My reported gambling winnings don't match the W-2G total because I used session accounting to arrive at the total for winnings, as per Chief Counsel Memorandum 2008-011 and Shollenberger v Commissioner, which established that wins and losses should be tracked by session, and that 'The Form W-2G that reported their gross winnings from the $2,000 jackpot should not be reported on line 21 as $2,000"
The gambling accountants also recommend Joe attach his daily log so the IRS can see how the daily log shows the session was reported correctly. Some say include the daily log others say to only provide the log if they request it later.
I had another accountant recommend you also report the $200,000 W2G as gambling income then for other gambling income you put a NEGATIVE (-$200,000) – it nets the number to $0 for gambling income but then you could also make a note “SEE FORM 8275” – this requires overriding the tax program and may be very difficult to do and I only mention it as an additional reference – NOT REQUIRED.
On a final note – even if you report using the SESSION method the gambling accountants say you probably will get a letter from IRS about the missing $200,000 W2G (this gets generated by their automated computers) – you answer the letter referring to the FORM 8275, which you filed, and that clearly states you are using the accepted SESSION method of filing.
The link below references all cases, accountants, opinions, etc. on this very complicated subject – you have to read it from top to bottom to find the part you might be looking for but the information on SESSION reporting is very detailed and explained with all references to sources.