Wisconsin treatment of Gambling wins and losses

[davidGAW]

I have used the Wisconsin version of TurboTax for years. However, I do not believe you are treating gambling wins/losses correctly. You seem to assume that losses are not deductible for the state. The truth is more complicated. The TurboTax program is not designed to actually follow Wisconsin law. Have you reviewed the Wisconsin Dept of Revenue publications on this topic? The most recent is DOR Fact Sheet 1104, published 3/31/23. Will you be updating the program? Who can I follow up with, who is resposible for ensur

[johnd84]

Hi @davidGAW and thanks for your question:

TurboTax is setup to help you calculate your gambling income and losses for both state and federal. We'd be happy to assist you in preparing your Wisconsin taxes when tax time comes around. Please feel free to take advantage of TurboTax Live where a tax expert can help you accurately report everything on your next tax return. 

Thanks so much! 

[KatherineS63]

I am a tax accountant and live in Wisconsin.  I have found that Wisconsin does not allow any losses for gambling.  Federal adjust gross income is what is used on the Wisconsin return.  So, if you took losses for gambling on your Federal return, this would not flow over because that happens on the Federal return AFTER the Adjust Gross Income is calculated.  

Gambling losses are indirectly deductible on your income tax return in the state of Wisconsin. While you don't claim them on your actual Wisconsin income tax return, you do claim them on your federal income tax return by itemizing deductions, for which you receive a credit on your Wisconsin state income tax return.

I did look up the fact sheet you referenced.  It states, "In order to use the session method to report gambling gains, the taxpayer must be able to prove the net amount from each gambling session. The proof could be detailed original statements from a casino showing the taxpayer’s betting activities, or it could be the taxpayer’s own detailed records that keep track of the amount of money they brought into each gambling session and the amount of money they brought out of each gambling session if the records were prepared at the time the sessions took place.
If the taxpayer has no records to prove each session's net gains and losses, the taxpayer must report the
amount of gambling income from their Forms W-2G, plus any winnings not reported on a Form W-2G.
If a taxpayer qualifies as a professional gambler, they report gambling income and losses as a business
activity on federal Schedule C."

I would suggest calling the DOR for Wisconson  (608) 266-2486.

They are so helpful.  They will be able to tell you what exactly what you can deduct and what you can not deduct.  

[davidGAW]

John, This is very much a "non-response" response. I did call at the time taxes were due, but this situation was too specific and unusual for the TurboTax specialists to help me. If you (or someone there) takes a few minutes to read the WI DOR fact sheet I referenced, you will see that your program is not asking the right questions for taxpayers like myself who are trying to follow the state's rules. Isn't there someone there who can review this issue? I feel like I am being dismissed without a fair hearing.

[davidGAW]

Katherine, thank you for the reply, and thank you for taking the time to actually read the fact sheet. I learned the hard way about the "session" approach recognized by Wisconsin. Therefore, I keep logs when I gamble and I am in a position to prove the losses I might incur. Let me give you an example: I sit down to play video poker. At one point I have a lucky hand and win $2,000, which generates a W-2G. However, by the end of my session, I am only ahead by $500, despite that one win. I would expect that the TurboTax program would recognize this situation. For instance, once I indicate I have a W-2G, the Wisconsin program would ask if I was keeping a log of my sessions? If not, it would default to the $2,000 gain. However, if I answered yes, it would initiate a routine that would have me report the sessions and only include the winning ones in my income.

By the way, I respect the fact that you are an accountant living here. I am not an accountant; prior to retiring, I was a tax collector. Because of that background, I'm not shy about digging into the details of this stuff. (Also, I too have always found DOR staff very helpful. This is a TurboTax problem, not a DOR problem.)

Thanks again.

[KatherineS63]

I called Wisconsin and asked them.  The expert said that the loss has to come through the Federal return.  There is no spot on the Wisconsin return to enter gambling losses.  So, that leaves you in a spot where you are left having to report the W2G as is.  

The expert referenced https://www.revenue.wi.gov/DOR%20Publications/pb600.pdf

I do think that it might be still good to call Wisconsin and see if they suggest a work around.  Really, they are the best to work with!!  I love calling the DOR WI.  They are so friendly.

Let me know what you find!!

[davidGAW]

I'll follow up on this with DOR in the next day or two. Here's my point though: I created a work around this year by backing out some of the W-2Gs from the Federal return to more accurately report Wisconsin income. However, my position is that I shouldn't have to do this. The Wisconsin TurboTax should facilitate doing this. What I filed is a more accurate picture of my 2022 income, but I had to "backdoor" it using TurboTax. If I'm paying Intuit for this filing, they should deliver on what I paid for. I'm guessing there are other users in Wisconsin who overpaid because they just didn't understand the "session" concept Wisconsin uses. They relied on your company for that.

Thanks for your efforts today.

[davidGAW]

BTW, do you recall who you talked to?

[Katherine S 63]

I have been thinking about this all night.  Here is the issue:

The W2G are sent from the casino to the IRS.  So, when you enter the W2G into the software, it needs to match what was sent to the IRS.  

The Federal allows you to put gambling losses on the SCH A as an Itemized deduction.  As I mentioned earlier, Wisconsin uses the Federal Adjusted Gross Income which does not show the Itemized deduction.

When you go to the Wisconsin return, you are then getting a possible tax reduction for itemized deductions: In 2022 on form 1 this would be line 13. 

Federal works fine and you do maybe get something off for your itemizing on line 13 of your Wisconsin return.

The problem is that if you want to record sessions winning, then it messes everything up.  There is a form SB that allows adjustments, which seems like where you would make the adjustments to the W2G for Wisconsin but then you would be also getting the Line 13 itemized deduction credit so then you would be double dipping.  (Taking off the full amount of W2G and getting credit for the losses again)

I have to say, this sounds like a reporting of W2G issues more than a software issue.  Even if I was doing this by hand, it would have issues. 

The rule of thumb is always enter forms as they are received.

As far as calling WI DOR, I just called the number I gave you above and pressed I think option 9.  See what they have to say!  It is definately something that many have issues with but Wisconsin has an issue with how to get the credit properly.

Let me know what you find!

[dhuber24]

I have the exact same question.. trying to enter session losses (that I have documented) into TurboTax. Has there been resolution to this? Heard to believe the two of us on this thread are the only people in Wisconsin trying to offset/net-out gambling winnings with the session losses.

[LindaS5247]

There is no place to enter your losses on your Wisconsin return because it flows from your federal return.  The same method is required to be used for both federal and state returns. Be sure to use the session method when entering your federal information for this to properly flow to your Wisconsin return. See page 9, under Casual Gambler (Nonprofessional) of the Wisconsin Department of Revenue Publication "Wisconsin Taxation of Gambling Income", click here.

Taxpayers who gamble casually in Wisconsin (professional gamblers will report their gambling winnings and losses on a Form Schedule C) will use the "gambling session" method to determine gains and losses for tax reporting. ‌However, you do not directly enter gambling losses on your Wisconsin state tax return.

It sounds like you have documented your gambling sessions.

Your net gain or loss for each session is determined.‌ The net gains from all winning sessions for the year are reported in your Wisconsin taxable income. 

For sessions that have a net loss, those losses are not deductible for Wisconsin income tax purposes.‌ In other words, your gambling losses will only reduce your winnings for sessions in which there is a net gain. 

Also, you are not allowed to net your "total" losing sessions with your "total" winning sessions for purposes of figuring your Wisconsin taxable income. 

There is a  good example ‌of how this works on page 2, under the section "Can I deduct my gambling losses in Wisconsin?", click here.

{Edited 01/27/2025|12:52 PM PST}

[dhuber24]

@Katherine S 63@davidGAW 

Were you two ever able to figure this out? The amount of researching the "how" is quite frustrating. Like you two, I fully understand what is required on how to document a session, and I fully understand that a session "loss" can only be netted to $0 for a particular session. Therefore, I understand that when I add all of my sessions for the year, I would only be summing sessions that have a gain of $0 or more. The losing sessions can't be used in the calculation.

So now that I've cleared the air in articulating my understanding of how to calculate session wins/losses (since the default for most experts here is that I don't understand the law), I could use some help on how you've actually reported the session method on both the Federal and State returns, to ensure the AGI isn't messed up (since the session method has to be used for both Federal and State).

I emailed Wisconsin DOR and their response was "sort of" clear, but sort of not.. to @davidGAW 's point, TurboTax should have a workflow built into the program to help guide people to report gambling wins/losses correctly. A series of questions that qualify whether I am declaring the Session Method to report, or not. There are massive differences in the two methods.

Here is what the Wisconsin DOR had to say:

"If a win results from a session, the amount of the winnings less the amount of money wagered, must be reported as income on line 8b of federal Schedule 1 (Form 1040). If a net loss results from a session, the loss is not deductible for Wisconsin income tax purposes as Wisconsin does not allow a deduction for miscellaneous itemized deductions for purposes of the Wisconsin itemized deduction credit (sec. 71.07(5), Wis. Stats.). 

Since you are allowed to deduct losses for your federal return but not for the state return, there would be a difference in the reported federal adjusted income. To account for this difference, you would need to create a "Wisconsin Only" form 1040 Schedule 1. Report only the winnings on line 8 of the 1040 Schedule 1. The totals of the 1040 Schedule 1 will then flow to line 8 of the 1040. This will create a new federal adjusted gross income, as losses will not be included.

The new adjusted gross income of the 1040 will flow directly to line 1 of the Form 1"

[LindaS5247]

You can accomplish this by not entering your Form W-2G and instead enter your "total income" as "other income."

You will need your gambling records to back up your entries if questioned by the IRS.

You can enter "Other Income" as follows:

1. Open your return
2. In the search bar enter "other reportable income"
3. click on the link "Jump to other reportable income"
4. Follow through the TurboTax screens (See screenshots below for additional guidance)
5. Select "Other" as your source of income 
6. Enter your "Other Income" on the screen "Any Other Earned Income"

[dhuber24]

@LindaS5247  thanks for the response!

The problem is that I don't have any net gains to report. So that line entry would be $0.

[LindaS5247]

If that is the case than there is nothing to enter on your tax return. ‌There is no individual IRS form or worksheet for gambling income when using the session method.  

As previously mentioned, the recordkeeping is the responsibility of the taxpayer.  The IRS generally doesn't accept or process any additional information sent in with tax returns that is not on the standard forms and schedules.  

Keep your records easily accessible for three years so that you'll be able to quickly respond to any IRS inquiry about the W-2G.