The past articles regarding taxes on gambling winnings/losses have been very interesting. My question is about deducting losses from winnings. How detailed a gambling record does one need to maintain to satisfy the IRS requirements? And what should one detail?
Any winnings over $1199 result in a W2-G being issued, even though the gambler might have been playing for a long time and had invested $1500 in the machine and really has a loss of $301 if the gambler quit at that time. What records does one need to verify the loss?
Here is what the IRS website says about keeping a gambling record:
It is important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.
More details are in Publication 529.
Diary of winnings and losses. You must keep an accurate diary or similar record of your losses and winnings.
Your diary should contain at least the following information.
- The date and type of your specific wager or wagering activity.
- The name and address or location of the gambling establishment.
- The names of other persons present with you at the gambling establishment.
- The amount(s) you won or lost.
Proof of winnings and losses. In addition to your diary, you should also have other documentation. You can generally prove your winnings and losses through Form W-2G, Certain Gambling Winnings, Form 5754, Statement by Person(s) Receiving Gambling Winnings, wagering tickets, canceled checks, substitute checks, credit records, bank withdrawals, and statements of actual winnings or payment slips provided to you by the gambling establishment.
The publication contains this guideline for keeping records of slot machine play.
Slot machines. A record of the machine number and all winnings by date and time the machine was played.
I get the feeling that guideline was written by someone who has never played a slot machine.
My go to guide for taxes and gambling, Tax Help for Gamblers by Jean Scott and Marissa Chien, fortunately offers its own guidelines based on what the IRS has accepted and rejected. They suggest that you define what a session will be based on your gambling habits and record a win/loss figure for each session.
If you tend to play one machine for a long time, you might make each machine a session. If you play one type of machine for a long time, you might have slot sessions and video poker sessions. If you play many different machines, it makes more sense to use time as a session and break the day into morning, afternoon and evening sessions and record your win or loss for each day part or maybe just a total for the day.
The keys are to be consistent and contemporaneous. Use the same definition of a session for each log entry and make your log entries as soon as you can after the completion of the session.
You're right that your collection of W-2Gs can paint a very different picture than your actual results. It's like reading only the happy parts of a book and skipping over the sad parts.
Get Jean's book to get more examples of gambling logs or check out some of the examples and programs online. If you're lucky enough to get a W-2G and you want to deduct your losses, get a professional tax preparer to do your return.
My question is about the Indian casinos in Wisconsin, the ones with class II slots. Does the bingo card showing on the machine really matter?
I have talked to different slot techs and have heard both answers. One claimed the card doesn't really matter. You will win or lose the same regardless of your card. Another says it makes all the difference.
What is the truth? Am I wasting my time changing cards?
Let's say you're playing a new game I've invented called Color Craps. You throw four fair dice, two red and two white. As you throw them, you have to call out which color pair will determine the result of your throw.
Only one pair determines your fate. In that sense, it matters which pair you choose. But because each pair is fair, the odds of throwing any particular number are the same for both pairs. In that sense, it doesn't matter which pair you choose. The color determines whether you win or loss on any particular roll, but in the long run it doesn't matter which color you choose. It doesn't matter if you always pick red, always pick white, alternate between the two, follow some other pattern, or just follow your hunches.
The same situation exists on the Class II bingo slot. Your bingo card determines whether you win or lose on any particular spin. In that sense, the card you choose does make all the difference in the world. But like with the dice, the odds are the same on every card. In the long run, it doesn't matter which card you choose.
Changing cards is like changing the color of the dice. You haven't improved your odds and you also haven't made them worse. They're the same.
Because there's no mathematical advantage or disadvantage to changing cards, do whatever you feel like doing. It's your choice.
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