We just filed our taxes with the help of our "tax guy" and got a rude awakening about our gambling deductions. My wife and I had an exceptional year, winning over $15,000 in cash and prizes in drawings, but our actual gambling was not successful at all, losing about that much.
In previous years, our tax guy was able to offset most of our winnings/jackpots (other income) against our losses, (other misc. itemized deductions) on the Federal tax forms. He said that our gambling losses (nearly that amount) were not deductible against these $15,000+ in prize winnings, which were reported on a 1099 form.
This does not seem right or fair, since we had to gamble a lot to earn entries to get into these drawings -- and also redeemed several hundreds of dollars worth of points to get more entries. Most of the drawings required earning 100 to 250 points per entry ($2 coin in per point) and the same for redemption.
So in essence we had to gamble a lot to earn entries -- and mostly lost gambling -- thus this gambling should be allowed to offset our prize winnings -- both on Federal and State (Wisconsin) tax forms.
Can our prize winnings be offset by our losses? If so, can we file an amended return?
Also, what is more likely to be accepted on state and federal tax returns: gambling diaries or win/loss statements? I was told that gambling diaries are only for professional gamblers.
My initial reaction was to agree with your "tax guy." Even though you had to gamble to get the points to enter the drawings, your winnings in the drawings were not the direct result of a wager so you could not deduct gambling losses against the drawing winnings, like winnings in a slot tournament. I tried to find some clarification on the IRS web site, but its publications don't really address this situation.
Then I checked my go-to guide for gambling and taxes, Tax Help for Gamblers by Jean Scott and Marissa Chien. You'll be happy to know that I'm completely wrong. They say if previous play is a criterion or requirement for participation in a drawing or tournament, then your winnings can be considered gambling winnings and you can offset them with gambling losses.
It will be well worth the investment for you to purchase a copy of Jean and Marissa's book and lend it to your "tax guy." You might also want to consider using a CPA, enrolled agent or professional tax preparer to prepare your return if by "tax guy" you mean someone who just happens to have a copy of TurboTax and is not a professional. Whoever does your return can always file an amended return.
According to the IRS, the best record of your gambling is a diary you keep yourself. The problems with win/loss statements are that they contain disclaimers that they are estimates, that no one attests to their accuracy, and that there's no guarantee that you were actually the one playing with the card. Jean's book has more information on keeping a diary.
I have been playing here in California for a while and I too have noticed the differences in the machine play/payouts if I’m using my card or not. I always start off with my card when I go into Lytton. But one day I decided to try playing without my card and pow -- I hit $1,400 in the bonus after two spins at $1.
They came to pay me and noticed I wasn’t using my card and asked me why. I told them that when I use my card, they peg me on the machines so I don’t win consistent payouts with the bingos that I receive, but when I don’t use my card, my wins are better and more consistent.
Because of this they dropped my free play over a three-month period from $75 twice a month to $50 twice a month and now to $25 twice a month. I still use my card sometimes but not as much. I’d rather have big wins than have the big free plays.
So I too believe that they can manipulate the machine to not pay as often. If everyone in the row is using their player cards and start winning all of a sudden at the same time, on the same type of machine in the row, I would say, "Oh wow. They turned the machines on for us. Hurry and play before they turn them back off."
How do you know that you wouldn't have hit that same jackpot if you had used your card? There's no control group observations with using your card that would indicate that the reason you hit that jackpot was because you didn't use your card and it wasn't just good luck. Congratulations on your jackpot, but it alone does not prove that the casino penalizes you for using your card.
There's a principle in marketing that it's easier to turn a good customer into a great customer than to turn a stranger into a customer. If the casinos could manipulate results on machines based on the use of a players card, doesn't it make more sense for them to reward carded players and not unknown players?
You might argue that the casinos have to pay for the comps and perqs given to carded players, but they give back only a small percentage of the theoretical win from a player. And comping players is considered a cost of doing business.
I've seen a number of times when banks of machines -- even whole sections of a casino -- have been hot and everyone was winning. That phenomenon is just a natural and expected outcome of random events. At times, the events will appear to be in sync. There's no manipulation by the casino.
If you really want to see if there's a difference when you use your card, you can try this experiment. Play 100 or so spins (the more, the better) both with your card and without. Keep track of the number of hits you get each way. The ratio of hits to spins should be very close under each method. Note that you can't use the amount won or lost because a large jackpot skews the results and you would need to play many hundreds of thousands of spins to use dollars instead of hits.
Please try the experiment and let me know the results. As it is, I think the only thing you're giving up is a lot of free play.
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