Note: This letter refers to last week's question about deducting gambling losses from an amount won in a drawing.
Why did they get a 1099 instead of a W2-G?
It doesn't matter what your gambling losses are from -- slots, lottery, horse races etc. All your gambling losses can be deducted up to the amount of your winnings but not over your winning amount.
The casino issued a 1099 instead of a W-2G because the person won a drawing, not a bet. In any case, according to Tax Help for Gamblers, the IRS has said that the type of form issued does not characterize the amount reported -- that is, receiving a 1099 doesn't mean you won't be able to deduct gambling losses against it.
I would say that your statement that "all your gambling losses can be deducted up to the amount of your winnings..." is not specific enough. Gambling losses can be deducted against gambling winnings, not just plain-old winnings.
Let's look at some examples. Clearly, if you hit a jackpot on a slot, you should be able to deduct your losses playing slot machines. If you hit the lottery, you should be able to deduct the cost of your losing tickets. And if you pick a good horse, you should be able to deduct your losing bets. Every one of these wins is the clear result of a bet.
The situation in last week's letter was about deducting gambling losses from an amount won in a drawing. The only ways to gain entries in the drawing were to earn them through play or "buy" them using points earned by playing. The only way to get an entry was to gamble, so anything won in the drawing can be considered gambling winnings.
Now let's say your casino is running a promotion and everyone who swipes their players card gets a free entry in the drawing. Because no gambling was required to earn an entry, anything won in the drawing cannot be considered gambling winnings.
Finally, let's look at a slot tournament. If you had to pay a fee to enter, your entry fee should be deductible against your winnings, but not your gambling losses. On the other hand, if your entry was comped because of your play, your winnings should be considered gambling winnings and you should be able to offset them with your losses.
That's how I think the slot tournament should work. Different tax preparers may give different opinions. You might even get different opinions from different tax courts.
Your answer on the payouts possibly being different on high dollar machines rather than penny, nickel, dime, etc. is still a bit misleading. Published overall payback percentages for casinos grouped by location show a bias towards a greater percentage payback for larger denomination machines.
Also the payback of $200 for a $100 bet is actually only 1-to-1; since the payback of $200 includes the $100 paid into the machine.
The question you're referring to dealt with whether high-denomination machines are programmed differently from low-denomination machines, much as we would handle a $100 bill differently from a $1 bill.
The game program on a $100 machine is identical to that on a $1 machine. Denomination doesn't affect the programming.
Denomination, as you point out, does usually affect long-term payback, with higher-denomination machines having higher long-term paybacks. Some people may say that a high-denomination machine is "programmed" to pay back more than a low-denomination machine, but I don't like putting it that way. Saying that the machine is "programmed" to pay more causes some people to infer that the machine operates differently from the low-denomination machine. The truth is that the program is the same in both machines. It chooses stops at random on each virtual reel. Only the virtual reel layouts differ.
In any case, I took the question to be more about programming than long-term payback percentages.
Now, I never wrote that winning $200 on a $100 bet on a slot machine was a payoff of 1-to-1. I wrote that it was a payoff of 2-for-1.
Table game payoffs are typically given as x-to-1 because you keep your bet until you either win or lose. A slot, however, takes your bet when you make it, so payoffs are given as y-for-1.
If the amounts on slot paytables were expressed as to-1, then the payoff for a high pair on Jacks or Better would be 0, not 1. Any combination returning your bet is a push, which is 0-to-1. No one wants to see a payoff of 0 on a paytable, so the payoffs are given as x-for-1, even if it is a bit misleading. When you hit a 1-for-1 payoff on the paytable and the machine rings up your win, it isn't really a win; it's a push. In the example, you didn't really win $200 -- you won $100. The other $100 is a return of your bet.
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