Counting, winning and the IRS

Here's a question for the experienced: What are the IRS rates for gamblers? The only thing I know about declaring your losses to the IRS is, that you cannot exceed your wins.

It would seem that the IRS (and the CFTB in California) would tax a gambler at a higher rate. Also, it seems that walking into a casino, declaring your self a "professional gambler" and then moving straight to the blackjack tables would be rather self-defeating, wouldn't it?

> What are the IRS rates for gamblers?

The same as they are for everyone else. There is no seperate tax code.

> The only thing I know about declaring your losses to the IRS is, that you cannot exceed your wins.

For a recreational gambler thats basically true. For a professional gambler, its not.

> It would seem that the IRS (and the CFTB in California) would tax a gambler at a higher rate.

It may seem so, but they don't; and I am 99.9% sure the Franchise Tax Board does not either.

> Also, it seems that walking into a casino, declaring your self a "professional gambler" and then moving straight to the blackjack tables would be rather self-defeating, wouldn't it?

One would think so. Making a declaration like this is not a test as to if someone is a 'professional' or not.

A long discussion on this topic was had at 'advantageplayer.com' beginning on May 9th on the 'Blackjack Main board'. I'm sure you can find it.

gamblers who file Schedule C (Professionals) still cannot carry forward gambling losses like other businesses. Even for Schedule C filers, gambling wins can only be offset by gambling losses up the the amount of the win. Casino losses that exceed winning still cannot be carried forward. Losses created by other means (normal business type expenses like travel costs, telephone, office supplies, software, depreciation) can possibly be carried forward.

declare anything to the casino? If you are a professional player you don't have to declare anything to anyone...including the IRS. All you have to do is file the appropriate paperwork if you qualify.

Is what you are saying that Schedule C, line 7 (Gross Income) can never be less than zero?

Interesting. As you imagine, I'll have to look into that .. I was not aware.

My question re. declaring to the casino involves whether they pay large wins in cash or by check... If a player carries cash away from the cashier's cage, don't they have to report a certain amount to the Fed or State? For example, it's illegal to take more than $10,000 out of one's bank account without some kind of declaration (this is supposed to help "control crime" ... isn't it the same at a casino? (Personally I've never taken that much away from a casino before.) Besides which, is it possible that the Fed/State and the casino rub shoulders a little re. reporting high rollers?

Schedule C is to put your Gross Session Wins as Gross Income and to put your Gross Session Losses as a misc expense at the bottom of the sheet. Some players put their total session losses as "Cost of Goods" to avoid raising red flags by having a huge expense deduction.

Either way, you can't deduct more in losses than wins evenwhen filing Schedule C.

if you win big in the casino they just give it to you in cash. If you want a big win paid by check (usually must be a taxable slot jackpot which gets a W2-G filed) you just request it...otherwise they give you cash.

If you win at table games, nothing gets reported to anyone...unless you cash more than $10,000 in a single 24 hour casino business day. If the casino needs to file a CTR (currency transaction report) you just give them your ID and SSN. There is nothing to declare to anyone. The casino may already have your ID and SSN on file...in which case they file a CTR without you even knowing it happened.

Sometimes, the IRS has people in the casinos (and in surveillence rooms) making notes of big table game winners and those winners who fail to report their big win can be in trouble...but generally, there is no other "shoulder rubbing" going on. When the IRS is in the casino they are usually, more often, looking at bartenders and waitresses toke rates.

Of the two, I would prefer the 2nd method although having a 'non-manufacturing' type business code (Box B) and using the Cost of Goods Sold line could be a dis-connect with the IRS computers and kick your return for audit. I had a revenue agent tell me that was exactly why a particular return was selected for audit. Who knows for sure. I suppose I hate more having a large number on line 1 and a large 'other expense' below.

As a third option, I don't think netting the gains and losses (properly) and reporting the net gain on line 1 would put you in violation of not reporting all your gross reciepts and it might smooth out the look of the return.

Presentation is everything!

Is there anything you could direct me to that discuss' a 'professional gambler' being limited on deducting his losses? If it is quick and easy to do, let me know.

Thanks.

> ...nothing gets reported to anyone...unless you cash more than $10,000 in a single 24 hour casino business day. <

As I understand the law/regs, it's "any 24-hour period," but practicalities usually result in using the "casino business day" -- usually 4am to 4am.

I've heard from some sources that a "SAR" (Suspicious Activity Report) must be made on cash transactions aggregating $5,000 or more but for casinos the amount is $3,000 or more. I've also heard that there is an agreement between the IRS and Western Union that any wire transfers or wired cash amounting to $1,000 or more is immediately reported.

I would love to learn I'm wrong about SARs and the WU thing; so if any of you have specific info, please share.

"I've also heard that there is an agreement between the IRS and Western Union that any wire transfers or wired cash amounting to $1,000 or more is immediately reported." -oldcoot

I'd like to know if this is true also .. if so .. it chaps my butt. And why would Western Union make that deal? It could only cost them money and time while profiting them nothing.

I'm thinking it must not be true.

..is 5K for SAR. I used to work in the banking industry and thats how it was there. It's possible, but I find it hard to believe that they would post a different limit just for gaming (CTR is still 10K everywhere else, no different for gaming). However, since I have no casino specific cash experience, I cannot say for sure...

D

You can state your gambling loss as COGS on Schedule C. It will not create a red flag, despite what your revenue agent friend said. I have been doing it for years.

You are not supposed to net out the gains and losses and report the net figure. People do it, but that is technically incorrect. In fact, a prominent and well respected pro and frequent poster on this board has stated in the past that this is what he does.

As to the limitation on losses, your gambling losses cannot exceed your gambling winnings, period. As BP said, whether other gambling expenses can be deducted in excess or winnings, is a grey area. My position is that it cannot be deducted. But others have made a good argument against this. It is up to you how you want to handle this. There is no concrete and certain ground here.

Neko

The revenue agent was not my friend. He was a revenue agent in my office doing his job and explaining why the particular return he was holding in his hand had been selected for audit.

BTW -what business code do you use?

"You are not supposed to net out the gains and losses and report the net figure. People do it, but that is technically incorrect."

I would take issue that it is technically incorrect; but not now.

"In fact, a prominent and well respected pro and frequent poster on this board has stated in the past that this is what he does."

Of the three methods being discussed, again, I prefer netting on line 1; using line 1 and the COGS line next; using line 1 and reporting losses down below last.

"As to the limitation on losses, your gambling losses cannot exceed your gambling winnings, period."

Not disputing that .. would just like some reference that this applies to professionals as well as non-professionals.

" ... whether other gambling expenses can be deducted in excess of winnings, is a grey area."

Asa professional gambler, you are talking about room, board, travel, books, study aids, etc, -right? Could you tell me from what information you make your assumption or is that simply general information you have picked up along the way and feel is correct?

Thanks.

I use 713200 Gaming as my occupation code for Schedule C.

The biggest reason why I file Sch C is that I play VP and get a lot of W2-G jackpots. For that reason I don't have the choice to improperly net out wins and losses. I have to show all of my session wins because of the magnitude of my W2-G's (almost $500K annually).

threshold was recently raised from 3K to 5K but many casinos still use the old 3K threshold. (It could be that Nevada reg 6A limits for SAR's are lower...I don't know).

SAR's are only filed if the transaction is, like it's namesake, is suspicious. Someone cashing 5K in a casino is not suspicious. Someone cashing $9,999 might be suspicious, especially if he simultaneously inquires what time the casinos's business day begins.

Someone depositing 9K in his checking account in cash might be deemed suspicious by a bank who can be much more paranoid about such things than a casino cage.

If line 1 does not equal or exceed the total of your W2-Gs, at the least, you are gonna' get a letter from the nice folks at Treasury.

$500,000 in W2-Gs from VP. Geeez. You ARE the man. :)
Impressive.

Regarding the next question -if you would like to reply to my email address privately -or just ignore it all together -I'll understand.

Do you report travel, meals, lodging, etc on your Schedule C against your net winnings? What about the years you might have net losses, and I presume report zero gross income; do you deduct them then also?

Thanks for all your great advice.

deductions I take include the going per diem rate for meals, although most meals are comped, there are usually enough meal tips (the tips at places like Renoir and Bradley Ogden really can add up) and non-comped meal expenses to equal the $31-$42 per day standard rate. I also deduct depreciation on my laptop which is used 100% for business purposes, internet expenses, software upgrades, blackjack books and periodicals, subscriptions (BJ21, vphomepage), cellphone, business mileage on the car, a percentage of interest paid on car note, and all other relevant office supplies. I also deduct plane tickets and other valid travel expenses.

I've never had a losing year, although I can see that there might be some years where expenses might drive my taxable income close to zero if I have a bad year. So far this year I'm winning OK at blackjack, but the last two months have been terrible for VP so in spite of a $237K in W2-G's so far (and $5,077 in various state taxes withheld) I'm down over $30K for the year...such that I am now re-evaluating how much of a percentage VP is in my overall gaming mix and exactly what levels I'm gonna be comfortable playing at. I've had some very strong opportunities but gone from 10K up to 30K down in six weeks at VP. Thankfully I'm up over 40K at blackjack and have redeemed $18,000 in cashback and bounceback coupons and another $4200 in airfare reimbursments.

To code accordingly or NOT to code accordingly...that's a challenge.

NAICS Code 713200 (gambling industries) appears to be for the big boys: Casinos, racetracks, racesinos, etc... who provide gambling & entertainment to the public. They are the gambling industries. I don't think the advantageous players are a part of the gambling industries.

NAICS Code 541990 (Other scientific & technical personal services) seems to be more appropriate for advantageous players: card counters, shuffle trackers, hole-carders, etc... who use scientific & technical skills to make money.

999999 could be the next choice for us. Perhaps when NAICS Codes were created, the codemakers did not have advantageous-players/hookers/hitmen/etc in their minds. That's why they get the code 999999 (the catch-all code) for people like us. However I won't recommend anyone to use the 9s because of the red-flagging problem.

A tax joke:

Gambler: I don't want to report all my hard-earning profit this year.

Tax preparer: Do you want to sleep with 1-eye open or zero-eye open?

Gambler: Huh?

Tax preparer: When you cheat, you naturally need to sleep with 1-eye open. That way, you'll get away faster thru your back door when the IRS-CID comes to knock on your front door at night.