If an individual with NO other income declares $10,000 in W2-G Gambling Winnings and also declares $10,000 in gambling losses, does he/she have to pay any income taxes on the gambling winnings? Does it make a difference in the amount of taxes paid (if any) on gambling winnings for an individual in same scenario who declares 100,000 in additional income? I always thought that if you declare the same amount of gambling losses as gambling winnings, you would not be taxed, but TurboTax computes a tax on gambling winnings even if you declare the entire winning amount as a loss.
Advanced Tax question: Not the basics
Note: I’m not a tax accountant.
Gambling losses are deductible only if you itemize deductions. If
you don’t have enough deductions, the losses won’t offset all the
income. In addition, gambling losses, being itemized deductions, are
subject to the deduction phaseouts for “high income” taxpayers, so
you can end up paying tax on a year with a loss if you have W-2Gs.
Edmund
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On 2/7/2014 9:35 PM, wrote:
mu…@…com
If an individual with NO other income declares
$10,000 in W2-G Gambling Winnings and also declares
$10,000 in gambling losses, does he/she have to pay any
income taxes on the gambling winnings? Does it make a
difference in the amount of taxes paid (if any) on
gambling winnings for an individual in same scenario who
declares 100,000 in additional income? I always thought
that if you declare the same amount of gambling losses as
gambling winnings, you would not be taxed, but TurboTax
computes a tax on gambling winnings even if you declare
the entire winning amount as a loss.
_
And you just might invite intrusive questions as to affording losses
of that size.
···
On 2/7/2014 10:51 PM, Edmund Hack
wrote:
Note: I'm not a tax accountant.Gambling losses are deductible only if you itemize
deductions. If you don’t have enough deductions, the losses
won’t offset all the income. In addition, gambling losses,
being itemized deductions, are subject to the deduction
phaseouts for “high income” taxpayers, so you can end up
paying tax on a year with a loss if you have W-2Gs.
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On 2/7/2014 9:35 PM, wrote:
mu…@…com
If an individual with NO other income
declares
$10,000 in W2-G Gambling Winnings and also declares
$10,000 in gambling losses, does he/she have to pay
any income taxes on the gambling winnings? Does it
make a difference in the amount of taxes paid (if any)
on gambling winnings for an individual in same
scenario who declares 100,000 in additional income? I
always thought that if you declare the same amount of
gambling losses as gambling winnings, you would not be
taxed, but TurboTax computes a tax on gambling
winnings even if you declare the entire winning amount
as a loss.
_
**<<**In addition, gambling losses, being itemized deductions, are subject to the deduction phaseouts for “high income” taxpayers, so you can end up paying tax on a year with a loss if you have W-2Gs.>>
That is incorrect. Gambling losses are not subject to the deduction phase-outs.
Cogno
mucre@yahoo.com wrote:
If an individual with NO other income declares $10,000 in W2-G Gambling Winnings and also declares $10,000 in gambling losses, does he/she have to pay any income taxes on the gambling winnings? Does it make a difference in the amount of taxes paid (if any) on gambling winnings for an individual in same scenario who declares 100,000 in additional income? I always thought that if you declare the same amount of gambling losses as gambling winnings, you would not be taxed, but TurboTax computes a tax on gambling winnings even if you declare the entire winning amount as a loss.
Another issue, which I recently learned about the hard way, is that
high enough itemized deductions will trigger an alternative minimum
tax, although, for all I know, it may not apply to gambling losses.
Others suggest complications that I don’t see as applicable in the simple case you outline ($10k W-2G, $10k deduction).
If Turbo Tax computes a tax liability, then I suggest some basic detective work.
-> What is your gross income, per turbotax
– What is your net taxable income, per turbotax,
–> How much tax liabilitiy has been assessed.
Answering these questions will go a long way to understanding the tax calculation in Turbo Tax.
Another issue, which I recently learned about the hard way, is that
high enough itemized deductions will trigger an alternative minimum
tax, although, for all I know, it may not apply to gambling losses.
I normally deduct several million in gambling losses, and so far have never had to pay an AMT, so either it doesn’t apply to gambling losses or the trigger point is high enough that anyone it would apply to probably wouldn’t be looking towards this group for tax advice.
···
—In vpF…@…com, <007@…> wrote:
A complex subject. Montyjones’ comment that anyone with only $10,000 in total income for the year probably won’t be paying income taxes seems apt.
Raising the stakes a bit, the first question would be, can you file as a professional? If so, you can list the total of winning sessions and the total of losing sessions on Schedule C, also list business expenses, and carry only the net profit over to Form 1040 as income. PROBABLY all states will also respect a professional’s ability to calculate income in this fashion, but you should certainly check your own state’s law carefully.
For the nonprofessional, the tax law’s approach has always been to require reporting on a session by session basis. The total of winning sessions goes on Form 1040. The total of losing sessions goes on Schedule A. Note that it’s entirely possible that you might receive a Form W-2G for $10,000, but in fact have a much smaller win or even a loss for the full session, from the time you start playing until you stop. You should be able to report the total SESSION result, rather than the essentially arbitrary figure shown on Form W-2G. The function of these tax reports is to furnish the IRS INFORMATION through an independent source, rather than to define a person’s taxable income. That being said, if the calculation using the correct session approach results in a tax lower than would result from treating the amount reported on the Form W-2G as a session, I think you’re very likely to get pushback from the IRS.
Nonprofessional Schedule A filers are at a severe disadvantage if, but for gambling income, they would not itemize deductions. They essentially get taxed on some amount of phantom income, until the itemized deductions equal what the standard deduction would have been. For state tax purposes, the situation is far worse, to the point of being sadistically punitive, in a growing number of states that don’t allow the deduction of ANY losses on Schedule A, or that limit the deduction. For gamblers in those states, it doesn’t pay to wake up in the morning. As others have noted, gamblers can also run into alternative minimum tax problems, or problems with any benefits the entitlement to which depends on AGI.
Canned programs like TurboTax will be virtually no help, and will probably be misleading or just plain wrong, on specialized issues like those faced by gamblers.