Paying taxes on a Vegas windfall

My comment was more of a spoof however, many years ago, an acquaintance won $1,000 in a lottery that was reported to the IRS. Come tax time, this person claimed a $1,000 gambling loss and the IRS accepted it. Now granted, a more sizable win vs loss would gain more IRS scrutiny but realistically, there are many ways to gamble and a paper trail is seldom available. The IRS can threaten and cajole but I believe they realize going to court seeking unavailable documentation is a crap shoot (groan) as they realize in the minds of potential jurors, the IRS does not present a sympathetic plaintiff.

Also, "Telling them about only after you win a jackpot . . . " is the only time you can inform them because you can only claim a gambling loss after a win in the same year. Of course, no one should claim a loss unless it’s justified.

Paying taxes on a Vegas windfall

I misread this as “Paying taxes on a Vegas Windmill”.

Which sounds oddly smart.
Is there a future in Wind Energy, in Vegas?

You go there to blow through your money.

Actually , it’s not all that difficult to keep records - especially for lottery tickets , since you actually get a physical ticket. You are supposed to keep contemporaneous records, so although you can’t “tell them about your losses” until you win a jackpot, you also don’t want records created after the fact if you are audited. But nobody is getting audited over claiming $1000 in losses when they had a $1000 win.

I’m not a fan.

You don’t really make money off claiming your gambling losses, it can only be used to off-set your tax liability for money that you actually won.

If you won $1000 dollars and your tax liability was say, $400, you can claim gambling losses that will off-set that $400 that you owe for what is now income tax on your winnings. You can claim that you had $6000 in gambling losses but it will only take care of the $400 you owe. Claim $10,000 in losses, still only takes care of that $400. You will not make more money by claiming a larger amount, you are not getting paid to lose money but that $400 will be covered.

My wife won about $3000 early one year on the poker machines and I like to play Keno on a regular basis at my local watering hole so I kept every losing ticket for the rest of the year, entered them into a spread sheet, kept the tickets in a bag, anticipating that we would have to prove our losses. The IRS never said a peep, never audited anything, but the actual result was that we did not owe income tax on that $3000.

You can lose a million dollars gambling and keep records and you only benefit on the tax liability on whatever winnings that the IRS knows about. It isn’t a winning strategy to lose money, the IRS is just throwing you a bone.

One thing that I have seen in several bars is that they will keep all the losing tickets in case someone wins really big. So the winner goes around collecting all these losing tickets to prove there own gambing loses, that is tax fraud. There was a case a few years ago where the IRS got suspicious, sorry no cite, and ran the numbers on the losing tickets.

Each ticket has a time and a vendor number. The IRS showed that a person could not possibly have purchased tickets from vendors 40 miles apart within 3 or 4 minuets of each other. Fines ensued.

I got lucky once in a casino (in Indiana). I won a couple thousand dollars (I really did get super lucky, I almost never gamble).

They made me fill out tax forms at the window when I collected my winnings and they withheld either federal or state tax (just one but I forget which one…I think federal).

According to the linked article

Even if you do not win as much as the amounts above, you are still legally obligated to claim your winnings at tax-time. You also need to report any awards or prize money you won during the year. Yes, even if you only win $10 sports gambling, you still technically have to report it (even if the casino didn’t).

How much of gambling winnings that aren’t reported to the IRS by the casino are reported by the individuals who won? I’m thinking zero percent.

Tell that to Massachusetts, Maryland, and Virginia - three states that tried to make me pay state income tax on money earned while I was resident outside the United States.

The MD story was a little different but in the case of MA and VA, I moved abroad after having resided there. Both states demanded proof of residency in another US state (international residence didn’t count) and said that if I couldn’t provide it, as far as they were concerned I owed them back taxes on all my income for every year since I had stopped filing in their state.

Everything was eventually resolved, and I didn’t have to pay income tax to any of the three states on money earned when I didn’t live there, but I had to fight hard for that outcome. (Maryland even sicced a collection agency on me. That was fun.)

A lot of expats have similar stories.

You and I are examples of why people bet on horse races.

They report the winnings, and you will get form W-2G if:

  1. You win $1,200 in bingo or slots
  2. You win $1500 in keno
  3. You win $5000 in a poker tournament
  4. You win $600 in other games/you win 300x the wager

Normal withholding rate is 24% after $5000, but not for keno, slots, bingo.

State taxes are complicated, they probably want you to report it but may treat it differently. You should get a free player’s card at the casino to keep track of win/loss.

I wonder how that works for high rollers who break even. Let’s say someone sits down with 100K to play blackjack at 5K per hand. After an hour of ups and downs, they still have 100K and decide to cash out. Does that person need to keep detailed records to avoid the IRS when they go back to the bank to deposit their 100K?

Depositing the $100K is not likely to involve the IRS if there weren’t any wins that required a a W2G but the bank is going to have to report the transaction if it’s a cash deposit ( and the bank would have reported a cash withdrawal over 10K as well). But the currency transaction reports have nothing to do with winnings - you could have withdrawn the money planning to spend it on vacation (gambling or otherwise) and simply redeposited some or all of it when you didn’t end up spending it. ( and I think the casino actually would have also filed reports when you bought and redeemed the chips)

So let’s say that I win $4000 in a poker tournament with a $100 buy-in. No W-2G is issued, so the casino hands me the cash. The casino, I assume, has no idea who I am and thus doesn’t report my winnings. Am I obligated to report this on my taxes?

Yes, you are. ALL gambling winnings are supposed to be reported, right down to the $20 you won from your brother-in-law on the Raiders game.

Which brings me back to my observation posted above:

Mostly, but sure you can use/misuse the Cohen rule and claim $10K or so for losses.

Yeah, that is believable.

You can keep a log, but a log isn’t as good as receipts or as you say tickets.

However, if you have the card for a casino, they can give you a printout of your slots losses (and wins).

You are right, but you are overly complicating it. It isn’t the tax, it is the gross winnings that can be offset by losses… but only to the extent of winnings.

Well, yeah, and the IRS doesn’t care because the likelihood of a net loss is pretty high.

Yes, technically but that chance of that being the only gambling activity for you in that year is really low, so it will be assumed there are offsetting losses.

If audited , the best thing to say is “I do gamble a little and sometimes win, but overall I am a net loser” assuming that is the truth.

But if the casino didn’t report it, and I don’t report it, how will the IRS know about it?

The RA or TA will ask you if you have any other income. (often Gambling winnings is a specific question)

Do NOT out and out lie to the Federal Officer. Ever.