Gambling income, unsurprisingly, is subject to income tax. This post is an overview of federal and Michigan treatment of gambling income and losses.
- How To Take Gambling Losses Affect
- How To Take Gambling Losses Money
- How To Take Gambling Losses
- How To Take Gambling Losses Offset
- How To Make Back Gambling Losses
- How To Take Gambling Losses Against
- How To Get Gambling Losses Back
FEDERAL TAX TREATMENT OF GAMBLING INCOME & LOSSES
On your federal income tax return, you can take an itemized deduction for gambling losses, but only to the extent of gambling income (in other words you can't claim an overall loss on gambling activity).
Example: John likes to play blackjack and had winnings of $40,000 in 2009. He also lost $90,000 in the same year. John has to report his $40,000 winnings as income, but he can only deduct $40,000 of his gambling losses because gambling losses are limited to gambling winnings. Excess gambling losses cannot be carried forward.
It should be noted that taxpayers must itemize to claim gambling losses.
The biggest single thing to know is that you can only deduct gambling losses for the year to the extent of your gambling winnings for the year. So if you won $2,500 gambling in 2014, the most you. Gambling Losses You may deduct gambling losses only if you itemize your deductions on Schedule A (Form 1040 or 1040-SR) PDF and kept a record of your winnings and losses. The amount of losses you deduct can't be more than the amount of gambling income you reported on your return. How do you document gambling losses for the IRS?If I'm driving by a casino and I take $20 out of my pocket and lose it in a slot machine, what's the process for adequately documenting that?This is just a hypothetical question I came up with in reading a newsletter from my CPA, I don't actually have any gambling losses or winnings to document. For all other taxpayers (amateur or casual gamblers), gambling winnings are reported as 'other income' on line 21 of Form 1040, and gambling losses are reported on line 28 of Schedule A as miscellaneous itemized deductions. A professional gambler is just as you might imagine; gambling is their business, their profession. They can deduct expenses and losses like any other business. However, as a casual gambler, unless you meet strict IRS guidelines, you may lose out on benefiting from gambling losses at tax time.
Example: Joan won $4,000 in the lotto in 2009. She also lost $5,500 in other gambling activity during the year. If she does not itemize, she has to claim the $4,000 in income and cannot deduct the $5,500 in gambling losses—not a good result.
Even though the itemized deduction for gambling losses can offset gambling income, it is a below-the-line deduction (i.e., it is taken after computing AGI). AGI is used to calculate various phaseouts for credits and deductions. Therefore, gambling income may affect your phaseouts even though they are offset by gambling losses.
How To Take Gambling Losses Affect
MICHIGAN TAX TREATMENT OF GAMBLING INCOME & LOSSES
In Michigan, gambling income is based on the amount of gambling winnings included in federal AGI (the bottom line of the first page of your Form 1040) without taking into account the itemized deduction for gambling losses. So, in the above examples, John has $40,000 in gambling income on his MI-1040 and pays $1,700 in tax and Joan has $4,000 in gambling income on her MI-1040 and pays $170 in tax even though both John and Joan had overall gambling losses.
To get around this unlucky result, the strategy is to use gambling losses to directly offset gambling income, rather than take gambling losses as an itemized deduction. There are two ways to do this:
* Special Rule for Slots and other Casual Gambling
* Becoming a professional gambler (harder than you think and will not be discussed here)
SPECIAL RULE FOR SLOTS AND OTHER CASUAL GAMBLING
Generally, gambling winnings and losses have to be determined on a wager-by-wager basis. For causal gambling (slots, poker, blackjack, horse racing, etc.) you can determine gambling winnings and losses on a net daily basis. By figuring gambling income on a daily basis (rather than wager-by-wager) gambling winnings are directly offset by gambling losses (and thus become excludable from Michigan income tax).
Example (wager-by-wager basis): Jimmy goes to the casino on Friday and buys $1,000 in tokens to play slots. He has $9,000 in winning spins and $6,000 in losing spins. He cashes out on Friday with $3,000. Jimmy wants to continue his winning streak on Saturday. He buys $4,000 in tokens. This time Jimmy has $1,000 in winning spins and $5,000 in losing spins. He leaves the casino with nothing.
On a wager-by-wager basis, Jimmy has $10,000 in winning spins over the two days and reports this amount as income. Jimmy has $11,000 in losing spins over the two days and deducts his losses as an itemized deduction (limited to the $10,000 in gambling winning). However, on Jimmy's Michigan tax return, he must report the $10,000 as income, but cannot take a deduction for gambling losses.
Same Example (daily basis): Jimmy's daily gambling winnings and losses are netted. Jimmy has overall income of $2,000 on Friday (Cash Out: $3,000 & Cash In: $1,000) and an overall loss of $4,000 on Saturday (Cash Out: $0 & Cash In: $4,000). On a daily basis, Jimmy had $2,000 of gambling winnings on Friday and $4,000 of gambling losses on Saturday. On his federal return, he must report $2,000 of gambling winnings and gambling losses of $2,000 (again, the itemized deduction for gambling losses is limited to gambling winnings). On his Michigan return, he only reports the Friday daily winnings of $2,000.
It is CRITICAL that gambling winnings and losses be properly documented. The following information should be maintained in a log:
1. the date and type of specific wager or wagering activity
2. the name and address of the gambling establishment
3. the names of other persons present with the taxpayer at the gambling establishment
4. the amount won or lost
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Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.
No one expects to be out several hundred dollars just an hour into gambling at the casino. Given the unpredictability of several popular games around the casino, it can unfortunately happen to anyone.
Any professional gambler will tell you that losing is a part of the gambling experience. If you're serious about gambling and aspire to win money, occasionally you might lose big.
But one thing separating good and bad gamblers is the ability to bounce back after a loss. However, it's a challenge to avoid succumbing to feelings of anger and despair.
If you're unable to keep your head straight after going down big, there is a better way to approach the recovery process. Here are a few days to dig yourself out of a hole at the casino.
Take a Few Minutes Away From the Casino Games
Typically a tough night gambling follows a consistent progression:
- You arrive at the casino expecting to win money at the table
- You select your casino game of choice and a table that works for you
- The cards aren't falling in your favor, but you hold steady
- Your bankroll continues to vanish and you start to worry
- You start chasing losses and attempt to make up the difference
- Most, if not all, of your bankroll is depleted
Once things go from bad to worse, it's always a good idea to take a break. In fact, I recommend standing up from the table every 30 minutes or so, even if you're only stretching your legs.
Taking a step back allows you to clear your head, which is crucial when gambling. Certain games around the casino are mentally taxing, and their repetitive nature can be hard to break away from.
Figure Out What Got You Here
Deciding what led you to this point is arguably the most crucial part of getting out of a hole.
After you've pushed from the table, you need to think back to any mistakes you've committed along the way. Sometimes it's just not your night at the casino, but often gamblers are to blame for severe losses.
These mistakes obviously vary depending on the game you are playing. But, figuring out when and where your missteps occurred will help you avoid significant losses going forward.
The most common gambling mistakes typically involve similar combinations of variables. Gamblers can either be playing games they're unfamiliar with, playing games incorrectly, or are too intoxicated.
These first two mistakes are easy to fix, while the third is much more complicated.
Once you locate the problem, it's time to address it and try to fix it so you can get back to winning money.
Lower Your Betting Amount
Lowering your betting amount is a humbling experience that some people might be incapable of doing.
But, decreasing your average bet can often help you in the long run. It benefits gamblers by keeping them at the tables longer and assisting them in finding a rhythm.
But it's even more challenging when a large portion of it is already gone. It's genuinely indicative of which gamblers are capable of demonstrating self-control and which are not.
This is honestly the most simple and straightforward piece of advice I can offer gamblers. However, you'd be surprised how easy it is to ignore it.
Doing the same thing over and over again will likely lead to the same results. Instead, adjust your betting amount and manage your bankroll more effectively.
Consider Changing Games or Tables
I frequently find that consistent losing is a byproduct of my environment.
While other players can't directly impact your ability to win standard table games, they can lead you astray. New gamblers in particular, can easily be influenced by their surroundings.
If your gambling party is full of terrible gamblers, then it might be impossible to win money. Even if you're a more experienced gambler, other players can decrease your likelihood of winning.
These types of situations often happen while gambling with someone who distracts you from the game. When you're unable to focus on games, you might as well start handing the dealer your money.
This is most common in games like real money blackjack. If you are distracted by someone at your table, continuing to gamble, there is setting yourself up for failure.
Consistent losing might also be the result of simply playing the wrong type of game. Everyone has their favorite type of casino game, but occasionally your personal favorite might not be the best choice.
Instead of trying to win money by playing a game that's already destroyed your bankroll, it might be worth exploring other options.
Go Back to Gambling Basics
If you consider yourself to be decent at gambling, then there should be a way to win some of your losses back.
There are specific landmarks most gamblers will pass during their progression as a player. Sometimes though, it's easy to forget the basics of gambling.
So, when you're at your most vulnerable, go back to the basics and remember everything you've learned along the way. You'll be surprised to find how easy it is to calm yourself down using this method.
How To Take Gambling Losses Money
It's worth mentioning that this point might not be incredibly relevant if you play games based on pure luck.
Don't Be a Hero
As I said in a previous point: you're not going to win your money back in a hand or two.
When you're down big, it might be tempting to push all in and go for broke. If you're lucky, you might be able to defy the odds and win your bankroll back.
It might be due to bad gambling luck, poor play, or a combination of the two, but something has resulted in your losses.
If you are wavering between being smart and conservative or reckless, take a moment to analyze the situation. Knee jerk reactions rarely seem to go gamblers' way when they're getting beaten down at the tables.
Cut Your Losses and Call it a Day
When gambling, I often find myself recalling a sage piece of wisdom my dad shared with me during my childhood.
Some days it's chicken. Some days it's feathers.
Expecting to win every time you go to casinos is normal for any self-respecting gambler. But, being unable to accept defeat in a responsible manner is a mark of a terrible gambler.
When you lose, it's best to tip your hat to the house and move along with your day. No one likes losing, of course, but there are usually valuable lessons to be learned after losing money while gambling.
A problem that is far too common amongst gamblers is an inability to walk away from the table.
Avoiding this reality is as simple as never gambling with money you can't afford to lose. Once the money you set aside is gone, your day is over.
How To Take Gambling Losses
At that point, the writing's on the wall. It's almost as if the universe is telling you that you aren't destined to win money.
However, by ignoring these clear signs, gamblers can put themselves into challenging financial situations.
How To Take Gambling Losses Offset
This is most common in games like real money blackjack. If you are distracted by someone at your table, continuing to gamble, there is setting yourself up for failure.
Consistent losing might also be the result of simply playing the wrong type of game. Everyone has their favorite type of casino game, but occasionally your personal favorite might not be the best choice.
Instead of trying to win money by playing a game that's already destroyed your bankroll, it might be worth exploring other options.
Go Back to Gambling Basics
If you consider yourself to be decent at gambling, then there should be a way to win some of your losses back.
There are specific landmarks most gamblers will pass during their progression as a player. Sometimes though, it's easy to forget the basics of gambling.
So, when you're at your most vulnerable, go back to the basics and remember everything you've learned along the way. You'll be surprised to find how easy it is to calm yourself down using this method.
How To Take Gambling Losses Money
It's worth mentioning that this point might not be incredibly relevant if you play games based on pure luck.
Don't Be a Hero
As I said in a previous point: you're not going to win your money back in a hand or two.
When you're down big, it might be tempting to push all in and go for broke. If you're lucky, you might be able to defy the odds and win your bankroll back.
It might be due to bad gambling luck, poor play, or a combination of the two, but something has resulted in your losses.
If you are wavering between being smart and conservative or reckless, take a moment to analyze the situation. Knee jerk reactions rarely seem to go gamblers' way when they're getting beaten down at the tables.
Cut Your Losses and Call it a Day
When gambling, I often find myself recalling a sage piece of wisdom my dad shared with me during my childhood.
Some days it's chicken. Some days it's feathers.
Expecting to win every time you go to casinos is normal for any self-respecting gambler. But, being unable to accept defeat in a responsible manner is a mark of a terrible gambler.
When you lose, it's best to tip your hat to the house and move along with your day. No one likes losing, of course, but there are usually valuable lessons to be learned after losing money while gambling.
A problem that is far too common amongst gamblers is an inability to walk away from the table.
Avoiding this reality is as simple as never gambling with money you can't afford to lose. Once the money you set aside is gone, your day is over.
How To Take Gambling Losses
At that point, the writing's on the wall. It's almost as if the universe is telling you that you aren't destined to win money.
However, by ignoring these clear signs, gamblers can put themselves into challenging financial situations.
How To Take Gambling Losses Offset
How To Make Back Gambling Losses
Gambling should never result in unnecessary stress. If you find that it often does, it's important to change your gambling mindset and seek assistance.
Conclusion
Digging yourself out of a hole is an important skill any quality gambler should have in their arsenal.
It might be one of gambling's most supreme challenges, but it is doable if you approach the process correctly.
If you get down big early, the first thing to do is push back from the table. Clearing your head will help you assess the situation and figure out where you went wrong.
How To Take Gambling Losses Against
Until you get your mojo back at the tables, lower your betting amount, and try to stop your bankroll's bleeding. But, if that doesn't seem to help, you should opt to choose a different game or a new table at the very least.
How To Get Gambling Losses Back
Under no circumstance should you attempt to win back all of your money in one hand. These high-risk, high-reward decisions are impractical and ineffective.
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Finally, if nothing seems to be working for you, it might be best to admit the house bested you and head for the exit. Like my dad always used to say: some days it's chicken, some days it's feathers.
