Gamblers frequently rely upon myths, urban legends and bad tax advice when it comes time to prepare their individual income tax returns.
Some of the more popular myths are:
MYTH #1: I can use my ATM receipts (or bank statements) to prove how much I spent gambling.
TRUTH: Wrong! The IRS consistently refuses to recognize such transactions. The ATM receipt (or bank statement) merely proves that money was withdrawn from the bank account, but it does not prove how the money was spent. How can the Gambler prove to the IRS that the money was spent on gambling and not meals at the casino?
The Gambler should record their ATM withdrawals in their Lady Luck Gambling Diary!
MYTH #2: I can use my Player’s Reward Card to prove how much I spent gambling.
TRUTH: Wrong! The IRS consistently refuses to allow the use of information from a Player’s Reward Card because of 2 main reasons:
- The Gambler cannot prove that he or she was the only one that ever used the Player’s Reward Card?
- The Gambler cannot prove that he or she used the Player’s Reward Card every time they gambled?
The Gambler should record their activity in their Lady Luck Gambling Diary!
MYTH #3: I can use a win/loss statement from the Casino to prove my gambling losses.
TRUTH: Wrong! The IRS consistently disallows such win/loss statements from Casinos since they frequently report the amount of wins or losses as a “net” amount. (Remember, wins are reported on Page 1 of IRS Form 1040 and losses are reported on IRS Schedule A.) Furthermore, the win/loss statements frequently include language stating that they are merely “estimates” and should not be relied upon.
The Gambler should record each “gambling session” in their Lady Luck Gambling Diary!
MYTH #4: I am only required to report the winnings reported to me by the casino.
TRUTH: Wrong! You must report ALL income including ALL winnings! As a matter of fact, in one reported court case the Judge discredited the testimony of the Gambler/Taxpayer because the reported winnings EXACTLY matched the total amount of the W-2G’s.
MYTH #5: I do not have to report my winnings from gambling from an Internet website, in a foreign country or while in international waters on a cruise ship.
TRUTH: Wrong! You are taxed on ALL your WORLD WIDE income – including gambling winnings won online or outside the United States.
MYTH #6: Since I have more losses than winnings, I don’t need to report anything to the IRS.
TRUTH: Wrong! You must separate your winnings from your losses and report each of these amounts to the IRS. As a “casual” or “recreational” gambler, you must report your winnings on Form 1040 Page 1 as “Other Income” and report your losses on Schedule A as “Other Miscellaneous Deductions (not subject to 2% limitation).”
MYTH #7: The IRS will accept whatever amount I report for gambling losses especially if they do not exceed the amount of my gambling winnings.
TRUTH: Wrong! You must be able to prove the amount of your gambling losses by providing adequate documentation. Please refer to IRS Revenue Procedure 77-29.
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