Question About Taxes

[letswastemoney]

Am I supposed to report winnings even if they weren't over $600 and I didn't sign anything?

Also, let's say I break even for the year. Do I need to include that information in the 1040?

[thaskalos]

Originally Posted by letswastemoney

Am I supposed to report winnings even if they weren't over $600 and I didn't sign anything?

Also, let's say I break even for the year. Do I need to include that information in the 1040?

What would you report if you broke even?

[Delta Cone]

Originally Posted by letswastemoney

Am I supposed to report winnings even if they weren't over $600 and I didn't sign anything?

Also, let's say I break even for the year. Do I need to include that information in the 1040?

Technically, yes. ALL gambling winnings are taxable income, but can be offset by losses.

So, if you bet $2 on a horse to win and were lucky enough to hit the winner and got $10 back, you would report a loss of $2 and gambling income of $10.

You do not calculate the net profit of $8 and add it to your income.

Instead your winnings are netted out in two steps ... you are supposed to report EVERY DOLLAR you collect. This gets added to your Adjusted Gross Income. You then report the losses as an Itemized Deduction. This will net your winnings.

Straight from the IRS website:

"All gambling winnings must be reported on your Form 1040, including winnings that are not subject to withholding."

"You may deduct gambling losses only if you itemize deductions. However, the amount of losses you deduct may not be more than the amount of gambling income reported on your return. Claim your gambling losses on Form 1040, Schedule A, as a miscellaneous itemized deduction."

http://www.irs.gov/taxtopics/tc419.html

[Striker]

Originally Posted by letswastemoney

Am I supposed to report winnings even if they weren't over $600 and I didn't sign anything?

I wouldn't.

[johnhannibalsmith]

Originally Posted by letswastemoney

Am I supposed to report winnings even if they weren't over $600 and I didn't sign anything?

Yes, you are supposed to.

http://www.irs.gov/taxtopics/tc419.html

I won't tell if you don't.

[Delta Cone]

To be 100% legal you would have to report all winnings and losses... these would net to zero in a break even situation, obviously.

Assume you report no winnings and deduct no losses on the grounds that you "broke even." The IRS could get you for filing a false return. But they are clearly not going to go after people who don't do this, as there is no tax to collect in any event. No profit=no tax

The real problem here is that in Illinois there are no itemized deductions. The IL return just picks up your adjusted gross income from the 1040 and gives you a few limited deductions. So if you were 100% honest on the federal return and reported, lets say $100,000 of winnings and $100,000 of losses (no net federal tax), the state of IL would ignore the losses and consider you as having $100,000 in additional income, taxed at 5%.

[MAGICHORSEMAN]

Same here in WV and also Ohio

Originally Posted by Delta Cone

To be 100% legal you would have to report all winnings and losses... these would net to zero in a break even situation, obviously.

Assume you report no winnings and deduct no losses on the grounds that you "broke even." The IRS could get you for filing a false return. But they are clearly not going to go after people who don't do this, as there is no tax to collect in any event. No profit=no tax

The real problem here is that in Illinois there are no itemized deductions. The IL return just picks up your adjusted gross income from the 1040 and gives you a few limited deductions. So if you were 100% honest on the federal return and reported, lets say $100,000 of winnings and $100,000 of losses (no net federal tax), the state of IL would ignore the losses and consider you as having $100,000 in additional income, taxed at 5%.

[rrpic6]

Originally Posted by Delta Cone

To be 100% legal you would have to report all winnings and losses... these would net to zero in a break even situation, obviously.

Assume you report no winnings and deduct no losses on the grounds that you "broke even." The IRS could get you for filing a false return. But they are clearly not going to go after people who don't do this, as there is no tax to collect in any event. No profit=no tax

The real problem here is that in Illinois there are no itemized deductions. The IL return just picks up your adjusted gross income from the 1040 and gives you a few limited deductions. So if you were 100% honest on the federal return and reported, lets say $100,000 of winnings and $100,000 of losses (no net federal tax), the state of IL would ignore the losses and consider you as having $100,000 in additional income, taxed at 5%.

In Ohio the Tax Rate gets as high as 8%. The only way around this for myself was to file as a Professional Gambler. It enables yourself to become Self Employed, with the ability to write off expenses as well as losses. In 2002 after three years of haggling with various IRS offices and Agents, my day in Court came, actually a Pre-Arbitration setting, a decision was made and I was permitted to file in this manner. However, twice in the past six years some budding new IRS agents have flagged my returns and tried to disallow this. Of course they had no knowledge of my hearings. Each time it took about six months to clear these new mistakes, Luckily I've kept the original decision nearby, to play the ultimate trump card!

RR

PS In the original 2002 case I was helped by bumbling Agents that could not understand multiple winning W2-G Forms. They must have thought it was like a lottery where no one would play the same numbers more than one time.

[therussmeister]

Originally Posted by Delta Cone

To be 100% legal you would have to report all winnings and losses... these would net to zero in a break even situation, obviously.

Assume you report no winnings and deduct no losses on the grounds that you "broke even." The IRS could get you for filing a false return. But they are clearly not going to go after people who don't do this, as there is no tax to collect in any event. No profit=no tax

The real problem here is that in Illinois there are no itemized deductions. The IL return just picks up your adjusted gross income from the 1040 and gives you a few limited deductions. So if you were 100% honest on the federal return and reported, lets say $100,000 of winnings and $100,000 of losses (no net federal tax), the state of IL would ignore the losses and consider you as having $100,000 in additional income, taxed at 5%.

I think it is not necessarily true that no profits = no tax. That net gambling winnings are added to adjusted gross income may cause a person to lose out on earned income credit or may trigger an alternative minimum tax.

[Robert Goren]

IRS auditors do not flag tax returns. The IRS computers do. Human eyes do not even see most tax returns. Supervisors then decide which flagged tax returns to audit and then assign it to an auditor. The auditor may or may not be a rookie. One thing is for sure, the auditor you see did not make the decision to audit you. That decision was made way further up the food chain. Very few people( probably less than a dozen) know for sure what will get a tax return flagged by the computer, but from I know about it, gambling income of any kind dramatically increases your chances of being audited and trying to claim losses to off set some of your winnings increases it even more. Trying to claim losses to off set all your winning practially makes an audit a sure thing. As with any taxpayer, the higher your income, the more likely you are to be audited. These facts are what I have learned from my sister-in-law, a retired IRS auditor of over 30 years.
It must source of great joy to pull out your court decision and spring it on an unsuspecting IRS auditor. I know it would be for me. I love gotta moments when I am on the right side of them.

[Track Collector]

Originally Posted by therussmeister

I think it is not necessarily true that no profits = no tax. That net gambling winnings are added to adjusted gross income may cause a person to lose out on earned income credit or may trigger an alternative minimum tax.

Correct, and likely not known by 99+% of handicappers.

I suspect that even if the high WAGERING AMOUNT is not "captured" under the alternative minimum tax aspect, a person using schedule A could still incur a greater tax liability due to maxing out on other itemized deduction types, like medical and charitable contributions.

Delta Cone's example of IL taxation is a great example of how some states are even more unfriendly when it comes to gambling and taxes.

[Pace Cap'n]

^^ Plus you have to meet the requirements for itemizing deductions. Can be hard to do if you don't have a mortgage payment.