IRS Audits of Gambling Winnings and Losses
W-2G is used to report Gambling Winnings. There are different reporting requirements depending on the type of game you won. If you were the WINNER you may or may not be ahead “of the game.” To avoid an IRS inquiry, report ALL gambling winnings, whether or not you received a W2G.
You may be the luckiest person in the world. But did you know your winnings are taxable? Do you keep a record of your gambling activity? Did you know you are required to keep a log of your activity to document your gambling losses if you itemize your deductions and want to deduct those losses?
It doesn’t have to be the end of the world to keep that gambling log. But IRS will tell you, you must keep that log if you want to deduct your losses.
In addition to your losses, you also need to keep track of your winnings. Not all wins will result in you receiving a W2G form. You may be playing one of those mesmerizing games with pretty pictures and reels that spin. When you win whistles blow, bells ring, lights flash. When the win is large enough casino cashiers come running, well, not exactly running, but an attendant comes to help cash you out. This will be a W2G event.
What about all those other little wins? You collect your cup full of coins, or your payout voucher, exchange those for pocket money and off you go. Well, that money you just pocketed represents gambling winnings that belong in your log.
There is not Gambling Log Bible to help you know exactly how to track your activity. But a piece of paper is a good start. For each day that you place your bets, record the date, the city, the establishment, the amount of money you are starting your gaming day with, the types of games you played (slots, cards, dice, roulette, bingo, etc) and then whether you won or lost. And then enter how much money you left that establishment with.
If you use a Player’s Club card, you may be able to get a report of your activity at the end of the year, but that really does not take the place of your gambling log.
You may play the lottery. You may play the ponies. Whatever you play, keep track of your activity.
Most people aren’t bookkeepers and just want to play, not do this activity log bookwork. But the rules are clear. All income is taxable except that specifically excluded by law and nothing is deductible except that allowed by law. And in this case the law states that you must be able to prove any losses you are claiming. If you don’t keep this log, you are not to deduct your losses.
I know this is not the best news in the world. But wouldn’t you rather know now than wait until the IRS tells you when they invite you in for your own personal tax audit?
Oh, you’ve never been audited and you don’t think you ever will be audited? Well, that’s what most people think. In addition to having been an IRS Tax Audit Supervisor, I, too, have been audited. I know how to prepare, but it was still unnerving when I was invited to “come on down” with all my receipts.
It’s like the old adage says, “an ounce of prevention is worth a pound of cure.”
Wishing you Many Happy Return$,
Nellie Williams, EA