Recreational Gambling and the IRS

Recreational Gambling and the IRS

Today I'd like to talk to you about gambling and how it affects recreational gamblers with respect to tax code and some of the law changes. In this video we cover sweat equity, W-2G forms, and taxes on your payout.

Video Transcript - Recreational Gambling and the IRS

It's time to get down to the brass tacks. My name is Mel Sams. I'm the managing associate at Sams CPA. Today I'd like to talk to you about gambling and how it affects recreational gamblers with respect to tax code and some of the law changes.

Now, gambling was one of the most popular videos that we have ever produced, so I feel that it's important we do a follow-up and address some of the questions that we've gotten from some of our viewers. One of our viewers asked me, "Hey, I'm a recreational gambler, but I also spend about 20 hours a week reviewing tape, studying, and learning new techniques. Can I deduct the value of my time against my gambling winnings recreationally?"

Now, unfortunately, the answer to that is you cannot deduct the value of your sweat equity against actual income that's been earned. I know it's unfortunate, but it's a recurring theme throughout the tax code that generally you have to have something of value that you gave up to create a deduction. A lot of times that's money.

However, what I would contend is that if you're spending 20 plus, 20 to 20 plus hours per week studying film, reviewing tapes, studying methodologies, and doing things to prepare you to go and gamble, obviously we want to win with a profit motive or a winning motive in mind, I would say you may want to have a conversation with your CPA about do you possibly qualify as a professional gambler, if not today, maybe sometime in the future. Maybe you're working towards that. The answer to that question is no, sweat equity is not deductible as an offset to gambling winnings. However, it may lead us to something positive in the future.

Another question that we received was, "What if I don't receive a W-2G form?" Now a W-2G is a form that the payer have a winning bet issues to the payee. Now, I'm not going to bore you with all the different types of bets and what those thresholds are for issuing W-2Gs, but suffice to say they're all different. Whether it's a parimutuel bet, whether it's a scratch-off lottery ticket, whether it's winnings at a casino in some kind of table game, all the thresholds are different.

But the fact remains if you didn't receive a W-2G and you believe that you should have, I would first recommend you calling the institution where you placed the bet and where the winnings occurred, whether it's a horse track, a dog track, a casino, something of that nature. If you don't get anywhere with that, the IRS tells us that you, regardless of whether you received the W-2G, are still supposed to report your gambling winnings on your form 1040 as other income on Schedule 1 and any losses that you had as an itemized deduction just as you normally would on your form 1040 on your personal tax return.

It doesn't get us off the hook of having a claim the winnings. Now, what I would also say though is that in many cases there are state and possibly local taxes withheld by the payer at the point of paying out the bet. If that happened, you definitely want to get your hands on that W-2G so that you can give yourself credit for any taxes that may have been taken out at the point of the payout.

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