Video 25 – Taxes on Gambling Income

It’s time to get down to the Brass Tacks.
My name is Mel Sams and I’m the
Managing Associate of Sams CPA. Today I’d like to talk to you about Gambling Income and Losses
as modified by the Tax
Cut and Jobs Act of 2018. Now this was an
area of the tax reform that’s been often
overlooked, but I find particularly
interesting because it kind of goes
counterintuitive to some of the main
tenants of the tax reform whereby
businesses and their owners get
additional benefits. The effect on
gambling has kind of gone the other way
and I’ll explain what I mean by that.
Prior to 2018 typically if you were a
recreational gambler, let’s call it that.
You go to the casino from time to
time, you wager, lottery tickets, whatever,
sports betting, which is now legal,
becoming legal in the US per Supreme
Court decision, but this recreational
gambling, meaning that you did not do
that for your primary revenue source,
recreational gamblers were able to
deduct gambling losses if they itemize
their deductions to the extent of their
gambling winnings and they had to
provide substantiation for those losses.
Meaning if you wagered $2,000 in a slot
machine and won $1500 back, you would
receive a W-2G in the amount of $1,500
but then you would be able to take
$1,500 of gambling losses to offset. Now
that extra $500 would just disappear. It
was a personal expense, not deductible
anywhere. But it was limited to the cost
of the wager. The money you put in the
slot machine, the money you paid for the
lottery ticket, that initial wager. And
professional gamblers to the contrary,
before 2018, those people who met the
very narrow definition of a professional
gambler, who gamble as a trader business,
they were able to deduct not only the
cost of their wagers but also their
travel, meals,
other indirect costs related to a
gambling business. And they were able to
take those deductions in excess of their
income from gambling. The Tax Cut and
Jobs Act flipped that around and it’s
interesting to note that now individuals
who have gambling winnings, and I mean
the recreational gamblers who have
gambling winnings, they can still offset
if they itemize, they can still
offset those loss of winnings, to the
extent of their losses, but now they can
claim their travel, they can claim their
meals, in that indirect those indirect
cost, lodging, those indirect costs that
were paid in connection with the event
in which they won that money. You fly to
Las Vegas, you gamble, you win $5,000
let’s say, you really lived it up and the
total cost of your trip was $6000, you wagered $2,000. Under the old
rules you’d have $5000 of income and $2000 of offset netting you a
$3000 taxable income
from gambling. But now, under the new law,
you would have $5000 of
gambling income and $5000
of gambling expenses, your $2000 wagers, plus your stay,
lodging, travel, meals, those things. So, big
benefit for the recreational gamblers
out there and in a big change which
again in an environment where under the
tax reform individuals were losing a lot
of itemized deductions, they’re now
getting this one back in a big way for
those who are recreational gamblers. Now
keep in mind you have to itemize your
deductions to take advantage of this and
the new standard deductions for married
couple, single people, head of household,
etc., have all essentially doubled so
before you get too excited about that
just make sure that you’re still going
to be able to itemize with the new
higher thresholds. Now, for you professional
gamblers out there the rules have
unfortunately changed against your favor
going the opposite way. Under the new tax
you have your income from gambling and
you can offset that with the direct
wagering costs, but you can no longer
deduct all those ancillary costs to the
point where you create a loss. You can
break even at zero but you cannot create
a loss anymore.
And that’s huge for all the people
out there in the profession who are
professional gamblers, who earn a living
from gambling, so talk to your CPA,
figure out which one you are,
recreational versus professional, make
that assessment and then figure out what
expenses you have to offset those
gambling winnings so that you’re not
taxed unnecessarily on the
profits that you have there. If you have
any questions, comments, or ideas for
future videos, please let us know. If
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