IRS Takes the Thrill Out of Gambling

By Oregon Tax News,

Thanks to the IRS, successful gamblers may become losers.  Those gamblers who win $600 from racetracks and state lotteries, $1,200 or more from slots or bingo, $1,500 from keno, or $5,000 from poker will receive a Form W-2G from the IRS to report their winnings.  Federal tax law acknowledges wins as income but only acknowledges losses in relation to the wins in the same year.  For example, if a person wins $10,000 this year and loses $9,000 next year, his two-year total of taxable gambling income is going to be $10,000, not $1,000.  Individuals who win $10,000 at poker in June, lose $10,000 in July could wind up significantly boosting their taxes.

The exception to the rule is the rare taxpayer who claims to be a professional gambler.  This elite group does not have a same-year timing problem. They can put both income and losses on a Schedule C.
A 1987 U.S. Supreme Court decision recognized gambling as a profession.  Justice Harry Blackmun declared, “If one’s gambling activity is pursued full-time, in good faith and with regularity, to the production of income for a livelihood, and is not a mere hobby, it is a trade or business.”

Esther K. Chow of San Gabriel, Calif. retired from running her husband’s medical practice and played the slots at Morongo Casino near Palm Springs on 176 days in 2005, wagering $1.23 million and winning $1.08 million.  She filed a Schedule C.  The IRS objected, but in March, a Tax Court judge gave her pro status.  The judge added, however, that Chow “would be prudent to abandon gambling as a potential source of income.”

At the state level, Oregon recognizes the federal status and Oregonians who claim gambling losses as itemized deductions on their federal Schedule A forms will face an addition on their Oregon returns.  Oregon does not tax Oregon Lottery winnings of $600 or less from a single ticket or play.

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