Gamblers and the IRS – by the book

Here’s a year-end heart-warmer for gamblers: You really do need to pay taxes on your winnings, whether you won USD 10 or USD 1,000, and a pair of experts have come out with a book to explain it all.

And no, their initials are not IRS.

Las Vegas tax adviser Marissa Chien’s book, „Tax Help for Gamblers,“ co-written by gambling book author Jean Scott, just might be one of the biggest revelations about gambling in years.

Paying gambling taxes is virgin territory for much of the gambling public. Many players have no clue that taxes are due, feign ignorance of tax law or view the Internal Revenue Service much the same way they view a casino – as an entity waiting to be „beat.“

Others try to report their winnings, only to shortchange themselves by underestimating their losses.

Most casinos, on request, offer year-end win-loss statements for customers who use player tracking cards.

But casinos do little to educate the multitudes. You won’t see any „Don’t forget to pay your taxes“ signs next to those 2-for-1 offers during this holiday season.

One of the few accountants specializing in gambling tax law, Chien is a keeper of esoteric knowledge that becomes more valuable each year as more people take up gambling as a hobby or a full-time job.

With the spread of gambling and the popularity of Texas hold ‚em poker, the IRS is keen to get its cut of a growing pie – especially the dough generated by a multitude of poker tournaments in casinos and on the Web every year. (Yes, taxes are due on those online gambling winnings, so fess up.)

Before you’re tempted to protest this tax collection as unorthodox, consider that the IRS also requires that taxes be paid on any found money, like that cash you discovered in the parking lot a year ago. Though many locals would beg to differ, the government considers winnings as more windfall than the result of hard labor.

But it’s not all bad news.

The IRS allows gamblers to deduct losses up to, but not in excess of, their winnings – provided they can show evidence of those wins and losses in a log.

The agency calls for specific records but doesn’t specify what they should look like, though it has accepted everything from handwritten notes to Excel spreadsheets.

Logging their gambling is the last thing people are thinking about when they’re chasing that blackjack or royal flush. And yet it’s the law.

That’s why some gamblers can be found scrounging for sports betting receipts on casino floors this time of year. Deductions need to be backed up by documentation. And with no documentation to show for a year’s worth of betting, some will attempt to make it up – or use other people’s records.

Either way, Chien said, that’s illegal.

„The more information you provide for the IRS, the better,“ she said.

But the gambling log, a cornerstone of tax compliance, is rarely followed, said gambling writer Anthony Curtis, whose Huntington Press published „Tax Help for Gamblers.“

„Most people only have a vague idea that they should be doing this,“ said Curtis, who guesses that „one in 500“ people keeps appropriate records.

Las Vegas resident Paul Senior, a retired engineer who plays video poker, is one of them.

The tax code is not friendly to Senior, who deducts significant losses on more than USD 1 million in video poker winnings a year. Senior can’t file as a „professional“ gambler – a relatively recent IRS designation that applies to people whose frequent gambling activity serves as a primary source of income.

That means he must report his massive winnings as part of his gross earnings for the year, even if he netted a loss, while deducting those losses on a separate form.

He ends up paying more in taxes than the typical gambling professional, who can also deduct expenses related to gambling, such as hotel stays and rental cars. Even though he lost money, his big earnings make him ineligible for certain deductions, such as mortgage interest and property taxes.

Even so, Senior doesn’t mind recording his losses and less frequent winnings – a task that takes more than 20 minutes a day to transcribe scribbled notes onto a computer spreadsheet.

„I’d do it anyway“ even if it weren’t an IRS requirement, he said. „But engineers are anal about recording things. It’s my hobby, like golfers who record their scores.“

Recording gambling activity is less intuitive than balancing a checkbook or tracking credit card charges – other activities many Americans ignore.

It’s one of the reasons why Curtis, who has survived two IRS audits, is working on a software program that will allow gamblers to plug in wins and losses, as well as comps earned from casinos, by date and location.

„The log is insurance for good luck. It will save you money if good things happen,“ he said.

It will also become a major wake-up call for gamblers, who are notorious for remembering their winnings and underestimating – or forgetting – their losses, Curtis said.

You won’t find Chien recommending that gamblers rely on the win-loss statements provided by casinos – a frequent end-of-year request by local gamblers at Station Casinos and Boyd Gaming properties. That’s because the IRS historically hasn’t been keen on accepting the casino-generated statements, which contain legal disclaimers, as comprehensive evidence of gambling activity, she said.

Bad record-keeping is often unintentional but commonplace, even among professionals, said Perry Friedman, one of Chien’s many poker clients.

„Poker players aren’t well-organized. People who can’t find matching socks aren’t going to find all of their receipts,“ Friedman said.

Some players unwisely attempt to recall tens of thousands, even hundreds of thousands of dollars passed through their hands at tournaments or between players with no paper trail.

Phil Gordon, a poker tournament winner from Henderson who also makes money from book sales and speaking engagements, admits that his taxes were „a complete mess“ until a few years ago.

Gordon said he overpaid his taxes for years before seeking Chien’s help and beginning to keep detailed records of his losses. Even after receiving his rightful deductions and happily paying taxes, Gordon said there’s some unfairness about not being able to carry over losses generated in one tax year to the following year, as other self-employed professionals can.

„I’ve never had a losing year, but I know a lot of people who pay hundreds of thousands of dollars in taxes one year after they lost money the previous year,“ Gordon said.

It’s just one of the vagaries of the gambling business and its rocky relationship with the IRS over the years.

Many believe the IRS has a skeptical attitude toward gambling deductions. Gordon said gamblers approach each tax return „as if they are going to be audited so that it’s a pleasant surprise if we’re not.“ But Chien said gamblers shouldn’t be afraid to take allowable deductions because they fear an audit.

The IRS, which wouldn’t comment on the book, has beefed up its information on reporting gambling taxes. A tax tip posted a few months ago at www.irs.gov begins with the friendly opener: „Your summer vacation may mean a trip to the casino or the racetrack. What will you owe Uncle Sam if Lady Luck happens to be on your side?“ (The answer: It depends.)

Doing taxes correctly is important for players who have professional reputations to worry about. It also makes them better players, Friedman said. „You can really analyze what you did when you lost.“