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Financial Fitness & Life Planning

Tax Tips for "recreational gamblers"

 
Now that summer in New York has unofficially arrived with the Memorial Day weekend, my thoughts turn to driving to the New Jersey shore towns to visit the beaches and walk on the boardwalks. One of the towns I am sure to visit is Atlantic City, not only for the beach and boardwalk but also for the casinos. When the summer ends and the fall foliage is at its most colorful, I will drive to Connecticut to enjoy the view, stopping along the way at one of the casinos there.
 
Why am I writing what appears to be a travelogue of the area casinos? There is a tax aspect to my trips to the casinos. I am a “recreational gambler” in the eyes of the IRS. As such, if I win at the Atlantic City casinos and then lose in Connecticut, I may still have to pay the tax on the winnings without being able to deduct the losses. Even if I do not take any trips to the casinos, but instead I buy a lottery ticket at the local convenience store each week, the same rules apply.
 
The Internal Revenue Code Section 165(d) limits wagering losses to wagering gains. A professional gambler can deduct these gambling losses directly against the gambling gains as a “business deduction.” A “non-professional gambler,” or the title I prefer “recreational gambler” is limited to deducting the gambling losses as a miscellaneous itemized deduction on his or her individual income tax return. By doing this, the “recreational gambler” may not be able to deduct all of the gambling losses. 
 
If you do itemize your deductions on your individual income tax return, you will be able to deduct the gambling losses as a miscellaneous itemized deduction not subject to any limitation, in effect offsetting the gambling gains. If your losses exceed the gains, you are limited to deducting the losses only up to the amount of the gains. The IRS does not allow a carryforward of any excess losses. If your gambling gains exceed your gambling losses, consider yourself lucky.
 
If you do not itemize your deductions on your individual income tax return, but instead use the standard deduction, you do not get the benefit of deducting any of the gambling losses. The standard deduction for calendar year 2010 is $11,400 for married taxpayers filing a joint tax return. If your allowable itemized deductions do not exceed this threshold, you do not get any deduction for your gambling losses.
 
Enjoy your summer.
 
Gary Topple, CPA has more than 33 years tax, accounting and auditing experience. He is a partner in the CPA firm G. R. Reid Associates, LLP. 
 
 
Unless specifically stated otherwise, the written advice in this memorandum or its attachments is not intended or written to be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
 
The information contained herein is intended to afford general guidelines on matters of taxation.  Accordingly, the information in this article is not intended to serve as legal, accounting or tax advice. Unless specifically stated otherwise, the written advice in this article or its attachments is not intended or written to be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. Readers are encouraged to consult directly with their professional advisors or a professional advisor at G.R. Reid Associates, LLP for advice concerning specific matters.
 
gtopple@grrcpas.com
181 Main Street Huntington, NY  11743
631-425-1800 extension 306 Fax 631-425-4656

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