Pydiddy is right on in his comments. I have a little different angle for
filing gambling wins and losses for federal and state. For 2009 tax year we
just completed agreement with IRS. When I filed return as a casual gambler
for 2009, I reported net daily gambling wins as other income and then listed
daily net gambling losses on schedule A. Using this method I was able to
offset gambling losses against gambling wins based on a 24 hour day. I
received notice from IRS claiming my W2G's were substantially higher then
the amount reported on return and invoiced me for additional taxes due. Keep
in mind that for 2009 itemized deductions and exemptions were impacted based
upon AGI. After several letters to the IRS and no results, I received tax
deficiency notice from IRS. I had two options. Either pay the additional tax
or file a petition with the federal tax court. I decided to pay the $60 fee
and file appeal with tax court. A couple of weeks later, I received a 17
page document from the office representing the IRS that basically challenged
my position on filing gambling income. A week later I received a letter from
the IRS review office in Philadelphia asking for a conference call.
I didn't know what to expect and anticipated that it might be an
intimidation type of call. However, the gentleman was very nice and cordial
and after asking several questions on how I calculated my daily wins and
losses, he accepted return as filed and cancelled the additional tax
liability. Not only did I save federal income tax but I also saved Ohio and
Indiana state tax as well.
It may not work for you but if one has a great deal of W2G's for a year, I
believe it is worth the effort. In my case it was worth several thousand
dollars.l
_____
From: vpFREE@yahoogroups.com [mailto:vpFREE@yahoogroups.com] On Behalf Of
pyiddy
Sent: Sunday, May 27, 2012 3:29 PM
To: vpFREE@yahoogroups.com
Subject: RE: [vpFREE] Re: Gambling taxes as an Indiana Resident?
What an excellent reply, spartanbuckeye21!
From: vpFREE@yahoogroups.com <mailto:vpFREE%40yahoogroups.com>
[mailto:vpFREE@yahoogroups.com <mailto:vpFREE%40yahoogroups.com> ] On Behalf
Of
spartanbuckeye21
Sent: Sunday, May 27, 2012 9:54 AM
To: vpFREE@yahoogroups.com <mailto:vpFREE%40yahoogroups.com>
Subject: [vpFREE] Re: Gambling taxes as an Indiana Resident?
--- In vpFREE@yahoogroups.com <mailto:vpFREE%40yahoogroups.com>
<mailto:vpFREE%40yahoogroups.com> , "pyiddy"
<pyiddy@...> wrote:
>
> They will take 3.4% right off the top of any $1200+ VP win. If you
live in
> IN you will only recover a very tiny amount equal to 3.4% of the
exemption.
> Since, like most states the tax rate is based on you Federal adjusted
gross
> income, the only way to affect this is to have deductions that affect
that
> number directly. If you declare as a professional gambler, your losses
> offset winnings directly. Beware that if you do this, you should not
have
> significant other work income as you will likely lose in the event of
an
> audit which is far more likely than normal in this situation..
----------------------------------------------------------\
----------
I don't live in IN, but I do live in an adjacent state and most of my
gambling income comes from IN. As Howard points out, you will suffer a
tax disadvantage from living in a state with no gambling loss deduction
unless you file as a professional. I would further advise though that
it is certainly possible to establish professional gambler status even
if you have significant income from other non-gambling sources. It will
not be easy and the IRS will try to imply that you can't use schedule C
when you also have significant wage income, but a well-documented case
can be won if you are up for the challenge.
I have never had any problem at all in getting a refund from the state
of Indiana when filing a Federal return as a professional gambler. This
has saved me thousands of dollars each year since I started using
schedule C. Perhaps Jean Scott or others helped grease the skids in
Indiana, as I had read about previous difficulty in getting Indiana
refunds with Schedule C gambling business returns.
You will however very likely encounter difficulty with the IRS if you
file schedule C and have other significant wage income as well. Expect
to start seeing CP2501 or CP2000 notices where the IRS will attempt to
steer your gambling winnings to misc. income and put your losses on
Schedule A. The people you deal with at this level are not likely to
respond favorably to your explanations (written or verbal) and most
likely you will get a notice of deficiency. I spent over 3 hours on
the phone with them at this level speaking with no less than 6 different
agents. They will parrot the same crap about how you have significant
wage income and thus can't file as a professional etc., but when you ask
them to show you where in the tax code it states gambling can be your
ONLY source of income, you'll end up in an endless "do loop" of
transfers and no one will be able to rebut your concern. Make sure you
document all these exchanges and employee ID numbers as it will come in
handy when you prepare your petition for the Tax Court.
Once you get the notice of deficiency you need to file a petition in
the US Tax Court within 90 days. You will need to have a clear argument
for why you feel you are qualified to be a professional gambler. Focus
on the criteria established by the supreme court namely that 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 within the meaning of the
statutes. Good record keeping where you can produce documents and logs
consistent with how well managed business should be run is helpful here.
Showing consistent and regular visits to casinos for gambling purposes
is critical. You don't want a record of sporadic or inconsistent visits
if you are trying to establish regularity. I may not be in the casino
every day of the week, but my business model optimizes my free play
collection opportunities and I have the documents to show how I extract
profit by fully taking advantage of these cash back incentives. You'll
also want to explain with some detail how you expect to make money from
a negative expectation game like VP. Records showing coin in with
expected loss vs. cash back incentives are useful. This is also helpful
for the casual gambler. If I have to play $50K coin in per month on 9/6
DDB to generate a weekly mailer of $100, I probably should be playing
another game or visiting a different casino. On the other hand if I can
get the same cash back with equivalent coin in on NSUD, then this may be
a reasonable play for me. Ultimately a consistent record of winning
years will also help prove you are in this for profit and not just
frequenting casinos as a hobby or entertainment diversion.
After you file a petition with the Tax Court, you will likely be
engaged in correspondence with the Appeals office prior to establishing
a trial date. If you have a well-documented case, are well versed in
the relevant tax law and can present a competent argument you can get
them to drop your case without proceeding to trial. I did mine pro se,
but you can hire an attorney as well. My exchange with the Appeals
office took all of 5 minutes and they accepted my position without any
further need for documentation (note I had previously provided dozens of
supporting pages of documentation in my submittal responding to the
CP2000 notice and in my Tax Court petition). Each case may well result
in a different outcome, but you certainly can try filing as a
professional if you feel you meet the criteria. It's worked for me and
I know several others who are effectively employed full time, but still
are able to meet the professional gambler criteria. If all of the work
it takes to prove your case dissuades you, then very likely you
don't meet the criteria in the first place.
SB
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