You can win $10000 and deduct the 10,000 loss, the problem is you must itemize your deductions to claim the loss. If you are itemizing, no problem, the loss goes as a miscellaneous deduction and u can put it into any tax program.
As anyone with a lot of w2g forms will soon find out, there are other tax problems that can arise. The "wins" push up your Adjusted Gross Income. This can affect the amount of medical costs you can deduct, the amount u pay for Medicare if a senior, and so on. Even if u actually are a loser overall, the AGI going up can cost u money, sometimes quite a bit.
A few years ago I tried to use the "session" method of countering wins with losses to lower the AGI, but the IRS people I encountered during an audit insisted all my W2Gs had to be wins and included as miscellaneous income, and I could not use the session method. Recent tax court and other filings MIGHT have made it easier to use the session method. But after my experience I would be hesitant to use it again. Since I gamble a lot and have hundreds of thousands dollars in W2Gs, I am now filing schedule c as a professional gambler. (But if u have a full time job in another profession this possibility may not be open to you). So far so good...knock on wood....with no audits.
I keep a gambling diary and recommend anyone getting w2gs definitely do this. It must be contemporary, and you should list items such as date, casino, time in and out of a machine, machine number, denomination, type or name of machine, money in, money out, any W2gs. I also include any free play winnings.
In event of an audit, if you are deducting losses against wins (this is true for amateur gamblers), IRS rules indicate you should be doing a gambling diary as your proof. Win/loss statements from casinos are often incorrect in my opinion, and the IRS doesn't talk about them, but presumably they could be used as supplementary info.
You should not send copies of W2gs with your tax return. But if you have more than a few, you might want to make a list and include that with a note.
Jean Scott's book on gambling and taxes is about the best source of info there is, but since the IRS rules are so sketchy (basically way outdated) about gambling, there are a lot of gray areas (as Jean and Melissa) point out.
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