A Taxpayer-friendly Way to Report Slot Winnings

CPAs & Advisors

Written By: Kelly Brown

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Do you love playing slots at the casino, but state taxes are cutting into your fun? Perhaps the daily winnings method for reporting slots winnings is for you.

Using the daily winnings method, taxpayers report winnings only from gambling sessions in which they have a real economic gain.

For example, Joe goes to the casino on Friday and plays slots until midnight. He spends $2,000, hits one big jackpot for $1,500, and ultimately spends that, going home with only a 1099-G for $1,500. Under the “ordinary” method, Joe would report the $1,500 on his tax return and pay state income tax on that amount. In Michigan, this would be $64. Using the daily winnings method, he would report $0 in winnings for that session of gambling, since for economic purposes he actually lost $2,000.

Now let’s say that Joe goes back to the casino the next week and plays on and off for a few days. His ins and outs activity is as follows:

Day Ins Outs Real Win/Loss 1099-Gs
Monday 15,000 16,000 1,000 5,000
Tuesday 7,000 4,000 (3,000) 1,200
Wednesday 2,000 2,500 500 0
Thursday 7,500 7,000 (500) 0
Friday 20,000 18,000 (2,000) 3,000
Total 51,500 47,500 (4,000) 9,200

In the chart above, you can see that overall Joe lost $4,000 with his slots activity; however, for income tax purposes, he has $9,200 in income to report. Doing this in the “normal” way for his federal taxes he would have $9,200 in additional income included on the front of his return at line 21. He would then subtract that $9,200 as part of his itemized deductions on Schedule A. But what if he doesn’t itemize? What if he would normally take the standard deduction? If that is the case, he is being taxed on his losses! And for state income tax purposes, he will probably be paying tax on the full $9,200. In Michigan, this amounts to nearly $400!

Using the alternative daily winnings method, Joe would instead report just the Monday and Wednesday winnings, totaling $1,500. If he itemizes, he would have offsetting losses on his Schedule A. For state taxes, he would pay tax on just the $1,500, which in Michigan would translate to a little over $60.

To report in this way, a taxpayer will need the detailed daily ins/outs report that tracks play electronically from each casino. For the occasional slot-player, this method may not make a huge difference, but for those who play regularly, using this method can result in significant savings.

Note that this material has been prepared for informational purposes only. Additional technical requirements apply, so please consult a tax professional to assist you in using this method.

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