GameMasters Secret's Page
The GameMaster's Secrets
Gambling, Inc.

You probably know by now that any jackpots you hit at Video Poker play which exceed $1200 generates a tax form called a W-2G. That's not the case at Blackjack, but all your winnings there must be reported as well. The tax implications of these events can ruin your day next April 15th, unless you keep good records, so let me tell you what I do. I play both Video Poker and Blackjack and, under current tax laws, I may "net out " my wins and losses to arrive at a figure on which I must pay taxes if there has been a profit. But I can tell you from personal experience that good record keeping is the key to being successful in pleading your case should the I.R.S.decide to audit you. As a "professional" player, I also deduct any expenses associated with my profits at blackjack and/or video poker. For example, travel expenses, hotel expenses, meals, etc. may be deducted from my gross winnings in order to establish my net winnings on which I pay taxes. So, what makes me a "professional"? Readers in the past have asked me if I have some sort of "gambling tax stamp" and you need to know that there is no such thing. What determines whether or not someone is a pro is that person! Yes, you're reading that correctly; you are the one to determine whether not you are a pro. Now, be careful here because even though you may think you're a pro, the Internal Revenue Service may not.

The differences between a professional gambler and a "recreational" gambler are: A) the professional makes money year after year and B) the professional reports his or her income on a Schedule C form. A recreational player may or may not show a profit year after year and, in those years which did result in a profit, the winnings are reported on form 1040 as miscellaneous income. If you have hit several large jackpots in 1999, you may not consider yourself a professional player but it may be to your benefit to declare yourself as such. Now before you start celebrating, you have to consider a few things. First, if this is just a one-time event and you have given up the game, you're not going to pass the test regarding that of an "on-going" business. But, if you expect to continue to play (and you play at games where you have a long-term advantage), it's very possible that you may have a profit year after year. "But", I hear you say, "I'm not a pro; I only play five or six hours a week." Just because you have another job or play only a few hours per week doesn't mean this can't be a job, or more correctly, a business. If you had a second job flipping burgers somewhere, you can bet you would owe taxes on the money you earned. Being a professional gambler is a form of self-employment and the tax advantages (or disadvantages) thereof can apply.

But first, let's talk about record-keeping. Again, I want to state that I am not a tax professional and anyone who uses the information I give here is responsible for his or her own actions. But, I have been audited by the I.R.S. and no additional tax was due, so my records must have been adequate. You can read about that in my story, "The GameMaster versus the I.R.S." which is on our Archives Page. For starters, I keep very detailed records of each 'play' I make at the casino. For Video Poker, I write down all the details on a 3 X 5 card which I carry with me and then I transfer all the information into a 'playing log' later, at home. What I write is the date; the casino(s) where I played that day; who, if anyone, went with me; how long I played each different machine (as well as listing the type of machine and denomination); my win or loss by machine and any cash back from the slot club rebate. Yes, I count the slot club cash back as 'income'. For Blackjack, I keep essentially the same information, plus I add the type of game I was playing (single-deck, double-deck, etc.) and the minimum/maximum bets I made that day. I also have a player's log for Blackjack. Trust me when I tell you that my audit went as well as it did because, first of all, I was telling the truth (I mean, how many people do you know that declare Blackjack profits?) and secondly, because I had detailed records.

At the end of the calendar year, I enter all that information, both Blackjack and Video Poker, on a Schedule C that I file with my Form 1040 . From my gross winnings are subtracted the expenses I incurred in making that income; I dutifully pay my self-employment tax, which is in lieu of F.I.C.A. taxes (though 50% of that is a deduction on my Form 1040) and I mail them a check. I sometimes pay estimated taxes or have $$$ withheld from big jackpots to keep that check-writing down to a minimum. Then I put all my records together and wait for the audit notice.

Okay, so where's the fly in the ointment here? Well, it lies in the definition of 'business' and 'hobby'. For example, if you make a bunch of $$$ at the casino this year and fill out Schedule C, claiming 'pro' status, but next year and the year after that you lose, the I.R.S. can come back to you and claim that this isn't an on-going business, it's a hobby. Then you'll get to pay a bunch of extra taxes and interest and maybe even penalties. And they're right on that point; nobody goes into business to lose $$$. Sure, it happens all the time, but it's very easy for them to say that it's a hobby unless you produce profits on a reasonably consistent basis. Their test for that used to be that you had to make a profit 3 years out of 5, but that may have changed. However, can anyone deny that Amazon.com is a business? Hell, it has yet to make its first penny of profit, but I guarantee you that they get to deduct all their expenses! It helps if you're 'set up' as a business, but what does a VP player need with a storefront or a delivery van? But you could use a computer or some software; a company car may be pushing it.

Now, just so you understand: I'm not some radical tax-hater that'll have you going to jail over this. What I'm doing is telling you what works for me, so I urge you to discuss this with your favorite tax advisor, but ask him or her some tough questions before s/he tells you "no". I see a lot of you at the casinos day after day, putting in the time and hitting your fair share of Royals and other jackpots. To some people, that's a job! Is it a job for you?

See you here next time.