Introduction to Keeping Gambling Records for Tax Preparation and More
Keeping gambling records for tax preparation as well as tracking gambling performance is essential to good money management of gambling bankrolls. Knowing how much you’ve won at gambling is a requirement of the U.S. Internal Revenue Service.
But, further, knowing how much you’ve lost is to your advantage. The multiple advantages include any potential gambling deductions for income taxes plus being a record-keeping tool for tracking and understanding your own gambling performance.
This article will show an increasing sophistication to recordkeeping, from the minimum information necessary for tax purposes to the most that can be relatively easily recorded.
These so-called data spreadsheets avoid being an excessive burden to the player while still providing value for income tax and gambling performance analysis purposes. Sample table layouts will be provided for insertion into most any spreadsheet software.
Keep in mind that software is not actually necessary to keep good gambling records. A single notebook or stack of papers is all that’s needed for income tax purposes.
If you happen to already know how to use data spreadsheet software, however, that’s all for the better in terms of performing most any financial analysis of gambling wins and losses.
In an attempt to help, I explain and provide spreadsheet examples having columns that identify what gambling information needs to be tracked, either at a minimum for tax purposes or in more detail for statistical analysis by interested players.
These spreadsheet examples can be used by all gamblers, but have been designed to be most helpful for slot machine casino gamblers.
One final point I’d like to make about keeping gambling records for tax preparation and more is this: I sincerely believe that your gambling performance at playing slots will financially improve when using some or all of my techniques.
But, this has a real-world consequence: Increased income taxes.
I feel I can’t just explain to you how to win at playing slots. I also need to explain how to handle winning at slots. Paying income taxes is the inherent responsibility for all citizens of a country.
Besides paying my own income taxes, I also feel I have a responsibility to point out potential financial pitfalls as well as any available potential savings. And, there are definitely a bit of both.
This article has the following sub-sections:
- Question: How’s Your Gambling Going?
- Gambling Records for Income Tax Preparation Purposes
- Gambling Records for Understanding Financial Performance
- All Complimentary Gifts are Taxable
- WARNING: A Surprising City/Local Income Tax Burden
Before moving forward, I also need to acknowledge that I am not a professional tax preparation expert. If applying any of these suggestions, please be sure to consult your income tax professional.
Keep Reading … or Listen Instead!
Question: How’s Your Gambling Going?
When talking with low and high roller casino gamblers at the casino events I’ve been invited to attend, I’ve often taken the opportunity to ask how their gambling is going. Naturally, I ask this question from a financial point of view.
When I ask, I’m not blunt about doing so. Instead, I try to politely work it into an ongoing conversation. Almost always, I get one of two responses to, “So, how’s your gambling going?”:
- They say, somewhat unconvincingly, “I’m breaking even!”; or
- They give the definite impression of knowing exactly how well they are doing but, just as clearly, are never going to tell me.
Sufficiently good money management skills is the difference between these two groups: those who have some level of uncontrolled spending and those who have the necessary information to make intelligent choices in their approaches to gambling.
It is my belief that players providing the first response don’t know if they are actually breaking even or not. Why not? Well, in general, there are two possible reasons. First, they don’t care to know anything more than keeping track of any W-2G tax documents they or their tax professional will need later for annual income tax returns.
Second, they don’t know how to keep track of anything more. For example, perhaps they’ve never before won a taxable jackpot of $1,200 or more. This might even be due to never having gambled before. Or, suddenly they’ve learned how to win more than ever before.
Whichever the case may be, discovering far too late the essential nature of keeping gambling records for tax preparation will eventually prove to be quite frustrating. While not much can be done for last year’s casino visits, perhaps, let’s try to avoid it happening again for next year’s tax preparation, shall we?
Gambling Records for Income Tax Preparation Purposes
For tax purposes and to understand gambling performance, keeping track of spending in a consistent yet convenient manner should be done in ways that make sense to a slots player given how individual circumstances can be very different.
For minimum tax purposes, at least five entries are required. These include:
- Date: The day on which the gambling session occurred;
- Location: Unique name of the gaming property where the gambling occurred;
- Bankroll: Amount spent gambling;
- Take-Home: Amount remaining after gambling; and,
- Comps and Comps $: Complimentary gift along with their fair market value.
Players who receive comps need to keep in mind the fair market value of every one of these complimentary gifts needs to be included as taxable income. This can be done either immediately or after if you need to research its value. I’ll have more on this in a following sub-section.
Once again, consult with a tax professional to be certain of the entries each individual player in a household needs to record for tax purposes. The following tables are only suggestions from someone who is definitely not such a tax professional.
Beyond the bare necessities for managing taxes, there is other additionally useful information a slots player might record to help themselves or their tax professional accurately complete their annual tax returns, such as recording any taxable jackpots won.
Doing so results in a sort of checklist for the total number of W-2G tax documents which might be received over the course of the calendar year. For high limit slots players, the so-called high rollers, this can be a substantial and extensive list.
Along with the bare necessities mentioned, we now add another 5 entries:
- Gross Jackpot: Amount won prior to taxes paid;
- Net Jackpot: Amount given to player after income taxes are automatically paid;
- Federal Taxes: Amount of federal income taxes automatically paid, if any;
- State Taxes: Amount of state income taxes automatically paid, if any;
- Local/City Taxes: Amount of local income taxes automatically paid, if any.
There are several comments to be made about the practical use of the above list. First, not every visit to a casino will result in one taxable jackpot. Jackpots won may well be less or, more specifically, zero as well as potentially more than one taxable jackpot.
I’ve gotten as many as 7 taxable jackpots in a single day as well as more than one taxable jackpots during a single slots playing session upon multiple occasions. If no taxable jackpot is won, then simply leave that entry blank.
However, when winning more than one taxable jackpot, I use a merge command in my spreadsheet software so that I have separate entries for each taxable jackpot but only one entry per casino visit for Date, Location, Bankroll, Take-Home, and Comps.
Also, I will often combine state and city/local income taxes into a single entry because that’s what the casinos I happen to visit typically provide.
While each taxable jackpot can instead be separate entries in your gambling records, there may be a bit of a delay for completing all entries. Be aware some casinos issue jackpot receipts immediately, but the W-2G are sent via snail mail to the winner’s home address of record – and only the W-2G may note the relative tax rates for state and city/local.
Finally, note that the income tax rates being applied may very well not by your tax rates. If you are gambling in another state, for example, you may have to complete a state income tax form for those taxable jackpots in addition to your own home state. The same can be said for city/local taxes. Any city/local income tax rate is for the city or local the casino is located in, which are not necessarily your own.
Gambling Records for Understanding Financial Performance
Beyond these bare necessities and convenient entries for tax preparation purposes is the need of some slots players to have additional entries to allow for their gambling performance financial analyses.
These additions will eventually be dependent on how each player prefers their financial analysis be performed, so modifications will likely be needed. I’ve tried to make sure those modifications will be easy to accommodate.
However, to help a player get started using the analyses provided, there are three additional entries that will be necessary. These additions include:
- Time Stamp: The relatively precise time when the jackpot was won;
- Slot Machine: A unique identifier of the winning slot machine; and
- Comments: This long entry is for careful noting any winning patterns suspected or seen.
The final entry I’d highly recommend for every gambling event such as a visiting a casino is to keep notes. These notes for each visit have served me very, very well as a catch-all for occurrences that don’t quite fit into an entry into my record.
Then, later, they helped identify a winning pattern I would eventually experiment with and, as it happens, write a book about as well as explain to you in articles and podcast episodes.
For instance, sometimes I’m playing a slot machine very, very good for cycling bankrolls. My record doesn’t have a good way to record a time range within my visit where a slot machine is performing in this manner, because it is otherwise set up to list jackpot times.
Hence, make a note about this behavior to return to at a later time. In general, I’ve found notes from each visit as a truly great way to record the details of the performance of a slot machine in terms of non-taxable jackpots.
I’m still working on the best way to capture this small bits of information. Anything I develop would have a primary purpose which supports taking advantage of this type of winning opportunity. So far, for example, I have rejected developing a smart-device App due to legal restrictions on using electronic gaming tools at casinos.
On one final note for this sub-section, don’t forget to record the time of a jackpot win correctly. With many jackpots, it can become difficult to know whether the entry was 11:30 a.m. or 11:30 pm. if only numbers are used.
If a player is comfortable doing so, they should consider using the 24-hour military format for keeping track of the precise time of a jackpot win. For that previous example, those two different times of 11:30 a.m. and 11:30 pm. become highly distinguishable as 1130 and 2330.
All Complimentary Gifts are Taxable
Finally, I’ve found it convenient to use entirely separate spreadsheet tables for keeping a record of complimentary gifts. While the cell merge software function would again be possible, sometimes the long description of a comp deserves its own format.
For example, imagine the many comps that might be included in an annual cruise or trip to Las Vegas. Logistically, I’ve found it easier to simply start a second table for this complication of many complimentary gifts. Such a table or spreadsheet would have the following entries only:
- Date: The day on which the gambling session occurred;
- Location: Unique name of the gaming property where the gambling occurred;
- Comp: A description of the complimentary gift earned and received; and
- Comp $: The fair market value to the complimentary gift received.
WARNING: A Surprising City/Local Income Tax Burden
My best advice isn’t about how to change a particular style of gambling from one highly individualized approach to another requiring a higher bankroll. My best advice is about the perhaps unexpected pitfalls of making significant changes to your gambling style.
For instance, are you ready to going up to the next income tax bracket? Or, going up to the next tax bracket after that? What is the highest income bracket, anyway??
How do you go about determining the fair market value for an influx in comps received from the casino, so as to not get in trouble with the IRS when submitting those comps as taxable income?
Players may be surprised to know that understanding city taxes is especially important to continued financial health when switching gambling styles, especially when switching over to a gambling styles that significantly increases the amount of taxable jackpots won.
I know I was shocked, when I found out. Here’s two questions you need to know the answers to, no matter the gambling style being used. Note that later articles will describe many different individual gambling styles, and why they matter to winning at slots.
First, and most importantly, a player needs to know if they pay local or city income taxes. I mean this in both possible ways. First, is the casino they are playing at located within city limits, so any taxable jackpots paid include a city/local income tax.
Second, and most importantly, do YOU pay city/local income taxes based on where your home is? If so, the relative difference between the local income tax rate and the local/city income tax for any casino where taxable jackpots have been won is of significant importance. Here’s why.
If a player doesn’t have local or city taxes based on where their home is, then there is no cause for alarm other than the adult pain of understanding that any local/city taxes paid at a casino due to having won one or more taxable jackpots within a tax year will not be refunded or otherwise returned.
There is little reason for alarm because state and federal taxes allow gambling deductions if sufficiently good records are kept, so consultation with your accountant or income tax professional along with good financial record keeping can result in either an annual tax refund, or no significant tax payment, from both state and federal income tax returns.
This is what some gamblers refer to as “a wash” due to no significant annual tax payment to be made or tax refund to be had.
If a player does have local or city taxes due to where they live, then they may find themselves effectively blocked from gambling at a relatively high level (that is to say, when winning many taxable jackpots) due to the excessive tax burden imposed.
And, if not aware of this potential difficulty, slots players could get in serious financial difficulty if they proceed to gamble and win heavily anyway.
Why? Because it is more than likely that, if required to submit an annual tax revenue form to the local/city government, that income tax office will not accept any income tax deductions, including the often relatively large gambling deductions routinely accepted with state and federal income tax returns.
If this potential local tax issue is not clearly understood, an example may help explain the possible excessive tax burden which may occur. Let’s say local taxes are at a flat rate of 2%, and total income revenue from gambling for a tax year was $10,000.
If all those winnings were spent gambling, i.e., if profit was zero but gambling deductions was for the full $10,000, than the federal and state income tax returns will effectively result in zero taxable income from gambling. Again, profit was zero so the tax burden is also zero.
However, because local/city taxes don’t usually allow for gambling deductions (consult your local tax professional to confirm!), this slots player would be required to pay 2% of that $10,000 annual revenue. This would result in having to pay $200 in local/city income taxes when filing an annual tax return.
Note that, if your casino has local taxes, this tax burden can be reduced or eliminated up to the amount of local taxes paid at the time of receiving taxable jackpots. If your casino has a higher rate for local taxes than you do, even if you have none, you won’t get those taxes back as a refund.
Such a $200 local income tax burden can be a surprise. I can respect that it might be difficult to pay. Now imagine that revenue was much higher. Consider if $10,000 in taxable jackpots were won, and every dollar of it spent, every 6 weeks for a full year. Now the local/city tax burden has jumped to over $1,700.
So, for clarity in understanding the local tax situation for gamblers, let’s consider a realistic total income revenue from gambling.
A typical situation for a high roller slots player that has chosen to gamble away every dollar won, and lives in a region with a flat local tax of 2%, could easily have the following amounts of winnings and local taxes:
- $150,000 in total taxable jackpots evenly split between two casinos;
- $15,000 local taxes paid at first casino at a rate of 2%;
- $0 local taxes paid at the second casino due to no local taxes required there;
- $10,000 in documented taxable goods and services, i.e., comps; and
- Resulting in having the following Local taxes due:
- $15,000 (first casino) minus $15,000 (paid at first casino);
- plus $15,000 (second casino) minus $0 (paid at second casino);
- plus $200 (comps) equals; and
- a total local/city tax burden of $15,200.
Summary of Keeping Gambling Records for Tax Preparation and More
In summary, keeping gambling records for tax preparation as well as tracking gambling performance is essential. Knowing how much you’ve won at gambling is an IRS requirement, managed by the casino providing a W-2G tax form upon winning a jackpot of $1,200 or more.
Further, knowing how much you’ve lost is to your advantage, leading to being able to use gambling deductions up to the amount of your documented winnings, potentially resulting in a significant income tax refund. From personal experience, it feels just like you’ve won all over again.
I’ve provided a list of the minimum information necessary for keeping gambling records for tax preparation which can be relatively easily recorded. I’ve also suggested additional entries which would be convenient to have for simple financial analyzes of your gambling expenses.
Keep in mind that software is not actually necessary to keep good gambling records. A single notebook or stack of papers is all that’s needed. However, if you happen to already use data spreadsheet software, that may significantly shorten how much time is spent keeping and organizing this records.
I sincerely believe your gambling performance at playing slots will financially improve when using some or all of my winning slots techniques, so keeping gambling records for tax preparation will, therefore, become a necessity.
I also acknowledge that I am not a professional tax preparation expert. If applying any of these suggestions, please be sure to consult your income tax professional.
Other Articles from Professor Slots
- Previous: Seminole Brighton Casino Florida Trip Report – A casino trip report to Seminole Brighton Casino in Okeechobee, Florida, located a few hours south of Orlando. Over three hours, I explained to family and family friends how to win at playing slot machines at this specific casino, where they then proceeded to win. Visit Seminole Brighton Casino to try these strategies yourself!
- Next: Winning Strategy 3: Earning Complimentary Gifts – The most common winning strategy for slots enthusiasts is earning complimentary gifts, from free slot play for signing up for a new players club to a 1-year lease on a luxury car. Whether you are a low or high roller, these “comps” are a great way to be compensated. However, just remember to pay income taxes on them!