Listing Gambling Losses as Itemized Deductions: Why is this different?
 

My brothers,

The recent tax threads have vastly improved my knowledge but I still have one question:

When you file your taxes as a non-professional, you need to add up all your winning sessions and this is your income. Then you add up you losing sessions and make these your itemized deductions, correct?

How is this different than just taking your net gain for the year? People seem to complain about it...is it just more tedious? Or are there other consequences?

I've learned that these deductions aren't eligigble for the 2% AGI deduction so I don't see why this is worse than taking the net. I have heard about some sort of AMT tax?

Can anyone shed some light on this for me?

Re: Listing Gambling Losses as Itemized Deductions: Why is this different?
 

There are other consequences:

1. unless your other (excluding gambling losses) itemized deductions exceed (or equal) the standard deduction, you will not be getting the full benefit of your deduction for gambling losses.

In an extreme example, let's say you have no deduction besides gambling losses, and your gambling losses do not exceed the standard deduction which anyone can take. It would be better for you to simply take the standard deduction rather than itemize. You will in effect then not be able to deduct your gambling losses at all in this case.

2. Another problem is that certain exemptions get phased out as your GROSS income rises. Hence if your poker winnings were $1 million dollars and your poker losses were $950K. Even tho you netted only 50K, the amount of your exemptions allowed would be as if you actually made $1 million. In essence, you would not be entitled to the exemptions that another 50K salary person would get.

Re: Listing Gambling Losses as Itemized Deductions: Why is this different?
 

Take a medical expense deduction. You can deduct substantial medical expenses. What is substantial? The definition is based on a percentage of your gross income. If your gross income is inflated with poker winnings (instead of just adjusted by the net), then you have to spend a whole lot more on medical expenses before it becomes a deduction.

Some deductions are rendered ineligable based on your gross income. Poker winnings inflate your gross income. The AMT stands for Alternative Minimum Tax. If your gross is high enough, instead of taking a deduction you just pay an alternative flat rate on the gross, which results in more taxes paid.

Re: Listing Gambling Losses as Itemized Deductions: Why is this different?
 

I hope I am not misinterperting your question.

This is from the IRS Web Site. :

Gambling winnings. You must include your gambling winnings in your income on Form1040, line 21. If you itemize your deductions on Schedule A (Form 1040), you can deduct gambling losses you had during the year, but only up to the amount of your winnings.

I interpret this as you have to seperate your winnings and losses. As such, you cannot just claim your net winnings. Say won $10,000 and lost $4,000 and decided to only claim the net $6,000 winnings. If you are audited and they can prove you won $10,000 not seeing your $4,000 of losses, you will get dinged

Re: Listing Gambling Losses as Itemized Deductions: Why is this differ
 

It screws with things like ROTH IRA income requirements.

Re: Listing Gambling Losses as Itemized Deductions: Why is this different?
 

If you aren't familiar with the "standard deduction", look it up and it will be clearer why claiming both more income and more deductions can hurt you (you now lose your standard deduction). I actually hadn't understood the standard deduction until last year because when I had used software to file my taxes that took care of that stuff for me.

There are a bunch of other reasons this is bad, as others have pointed out.

Re: Listing Gambling Losses as Itemized Deductions: Why is this differ
 

Is there an exact definition of what constitutes winning vs losses? I could find no clear answer. Is it per session meaning each time you sit down at a table? If you four table and lose 10 dollars on three of the tables but win 10 dollars on one do you have winnings of 10 and losses of 30 or overall losses of 20? My professor had no clear answer on this either.

Re: Listing Gambling Losses as Itemized Deductions: Why is this differ
 

I cannot find the reference now, but I once read an article that the your winnings and losses should be recorded by session and that a session is defined as time played at a particular gambling table/machine. This is where it gets more complicated with online play and multi-tabling. I would say that each table you are at is a seperate session (realizing that we're talking a lot of sessions for tax purposes!)

Re: Listing Gambling Losses as Itemized Deductions: Why is this differ
 

The law was written before online poker so its open to interpretation.