Just because you lose money gambling doesn't mean you don't have gambling income. You have to report your gambling winnings "above the line" in taxable income, while losses are a "below the line" itemized deduction. This is an ugly trap for those who are better off using the standard deduction, as Tennessee gambler Charles Oliver learned yesterday in Tax Court (my emphasis):
During 2002 and 2003 petitioner gambled at Fitzgerald's Casino. During 2002 petitioner had gambling winnings of $3,097. During 2003 petitioner had gambling winnings of $1,250. In both 2002 and 2003 petitioner's gambling losses met or exceeded his gambling winnings. On each of his returns for 2002 and 2003 petitioner failed to include his gambling winnings in income and claimed the standard deduction. Although the gambling losses would be allowable as an itemized deduction up to the amount of the winnings, since petitioner did not elect to itemize his deductions, he is not entitled to deduct the gambling losses.2 Sec. 63(a) and (b); see Calvao v. Commissioner, supra; Heidelberg v. Commissioner, supra. Consequently, we hold that for each of the years in issue petitioner is required to include the gambling winnings in gross income and is not entitled to any deduction for losses.
It's the tax law; it doesn't have to be fair.
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to