All gambling wins are reportable income. Avoid unnecessary taxes by deducting losses without itemizing using gambling sessions. Sessions also allow you to avoid state taxes, too.

All gambling wins are reportable income. Avoid unnecessary taxes by deducting losses without itemizing using gambling sessions.

The Tax Code doesn’t treat casual gamblers very well. On the one hand the odds are stacked against you winning (those fancy casinos were built on losers, not winners). And on the other hand winning can be worse than losing when the taxman gets a hold on you.

Recent tax law changes turned a bad situation worse. The higher standard deduction means fewer people will benefit from deducting gambling losses since you need enough itemized deductions to exceed the standard deduction before the gambling losses reduce your tax liability.

Then we have issues with state tax returns. If the federal tax return doesn’t treat casual gamblers with respect, state tax returns can be down right rude. Wisconsin, for example, doesn’t allow any gambling losses against wins as an itemized deduction: if you lose, you lose; if you win, you lose.

Before we explore strategies for deducting gambling losses we need to review the rules as they stand.


Gambling Wins and Losses on a Tax Return

Gambling wins are reported on the front page of Form 1040 for tax years 2017 and prior. Gambling wins are reported on Schedule 1, Line 21 for tax year 2018.

All gambling wins are required to be reported even if the casino doesn’t report the win to the IRS. Gambling wins are reported on a W-2G for:

  • bingo or slot wins of $1,200 or more (not reduced by the wager),
  • $1,500 or more (reduced by the wager) for Keno, or
  • $5,000 or more (reduced by the wager or buy-in) for poker,

There are certain instances where a W-2G is issued for other gambling winnings of $600 or more.

Losses are allowed as an itemized deduction dollar for dollar against the gain. Gambling losses cannot be greater than gambling wins for the tax year.

Example: John wins $23,500 during the year playing slots and other casino games. His gambling losses are $37,900. John reports his $23,500 of wins on Schedule 1 and $23,500 as an itemized deduction on Schedule A. The additional losses are not deductible. If John doesn’t have any other itemized deductions and is married he is better off taking the $24,000 standard deduction. He derives no additional benefit from the gambling losses while he pays tax on the wins.

When it comes to state taxes some states do not allow any gambling losses, even against gambling wins. This creates a unique situation. In Wisconsin, for example, you can win a million dollar jackpot and go on a gambling spree losing it all and end up with a huge state income tax bill because none of the losses can offset the win. For federal you would report the income and deduct the losses on Schedule A; very little additional tax, if any, would result on the federal tax return.

Gambling wins reported on Form 1040 can cause other serious tax issues even if you can deduct losses on Schedule A. Many credits are affected by adjusted gross income. Losses are deducted further down the return so gambling wins can reduce or eliminate:

  • Education credits,
  • the Earned Income Credit, and
  • the Premium Tax Credit

In addition to lost credits, gambling wins can reduce or eliminate:

  • IRA deductions or Roth contributions allowed
  • Passive Activity losses, and
  • affect the Alternative Minimum Tax

And if this isn’t enough, your Social Security benefits could be taxed more and Medicare premiums pushed higher.

The above lists are not inclusive either! The tax issues from a gambling win can hurt you in many more ways.

But there is a solution to all the tax pain.

Gambling Sessions

When you consider the tax implications of a casino win you might want to think twice about gambling. While I’m not a fan of gambling, since it isn’t conducive to financial independence, I still understand some people enjoy casino games as a form of entertainment. A certain accountant once tried his hand at card counting to reasonable success. 

I’m not here to judge. If you gamble I want to assure you have the best information to reduce your taxes on wins.

Gambling wins can cause other taxes to go up and reduce or eliminate other deductions. Learn how gambling sessions allow you to deduct losses before they add to your tax bill.

Gambling wins can cause other taxes to go up and reduce or eliminate other deductions. Learn how gambling sessions allow you to deduct losses before they add to your tax bill.

The basic tax rules above (report all gains and itemize losses to the extent of gains) are valid, but there is a better way. Enter gambling sessions.

The IRS in 2008, and later clarified in 2015, created rules for deducting gambling losses called gambling sessions.

The idea was a gambling win wasn’t really a true win until the session was completed. The Tax Court ruled it is impractical to record each and every wager (pull of the lever, deal of the cards or throw of the dice) and therefore wins and losses can be tabulated for each gambling session versus each hand of cards played, et cetera.

gambling session starts when you make your first wager of the day for a specific type of game and ends when the last wager of the day is made on the same type of game.

Gamblers need to take extra caution not to mix different types of wagers when calculating sessions. Slot machines are different from blackjack, blackjack different from poker, and poker different from craps.

Example: You play slots in the morning and take a break for lunch and return to the one-armed bandit. This is still the same session.

Example: You play slots for an hour and then move to craps. The slots and craps wagers are different sessions. If you later return to slots the same day you are still on that day’s slots session.

Tax Tip: IRS guidance says a gambling session ends when the clock strikes midnight. This is somewhat true. Playing late into the evening could cause two separate sessions in the same sitting. You can choose to use a calendar day or any 24 hour period as long as it is consistent. Consistency is the key. You can call a day from noon to noon the next day or 5 p.m. to 5 p.m. the next day. Your day should be consistent for the entire year for all gambling sessions.

Extra Gambling Deductions

Let’s use a live example to illustrate the valuable deductions allowed with sessions and an extra deduction for losses not allowed by sessions.

John’s gambling sessions log.

The above sessions log is for a casual gambler who had four sessions throughout 2017. For calculating a session you can use your starting “money in” and netting your “money out” at the end of the session to determine your gain or loss for the session. Inside each session large wins could exist. For example, on February 2nd John may have won a $12,000 jackpot and received a W-2G, but by the end of the session he had only $700 left for a net $200 sessions gain.

John will report $900 of gains on his tax return regardless the gains inside a single session. Losses are not allowed against gains for between sessions.

The $900 gain will end up on Schedule 1 (Form 1040) and will be subject to tax and may affect other deductions and credits on the return. You can also deduct $900 of the additional losses on Schedule A if you itemize! (The $900 sessions gains on Form 1040 can be still be deducted from other losses on Schedule A.) The sessions will always break even (unlikely) or net out as a gain because losses are not allowed between sessions. But unused losses from sessions can be deducted on Schedule A against session gains.

Reporting Sessions Without Getting Audited

Reporting gambling sessions can cause a problem with the IRS computers and cause an unwanted envelope arriving in your mailbox.

Remember when we said you could have a gambling session with a $200 gain (February 2nd above)? Well, inside that small gain could exist a large gain with a W-2G issued. If you only report a $200 gain when the IRS has W-2Gs showing thousands in wins you will get a bill for the difference.

Don't let a gambling win turn up a tax joker. Don't lose all your gambling wins to taxes. Use the trick professionals use to deduct all gambling losses. Deduct your gambling losses without itemizing.

Don’t let a gambling win turn up a tax joker. Deduct your gambling losses without itemizing.

Yes, in the above example only $900 of gains are reportable. But you need to tell the IRS computer what it wants to hear. You could always attach a statement to the return, but the IRS computer may not pick it up before a nasty gram goes out or a full audit triggered.

The best way to handle this is by modifying your sessions reporting on the tax return. Let’s assume the February 2nd session above contained a $10,000 win. Your log will read exactly as above if those are your “money in” and “money out” numbers. But you will report the February 2nd W-2G gain of $10,000 and $9800 of “money in” called gambling losses on the return for a net of $200 again.

Let me see if I can make this clearer.

When I prepare a tax return I enter all the W-2Gs first. This tells the IRS computer I didn’t miss any gambling wins. Then I go the the client’s log and net the difference to arrive at the correct answer.

I still attach the log to the return. This nips an audit before it begins. The attached log allows an auditor to reconcile your sessions without opening a full audit, saving you time and aggravation.

The thing to remember is that your gambling sessions bottom line must be accurate. Adjustments sometimes need to be made so the IRS computers don’t start smoking.

From the above example you can combine all sessions when reporting on the tax return. (Still attach your sessions log to verify the reported sessions gains.)

Let’s assume for our final example that John started with $500 on February 2nd, won a $10,000 jackpot and kept playing until he had only $700 left. The other sessions had no W-2G wins.

Here is how I’d report John’s sessions on his tax return:

  • Gambling Income: $10,000
  • Gambling Sessions Losses: $9,100

The tax return only needs this one simple combined sessions reporting to arrive at the correct $900 of gambling gains. Remember to deduct the excess allowed on Schedule A (losses up to total gains not reduced by sessions losses).


Gambling can be exciting and fun. Winning is best of all. Just make sure you don’t pay a penny more in tax than you have to. The deck is already stacked against you by the IRS and casino. Don’t throw your winnings away, too.



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20160317_080351Last year I inherited a client with 23 years of unfiled tax returns. Normally I enjoy multiple years of unfiled returns. The extraordinary number of years in this instance put me at risk of potentially preparing a tax return by hand for the early years and the tax return contained rental real estate, a trucking business and a farm. I have an allergic reaction to preparing tax returns by hand; it brings up memories of my early days in the business.

The exact year eludes me when we converted the office to 64 bit computers. Old tax programs only run on 32 bit systems so I keep an old computer at the home office for just such an occasion. I had to check the old computer to see if I still had a tax program available all the way back to 1992. I breathed a sigh of relief when I found I did.

The box of paperwork for all 23 years was huge. I lugged it upstairs and fired up the antique computer. The hamsters took a while to get up to speed, but it felt good to visit an old friend. The tax returns peeled away, one after the other, until it was break time. Rather than take a walk I decided to see what goodies I had hidden on the old desktop tower.

A familiar icon was tucked in the lower left corner of the screen; a blackjack game created to mimic real life casino play. The program was built to train card counters and I acquired the program due to a fluke accident.

Back in the 1990s a client walked into my office with a story I never heard before; he made a living playing blackjack. From his tax return he did very well playing. Before long he shared with me the card counting method. Numbers intrigue me and beating the casino by using your grey matter appealed to me. (Call it a sickness.)

Stanford Wong is a household name among the card counting community (at least he was back in the 1990s). My new client introduced me to Stanford and a group he gathered called BJ21. Through Stanford I acquired the blackjack game mentioned above along with several methods of card counting. The game was addicting and I soon mastered the art of card counting without even thinking about it. I also discovered another card playing skill; I can remember the exact cards already played. I developed the skill by accident. From age twelve I started playing a game called sheepshead with family; we still gather every Friday night (family and neighbors) and play the awesome game found mostly in Wisconsin. In sheepshead it is necessary to remember what has been played, hence my blackjack skill.

71J7N0M6C2L._SX361_BO1,204,203,200_Before long I was on a plane to Vegas to meet the gang at BJ21. What an eclectic group! One guy made a good living sports betting, several others playing poker. Everyone in the room played blackjack for profit. Several teams were in the group. (Team play was getting hard by the time I discovered card counting because the casinos changed the rules to prevent teams from coming in and walking out with millions, which they did.)

After dinner the group had a card counting contest and I won. It seems the guys thought I was a natural. They started testing me to see how good I really was. Just like sheepshead back home, I remembered the cards already played. The guys at BJ21 could not let this pass. We were off to real life blackjack, just like the computer game.

I knew before I left for Vegas what would be expected of me. I was already financially independent at the time and felt the experience was worth a $10,000 bankroll for the blackjack experiment. As any card counter will tell you, a $10,000 bankroll has a real possibility of going bankrupt due to an ugly beast called variance. Just like a gambler can go on a roll even when the odds favor the casino, variance can deplete your bankroll before the law of averages takes over. I was unwilling to lose more. In business I threw away $10,000 on ideas that did not work and that is what I considered my blackjack venture. If the $10,000 went bye-bye I had no intention of going back for more.

51ZVM4hpIvL._SX329_BO1,204,203,200_The BJ21 guys found a nice single deck game on the Strip. Three of us sat down while the rest watched. The thing about card counting is that when you count you change your play and your betting as the cards are played. You start with a small bet: $25. If the count goes up you bet more, if it goes down you keep the bet small. It is the direction the count is going that determines your winning percentage. When the count is high it is more likely good cards come out, lowering the count.

I knew how to play blackjack and I knew how to count. I also knew the only way to make real money playing a singles game was to bet wildly. With three people at the table we played either two or three hands before the deck was reshuffled. I bet $25 to start and $500 when the odds favored me. Variance did not rear her ugly head. The BJ21 guys kept smiling at me when I bet such a wide range. Little did I know how much casinos hate card counters. Before the night was over I was invited to never return to the casino. I was banned!

Since I had attained financial independence at such a young age and since my job was three months a year with plenty of free time nine months of the year, I engaged in projects that amused me. For two years I flew out to Vegas perhaps fifteen times. The money was good, but the travel and casinos were hell. There are still a half dozen casinos I think would arrest me if I set foot on their gambling floor. The casinos changed their blackjack game to 6-5 from 3-2 for blackjack payouts and ruined the fun. The odds were too stiff to make it worth my while so I stopped going to Vegas.

The local Indian casinos were a different story. The best part was they did not care if I counted cards. They loved the idea of other people seeing me play and winning, thinking they could copy my style. They couldn’t. Maybe once a month I would run to the casino and play cards for four hours or so to pass the time. I did this for another year before I quit.

I share this story because it illustrates the issues surrounding financial independence and early retirement. Growing up on a farm was a full-time job. After high school I worked one year as the custodian at a church before quitting and starting my tax practice. All, except for my youth and one year of adulthood, I have worked about two and a half month per year with plenty of free time to read, play and satiate my curiosity the remainder of the year.

Once I stopped running to Vegas I no longer had a group of friends to commiserate with anymore when playing cards. It was then I discovered how much I hated sitting in a casino. My $10,000 penetrated deep into the six figures in value over the three years I played. And I knew I was playing for money only; I was a chump.

Casinos are noisy and the smoke aggravates my lungs. It was time to say goodbye to the card game. I still had sheepshead with family and neighbors so the best part of playing still existed for me.

I always wanted to retire early (or never work at all). I had great ideas as a kid. Business was in my blood; still is. My accounting practice is not about money; it is about something to do, a place to go to from time to time.

You are like me in so many ways, I can tell. You think about financial independence and early retirement, but what then. Travelling gets old after a while for most of us. Work provides social interaction. Even during the summer when I have no reason to go to the office I still show up. It is always nice to talk with employees and clients. Then I bike back home, a fifteen mile ride.

Let me share a few guidelines I use due to early retirement:

  • Cultivate a life outside work.
  • Don’t turn early retirement into a busman’s holiday. Your retirement should entail new people not asking about your profession. (I have to be careful or I end up talking taxes wherever I go. If people ask, tell them you are a retired life insurance salesman. They’ll change the subject fast.)
  • Don’t be afraid to try a crazy idea like card counting, but beware the Chump’s Game.
  • Give yourself permission to say no. (I have issues with this one, too.)
  • It is okay to just enjoy the sunshine. (Anyone who really knows your favorite accountant understands how hard this is for me.)
  • Early retirement does not mean you can’t work. Help a non-profit or take a part-time job to help out a business in a difficult time. It gives you something to do and people to associate with.
  • Spend time with your family. People grow up, grow old and die. Make it count while you can. We all have our moment in the sun. This is your moment. Don’t let it slip away.
  • Read great books.
  • You have earned it.