To: Dr. Green
RE: Tax Memo #1/Gambling Activities
Dr. Green is a practicing physician in Chicago who, as an avid blackjack and slot machine player, travels to Las Vegas every other weekend to gamble. He would like to know what criteria are used to determine whether his gambling activities constitute a trade or business for federal income tax purposes and whether or not you think his gambling activities qualify for trade of business status.
In the case of Commissioner v. Groetzinger, 480 U.S. 23 (1987), the Supreme Court "requires an examination of the facts in each case." In addition, the court ruled, "if one’s gambling activity is pursued full time, in ...view middle of the document...
Casual gambling is simply weekend recreation and does not constitute as a profession or a full-time profit-making business. You still must report your casual gambling winnings, as they are fully taxable (IRS Topic 419).
If Dr. Green's gambling activities do not qualify as a trade or business, can he deduct his gambling-related travel and lodging expenses against his gambling winnings?
First, you can deduct gambling losses only if you itemizes deductions (Form 1040, Schedule A). The gambling losses can offset gambling winnings, but only to the extent of the winnings (IRS Publication 529, IRC Sec. 165(d)). You can not deduct your gambling-related travel and lodging expenses against your gambling winnings. You should maintain a journal of winnings and losses. In addition, you must be able to provide records of winnings as well as losses (receipts, tickets, casino forms, Form W2-G, etc). Travel and lodging expenses can not be deducted against your winnings. (IRC Sec. 6001, Treas. Reg. Sec. 1.6001-1(a)(1959))
Assume Dr. Green's wife, Mrs.Green, gambles to the same extent that Dr. Green gambles. Assume that the Greens file a joint tax return. If Mrs.Green has a large net gambling gain for the year and Dr. Green has a large net gambling loss, can they combine their gambling transactions and use his loss to offset her winnings?
As you and your spouse report combined income, adjustments, deductions, and so forth, you also may combine your gambling transactions on your joint tax return. You must elect to itemize deductions versus the standard deduction, in order to report your net gambling amount on Schedule A. If you and your spouse do not itemize on your tax return, you may not claim the gambling losses against your gambling winnings. You and your spouse should keep separate journals for your personal records -- as this will allow you to properly keep track of your own activity, respectively. However, it is allowed for you and your spouse to net your gambling activity, but again, gambling losses can be...