I ALWAYS tell my clients, don't believe everything you hear, especially regarding your business, accounting or taxes, but if it's on Facebook, it must be true, right?
There are already too many tax professionals who don't correctly read, interpret or understand the tax law, yet many seem to think that non-tax professionals know the answer.
Earlier tonight I read this post on Facebook...
Just an FYI- you can claim mileage, entry fees, hotel stays, pool equipment and cues, basically anything related to being a pool player as a tax deduction under the gambling exemption. Get a log book for miles and keep pictures of flyers and tournament brackets for documentation. An avid pool player can easily spend 5-15k a year in tournament costs- and this is 100% a itemized deduction of your income taxes each year.
To be fair, this post is partially correct and had very admirable intent, however the applicability of tax law is often based on facts and circumstances and generalized tax advice is often misleading. Quite honestly, I'm not even convinced that these tournament winnings (and related expenses) are better reported as gambling income, but rather hobby. Be sure to consult your tax adviser to discuss your specific situation.
NOTE: The following rules apply to casual gamblers who aren't in the trade or business of gambling AND
could also apply to golf, archery, fishing, bowling, etc., depending on facts and circumstances.
Current Law (2017 Tax Year): Gambling Losses Up to the Amount of Gambling Winnings
You must report the full amount of your gambling winnings for the year on Form 1040, line 21. You deduct your gambling losses for the year on Schedule A (Form 1040), line 28. You can't deduct gambling losses that are more than your winnings. Generally, nonresident aliens can't deduct gambling losses on Schedule A (Form 1040NR).
You can't reduce your gambling winnings by your gambling losses and report the difference. You must report the full amount of your winnings as income and claim your losses (up to the amount of winnings) as an itemized deduction. Therefore, your records should show your winnings separately from your losses.
Diary of winnings and losses
You must keep an accurate diary or similar record of your losses and winnings and should contain at least the following information:
The date and type of your specific wager or wagering activity.
The name and address or location of the gambling establishment.
The names of other persons present with you at the gambling establishment.
The amount(s) you won or lost.
Proof of winnings and losses
In addition to your diary, you should also have other documentation. You can generally prove your winnings and losses through Form W-2G, Certain Gambling Winnings; Form 5754, Statement by Person(s) Receiving Gambling Winnings; wagering tickets; canceled checks; substitute checks; credit records; bank withdrawals; and statements of actual winnings or payment slips provided to you by the gambling establishment.
These record-keeping suggestions are intended as general guidelines to help you establish your winnings and losses. They aren't all-inclusive. Your tax liability depends on your particular facts and circumstances.
New Law (2018 Tax Year): Gambling Losses Up to the Amount of Gambling Winnings
The new law continues to allow a deduction for gambling losses not to exceed the gambling income and broadens the definition for “gambling losses” to include any deduction otherwise allowable in carrying on any wagering transaction.
You must have income (winnings) in order to deduct losses
You must itemize in order to deduct losses
Losses are only deductible to the extent of winnings
The Tax Act broadened deductible gambling losses to include any deduction incurred in carrying on any wagering transaction and applies to taxable years beginning after December 31, 2017
Facts and circumstances may suggest that the income (and deductions) are hobby income as opposed to 'gambling income' which has an entirely different set of rules
As always, don't hesitate to call or email us with any questions.
While we are, of course, available to provide you with any business, accounting or tax services, the information contained herein is general in nature; any advice regarding those services should not be construed as tax advice and is not intended as a thorough, in-depth analysis of specific issues, a substitute for a legal, accounting or tax advice or opinion, nor is it sufficient to avoid tax-related penalties to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact Strive Tax & Accounting, LLC or other tax professional prior to taking any action based upon this information. Strive Tax & Accounting, LLC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.