In 2011, Massachusetts began the process of legalizing casino gambling beginning with a slot parlor in Plainville, a full casino in Springfield, and another full casino in Everett. The casino in Springfield enjoyed $27 million dollars in revenue in their first month. In terms of income tax withholding, what happens to the lucky few who are the winners, the vast majority who are the losers, and the professional gamblers?
What happens if you win?
If you have won in a casino, congratulations! Federal reporting requirements for casino winnings and applicable withholding are reported to the IRS and the MA Department of Revenue (DOR) immediately via Form W2-G. Upon certain casino wins, before the winnings are paid out, Massachusetts requires that you provide both photo identification and your social security number for the W2-G. The Federal reporting requirements in 2019 are:
The rules above apply to both Massachusetts residents and nonresidents. A nonresident who wins in a Massachusetts casino will need to file a Massachusetts nonresident tax return.
Casino winnings are reported as “Other Income” on both Federal and Massachusetts tax returns, and they are taxed at ordinary rates.
What happens if you lose?
Now what about the rest of us, the losers?
Federally, even with the 2017 Tax Cuts and Jobs Act (TCJA), gambling losses are still deductible as a miscellaneous itemized deduction up to the amount of your winnings. To deduct losses:
Massachusetts is not so generous with loss deductions. You can only deduct losses derived from Massachusetts casinos up to winnings from Massachusetts casinos. There is no loss deduction available for winnings derived from casinos in other states.
What happens if you are a professional gambler?
Hypothetically, let’s say you are tired of working in a cubicle and decide to become a professional gambler. How should you approach gambling from a tax perspective?
First, you are no longer gambling for fun. It’s now your job. The income and related job expenses need to be reported on Schedule C. And like any business, you now need to keep accurate books and records to support the business you are running in case taxing authorities ask to see your information.
Before December 31st, 2017, professional gamblers could report a Net Operating Loss for years when expenses exceeded income, just like any other established business. Once tax reform was passed, the TCJA specifically removes net operating losses from professional gamblers. Expenses that exceed income now no longer carry over and are lost forever.
Finally, in accordance with the Bank Secrecy Act, all transactions with a casino cashier greater than $10,000 (in or out) must be reported on a Currency Transaction Report.
The tax rules and regulations concerning gambling, both for winnings and losses, are complex and confusing. DGC’s Private Client Group can make sure you are both compliant and well-positioned in these situations. For more information, contact a member of DGC’s Client Service Team or Keith Kenez, CPA, MBA at 781-937-5146 / firstname.lastname@example.org.