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States Want Their Share of Taxes on Gambling Winnings!

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May 2nd, 2012

I came across a new Wisconsin Tax Bulletin release the other day and thought I would share with you how states are being much more aggressive in demanding their share of tax from gambling winnings.

If you are a resident of the state of Wisconsin and receive a form W-2G from gambling winnings, you are taxable on these winnings when you file your return.  Now, if you gambled in Iowa and received form W-2G (assuming it was a large enough amount), you must file a return in Iowa, report those gambling winnings and then claim an offset on your Wisconsin tax return for any tax paid to Iowa.  In most cases, you will not pay extra tax, but you will be required to file an extra return.

The unique part about taxation of gambling winnings is that you can only offset gambling losses against gambling winnings based upon the net winnings from a “gambling session”.  Each gambling session is treated as a separate taxable event and if you have a net loss in one session, you cannot offset any of that net loss against your net winnings.

For example, let’s assume you go to a Wisconsin casino in the morning and sit down at the slot machine, take one spin of the wheel and hit the big jackpot for $10,000.   You decide to cash in the jackpot and take your children golfing for the rest of the day.  That evening, you go back to the casino, take your $10,000 and start to play the slots.  You have a bad night of it and end up losing the full $10,000 plus another $5,000.

In the eyes of the State of Wisconsin (and most likely other states), you are taxable on the $10,000 won in the morning and cannot deduct any of the net loss of $5,000 in the night session.  So you are out of pocket $5,000 plus Wisconsin taxes on the $10,000 winnings which could easily be $1,000.

This can add up to a lot of extra state taxes at the end of the year, even if you lost money gambling during the year.

The key thing from this notice and others like it is if you gamble on a very infrequent basis, you probably do not need to worry about it too much.  However, if you gamble on a regular basis, the IRS and each state you gamble in will want their “fair share” and maintaining adequate records of your gambling sessions is very important.

Paul Neiffer, CPA

Paul Neiffer

Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a partner with CliftonLarsonAllen in Yakima, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. In fact, Paul drives combine each summer for his cousins and that is what he considers a vacation.

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