It is essential to know how to create and manage a gambling diary. You can encounter many issues with the IRS in the event of an audit if you don’t have one. For example, if you collected a large number of gambling winnings one year and didn’t record them, the IRS could issue hefty fines for unmanaged and underreported income.
A gambling diary acts as a log so that you can account for wins and losses in the event of IRS interactions. If you have a large number of wins, you need to report that on your taxes when you file them if they are above a certain amount.
On the contrary, if you lose large sums, you can write those off on your taxes as a deduction (however, you can only write off losses equal to wins and no more).
As always, it is important to consult a qualified tax professional if you have questions, but we will do our best in this article to explain how you can create and manage your gambling diary, as well as elaborate on which situations this is appropriate in.
When is a Gambling Diary Appropriate?
As you may have guessed, a gambling diary isn’t always appropriate. For this level of maintenance to make sense, you need to make a certain amount of gambling winnings per year. Most of these numbers are relatively straightforward, but some of them do vary by game.
For example, in most games, the IRS requirements state you must report the income if you make over $600 or more than 300 times whatever you wagered. If you wagered a dollar and made $300 from it, that is considered reportable income. Also, if you walk away with $1,000 from Blackjack, you must report it.
Poker tournaments, however, are one of the games where the rules differ. You only have to report poker winnings if you walk away with more than $5,000. This is helpful because, generally, poker is a much higher earner than, say, the roulette wheel. Similarly, Keno’s threshold is $1,500, while Bingo and slots fall under the $1,200 limit.
Some amateur gamblers keep a gambling diary because they are under the mistaken impression that they can write off all of their large losses on their taxes. This is not always the case. Gambling losses can only be written off for an amount of losses equal to the amount of winnings you received, so it only makes sense for certain people to maintain them.
Track per Session, Not per Play
A gambling diary sounds rigorous when you think about writing down and tracking your winnings for every single play. Luckily, this isn’t the case.
The IRS asks gamblers to record their winnings per session, not per play. They define a session as any amount of continuous play partaken in without cashing out. However, one session can not last longer than a 24-hour period.
Why does this matter? Well, in short, the amount you win affects your adjusted gross income. In your eyes, if you were to make $60,000 one year and won an additional $20,000 before making a mistake and losing $40,000, your net income would look like $40,000.
However, the IRS would count your adjusted gross income as about $60,000, which can then affect the taxes you have to pay and certain tax benefits you might receive.
Furthermore, if the IRS decided to audit you and there were $20,000-$40,000 discrepancies, you could be in for some hefty fines (and possibly further negative consequences if they determined it was deliberate tax evasion).
What You Should Track
Your gambling log should obviously track the amounts of your wins and losses, but there are a few other things you’ll be required to track as well.
We’ll start with the dates. Whether the IRS decides to audit you or not, the very least you’ll need in your diary are the amounts you won and lost and the dates those wins and losses were incurred. This is because when you report this income on your taxes at the end of the year, you will be required to fill in those dates.
Additionally, it is a good idea to number your session and label the location where you received your winnings. This isn’t necessary for your end-of-year taxes, but it does help in the event of an IRS audit.
A gambling diary does more than just function as a cushion between you and the IRS. Although you must keep one for that purpose, you can add whatever you want to it to help analyze your wins and losses and determine how you’re doing overall.
You can use gambling diary data to figure out what games you seem to be best at and which ones are more profitable in the long run.
It can also help you both analyze and improve your skill level, as it forces you to look over how you’re doing instead of pushing your losses to the side and developing a false sense of security every time you win a small pot.
Gambling diaries are critical pieces of the gambling world, as they function as both a testament to your skills and as a tool to help keep the IRS at bay.
If you are unsure of whether you need to keep a gambling diary or have additional questions, we always recommend hiring a qualified tax consultant to steer you in the right direction.
Qualified tax professionals can also help you do your taxes at the end of the year, as the process can get somewhat complicated and rigorous depending on how many wins and losses you have.
At Borshoff Consulting, we are qualified to assist you in preparing for an audit, doing your taxes, and so much more. If you have questions regarding your gambling diary or any other tax needs, please reach out today so that we can assist you.