You’re supposed to report anything you win as income.  It goes on line 21 of Form 1040.  (You can’t use form 1040EZ if you have gambling winnings.)  If you win a prize rather than cash, you’re supposed to report the cash value of the prize.

This applies to citizens and permanent residents alike.  Visitors to the U.S. are taxed on slot machine winnings but not on winnings on most kinds of table games. (Forbes, in the comments, and USC § 871(j))

Itemizing Deductions

Have you never really understood what it means to “itemize deductions”?  Then let’s clear that up right now.

We all know that we pay taxes on our income.  If you make $30,000, and you pay an average of 13% in taxes, then your taxes are $3900.

You can subtract out certain expenses to make your income lower, so you pay less taxes.  Those special expenses are called deductions.  If you had $30,000 in income, and $5000 in deductions, then you have only $25,000 in income that’s subject to tax.  So now your tax is a lot less.

The reason we say deductions and not expenses is that only some expenses are deductible.  For example, food and rent are big expenses, but you don’t get to deduct them.  So they’re not deductions.  Deductions are things like medical & dental expenses, and gifts to charity.

Keeping track of all your deductions can be a chore, so the IRS gives you a shortcut.  They let you take a “standard deduction”.  For example, if you’re single, they let you claim a standard deduction of about $6000 (in 2014).  You don’t have to keep track of anything, you just use $6000 as your deduction, even if your actual expenses were more or less.  This makes things very easy.  You get to pick this standard deduction on Line 40 of Form 1040.

But if you have a lot more than $6000 in deductions, then it makes sense to claim your actual expenses and skip the $6000 grab-bag.  You list these expenses on Schedule A of Form 1040.  When you use Schedule A to list your expenses instead of taking the standard deduction, then you’re itemizing your deductions.  So there you have it, that’s what “itemizing your deductions” means.

Some losses are deductible

You can deduct your gambling losses, but there are some catches:

You can deduct only as much as you won, not more.  That 꽁머니 means you can never show a net loss for gambling.  For example, if you lose $1000 playing slots, and then win a $400 keno jackpot, you can deduct only $400 of your slot loss.  You’ll pay taxes on $600 of income.

You can’t carry over losses from one year to the next.  You report wins and losses for the current year only.

You can deduct only if you’re itemizing your deductions.  See the sidebar at right for an explanation of what itemizing means.

Nonresident aliens are taxed on slot winnings, but can’t deduct their losses. (Forbes)

Separating wins from losses

You’re supposed to report wins and losses separately.  You do not report the net win for the year.  If you win $1000 and lose $750 in one year, you don’t report a $250 win.  You report a $1000 win and a $750 loss.  Wins go on 1040 Line 21, and losses go on Schedule A.

If your losses exceed your wins, you won’t owe any tax, but you’re still supposed to report your wins and losses separately. (Nolo) Let’s say you had $500 in session wins and $2000 in session losses (more about sessions later).  From the above you know that you can’t deduct more than you won, so you have $500 in wins and a $500 loss deduction.  Since that’s basically a wash, you might be tempted to not even report it at all.  It doesn’t affect how much taxes you pay, so what’s the point?

The point is that if you had winnings, tax code requires that you report it, even if it was entirely offset by losses.  If the IRS later finds that you had some gambling winnings, it’s kind of late in the game for you to claim that you had losses that offset your wins.  You already look a little guilty for not disclosing your wins like you were supposed to, and that’s not a position you want to be in if you get called on the carpet.

Note that if you never had a winning session then there’s no duty to report.  There’s nothing to deduct anyway, because you can deduct losses only to the extent of your winnings.

But all this raises the question:  How do you keep track of wins and losses?  Let’s say you’re playing a slot machine.  Is every spin with no payout a “loss”, and every spin with a payout a “win”?  How could anyone keep track of all that?

You can’t, but you don’t have to.  The IRS suggests keeping a diary of your session net result.(source)  For example:

May 5:  +$250  Luxor (blackjack) • alone

May 5:  – $100  NY NY (slots) • with wife

May 6:  +$200  Monte Carlo • with wife

May 6:   -$300  Monte Carlo • with Spanky McBluejay

At the end of the year you add up all your session wins and count that as your winnings, and you total up all your daily losses and count that as your losses.  In the above example, we’d report $450 in winnings and $400 in losses.  (sources)

The IRS doesn’t explicitly define what a “session” is, so just use a reasonable definition.  When you take a break for a meal or some other kind of entertainment, or when you cash in your chips, consider your session over.  It’s not clear whether you have to consider your session over if you simply switch games (e.g., slots to blackjack), or if you walk 30 seconds from one casino to the next (like in downtown Vegas where they’re close together), but it couldn’t hurt.  You can have multiple sessions in one day, but a session can’t span more than a day.

Documenting your wins and losses

Make damn sure you can document your losses!  Bill Remos won $50k in a blackjack session, and had at least $50k in losses for the year, so he shouldn’t have owed any taxes, but he couldn’t substantiate his losses, so the IRS made him pay the taxes on his $50k win without letting him deduct any losses to offset his winnings.  Ouch. (Nolo)

So how do you document your losses?  In almost all cases the IRS will accept the diary mentioned above.(source)  You can use win/loss statements that casinos provide at the end of the year as backup evidence to supplement your diary, but not as your main evidence.  As one tax attorney says, “The IRS has consistently and regularly rejected the use and reliance upon such information. The primary reason for the IRS belligerence is simply because the casinos explicitly state in their reports that the reports are inherently inaccurate and should not be used for accounting purposes.” (Reece B. Morrel Jr., CPA JD)  The IRS also likes other supplementary evidence that you were at the casino, such as airline tickets or receipts from casino restaurants and gift shops.

The IRS says your diary should include, at a minimum:

Date and type of specific wager or wagering activity

Name of gambling establishment

Address or location of gambling establishment

Name(s) of other person(s) (if any) present with taxpayer at the gambling establishment

Amount won or lost  (source)

W2-G forms

If you hit for $1200 or more on a slot machine (or $600 at the horse track, or $1500 in keno), then the casino will give you a W2-G form.  They’ll ask you for your social security number, so don’t freak out when they do.  They’ll send a copy to the IRS, too.  This $1200 threshold for slots is why you’ll see many machines with a top jackpot of $1199.  If you hit it, then neither you nor the casino has to fuss with the W2-G form.

You get the W2-G only for single wins of $1200+.  If you have many small wins that total more than $1200, you don’t get the form.  You’re still supposed to report those winnings, but you don’t get the form.

You never get a W2-G for playing table games.  It’s only for slots, races, and keno.  However, if you buy or cash more than $10,000 in chips in one day, the casino will do a CTR (Cash Transaction Report) form for the IRS.

Note that you don’t report the actual W2-G amounts on your tax return.  You report your session winnings, which is not the same thing as what’s shown on the W2-G.  Let’s say you play slots all day, hit three jackpots of $1500 each, but have a net loss for the day of $400.  That’s also the only gambling you did for the year.  How much do you report in winnings?  Nothing.  Despite the three $1500 jackpots, you didn’t have an overall daily win, so there are no winnings to report. (sources)

If you had other winnings throughout the year, then you’d record the above session as a $400 session loss, for tallying your total losses for the year in order to offset winnings.

Yes, it’s not fair

There are a number of aspects of the gambling tax that aren’t exactly fair.  Let’s tally them.

Net wins are taxable, but you can’t deduct net losses.  As we saw above, you can’t deduct more than you win.  If you win $1500 and lose $500, you pay tax on $1000 of winnings.  But if you win $500 and lose $1500, you don’t get to claim a $1000 loss.  However, there’s no good way to “fix” this problem: If the IRS let you deduct 100% of your losses, gambling would effectively be cheaper, and the government would basically be giving people a huge incentive to gamble.  So it’s understandable that this part of the code isn’t perfectly fair.

You can deduct your losses only if you itemize. (For an explanation of “itemizing”, see the sidebar above.)  If you have $2000 in wins and $2000 in losses, you’ll have to itemize on Schedule A in order to deduct your losses.  Of course, if your standard deduction is more than your itemized deductions, you’ll want to go with the standard deduction.  But that means you don’t get to deduct your losses, specifically.  You’re gonna pay taxes on $2000 in winnings with no way to offset it.

Those who would claim that you are deducting your losses as part of your standard deduction are missing this point:  If you didn’t gamble at all, you’d still get to take the full standard deduction.  But by gambling and having wins that equal losses, you still use that same standard deduction, and thus have to pay more taxes compared to not gambling at all  even though you didn’t have a net win.

Gambling losses can’t be carried over from year to year.  Let’s say you lose $1000 a year for three years by playing slots, then in Year 4 you have a net win of $2000.  So over four years you lost $1000.  However, in year 4 you’ll pay taxes on the $2000 win, and never get any credit for your $3000 in losses for the previous three years.  Too bad.

Reporting wins separately from losses increases your AGI, reducing your ability to make other deductions.  A $5000 yearly win and a $5000 yearly loss means you pay no taxes, but because you report wins separately from losses, your AGI (Adjusted Gross Income) goes up by $5000.  That might be great if you’re trying to get a loan and the bank uses your AGI as your income, but the downside is that you might lose the ability to deduct medical expenses, mortgage interest, and charitable contributions, among other things. (source)

Professional gamblers

Professional gamblers can deduct all their gambling losses as a business expense, on Schedule C.  Their losses are not limited by their winnings.  So if they had a losing year, they can deduct more than they won.  Of course, if you’re a professional gambler you already know this, and if you’re not, you have virtually no chance of convincing the IRS that you are one.

I can well remember the good ol’ days in Atlantic City when casino gaming first began there. The one casino that was open at the time (Resorts International) had to offer a Blackjack game where the rules were established by the Casino Control Commission and that included a weird rule called ‘surrender’. At least we thought it was weird until we figured out what a huge advantage it gave to the player who used it correctly!

Most players dubbed surrender as a sucker bet. One time at a table, some other player summed it all up when he declared: “Surrendering is nuts! Why give up half your bet when you could just as easily win the hand?” To a degree, he was right. What I mean by that is it’s true that a player could win or lose any one given hand, but he didn’t carry the thought far enough. If you play thousands of hands, giving up 50% of the bet on some of them is actually the cheaper alternative to playing it out.

For those of you who aren’t familiar with surrender, it’s a player option that some casinos offer. When allowed, you may elect to give up half the amount you’ve bet rather than play out the hand. For the mathematically inclined, you can see that for those hands where your expectation is to lose more than 50% of the time, surrender is a good deal. There are two types of surrender: early and late. Those terms refer to whether or not a dealer checks to see if s/he has a blackjack (when an Ace or 10 is showing) before you may make the surrender decision. In A.C., the type of surrender was ‘early’ which meant that you คาสิโนออนไลน์ could give up half your bet before the dealer knew if s/he had a ‘natural’. That came about simply because state regulations didn’t allow ‘peeking’, so a dealer didn’t know what his hand was until all the players had made their playing decisions.

These days, the most common form of surrender is the ‘late’ version where the dealer checks for a natural and, if s/he doesn’t have it, then you may surrender. This is worth a lot less, since if the dealer does have a natural, s/he takes your bet before you can surrender. But, in spite of that restriction, surrender can still be of some value to you, if you use it properly.

Let me show you an example; assume a 6-deck game with double after split allowed and the dealer must stand on A-6. If I have a hand of 9, 7 and the dealer is showing a 10, my ‘expectation’ is to lose 53.7% of all the money I bet in that situation. If I surrender, I’ll lose 50% of all the money bet in that situation. A modest improvement, but better nonetheless.

So this makes figuring the basic strategy for surrender very simple. If the expectation is to lose more than 50%, surrender. For a multi-deck game, here are the rules for late surrender:

Player’s hand of 9,7 or 10, 6:

Surrender against a dealer’s 9, 10, Ace

Player’s hand of 8, 8:

Surrender against a dealer’s 10 (Though it’s virtually a toss-up; split if DAS is allowed.)

Player’s hand of 15:

Surrender against a dealer’s 10 (Note If the dealer hits A-6, surrender against an Ace, also.)

Late surrender adds to the player’s edge by .modest .1%, but I like it when I have a big bet out there and I get a 10 for my first card, as expected, and then get the last 6 in the deck as my next card. Who hasn’t done that before?

If you count cards, the surrender option is an even better deal as the count goes up. If you’ve read and studied my lessons up to this point, you know that in a ‘high’ count situation, the proportion of 10s and faces (and Aces) in the remaining deck(s) versus ‘little’ cards is much greater, so the odds of getting such a card have increased considerably. This is where the value of surrender goes up.

Most surrender available these days is ‘late’ surrender, which means that the dealer checks the hole card if s/he is showing an Ace or 10. If s/he has a ‘natural’, your entire bet is lost and surrender isn’t an option. Knowing that the dealer doesn’t have a Blackjack makes surrender, to some people, a stupid play, but let’s examine the situation a bit closer. Just what kind of hand can the dealer get with a face card showing? First of all, the dealer is going to bust only 23% of the time when s/he is showing a 10 or face as an up card. Secondly, s/he is going to end with a total of 20 or 21 41% of the time! And you think you’re going to beat her with your 16? When the dealer is showing an Ace, and does NOT have a Blackjack, s/he still is going to end with a total of 19 or more 46% of the time and will bust only 17% of the time. That’s why surrender is valid, even if the dealer doesn’t have a Blackjack.

Now, as the count goes up, both you and the dealer have a better chance of getting 10s and Aces. Thus, it’s more likely that you’ll get a 10 card if you hit. So, if you have a hand of 15 and the dealer is showing a 9, s/he has a better chance of having a 10 in the hole and it’s more likely that you’ll hit with a 10. Time to bail! When the true count is 2 or more, surrender your 15s against a dealer’s 9. Against an Ace, surrender 15 at a true of 2 or more, if the dealer stands on A-6. If the dealer is required to hit A-6, surrendering 15 is a basic strategy move. Another good one to remember is to surrender 14 against a 10 at a true of 3 or more.

The use of surrender is, from my experience, interesting from a ‘camouflage’ point of view. As you are hopefully aware, we card-counters prefer to keep our skills concealed since, for some sick reason, casino personnel don’t like counters. Surrendering is actually a fairly sophisticated playing technique, so it’s fair to say that the ‘average’ gambler doesn’t use it. Yet, I want to look like an avaerage gambler in order to conceal my abilty to beat the game. But I use surrender when it’s offered and it really helps when the count is high, I have a big bet out there and I surrender a 15 against a 9 (or a 13 against a 10 – true of 8), because it makes me look like a ‘chicken.’ Most casino personnel think surrender is a ‘sucker’ play anyway, so when they see you giving up half a $200 bet, they think you’ll never make any $$$ at the game. That’s just what I want them to think.

This is the final lesson of my Blackjack School, at least for the time being. However, I’m always coming up with new ways to beat the game and I usually write a new article on the topic once a month. So, to stay in touch, be sure to visit our original site, The GameMaster Online on a regular basis.

The following strategy is my “intermediate strategy” for jacks or better video poker. Using the strategy on a full pay machine will result in an expected return of 99.52%. Compared to the optimal strategy return of 99.54%, mistakes in the simple strategy will cost 0.03%, or one total bet every 3805 hands.

To use the strategy look up all viable ways to play an initial hand on the following list and elect that which is highest on the list. A “high card” means a jack or higher.

Full house or better

4 to a royal flush

Straight, three of a kind, or flush

4 to a straight flush

Two pair

High pair

3 to a royal flush

4 to a flush

Low pair

4 to an outside straight

3 to a straight flush (high cards-gaps>=0)

2 suited high cards

4 to an inside straight w/ 3-4 high cards

3 to a straight flush (high cards-gaps=-1)

J/Q/K unsuited

J/Q unsuited

10/J suited

J/K, Q/K unsuited

10/Q suited

J/A, Q/A, K/A unsuited

10/K suited

One high card

3 to a straight flush (high cards-gaps=-2)

Discard everything

Note: The number of high cards in holding 3 to a straight flush is roughly offset by the number of gaps. When evaluating 3 to a straight flush subtract the number of gaps from the number of high cards.

Terms:

High card: A jack, queen, king, or ace. These cards are retained more often because if paired up they return the original bet.

Outside straight: An open ended straight that can be คาสิโนออนไลน์  completed at either end, such as the cards 7,8,9,10.

Inside straight: A straight with a missing inside card, such as the cards 6,7,9,10. In addition A,2,3,4 and J,Q,K,A also count as inside straights because they are at an extreme end.

Gap: The number of ranks needed to fill in the middle of a straight flush. For example a 6,7,8 would have 0 gaps, a 6,7,9 would have 1, and a 6,7,10 would have 2. The following are considered to have 2 gaps because they are at extreme ends: A,2,3; A,2,4; A,3,4; J,Q,A; J,K,A; and Q,K,A. The following are considered to have 1 gap because they are close to an extreme end: 2,3,4 and J,Q,K.

Example: Suppose you have the following hand.

The top two plays are (1) keep the three to a straight flush and (2) keep two to a royal flush. The number of gaps to the straight flush is 2 and the number of high cards is also 2. So gaps-high cards=0. The table shows that 3 to a straight flush, where gaps-highcards>=0, beats two suited high cards, so go keep the 3 cards to the straight flush.

Comparison to Optimal Strategy

The following table compares the probability and return of each hand under both the simple strategy and the optimal strategy.

Simple Strategy to Optimal Strategy Comparison

Hand Pays Probability Return

Interm. Optimal Interm. Optimal

Royal flush 800 0.000025 0.000025 0.020204 0.019807

Straight flush 50 0.000114 0.000109 0.005696 0.005465

Four of a kind 25 0.002362 0.002363 0.059039 0.059064

Full house 9 0.011507 0.011512 0.103565 0.10361

Flush 6 0.011171 0.011015 0.067029 0.066087

Straight 4 0.011122 0.011229 0.04449 0.044917

Three of a kind 3 0.074421 0.074449 0.223263 0.223346

Two pair 2 0.129261 0.129279 0.258523 0.258558

Pair 1 0.213368 0.214585 0.213368 0.214585

Nothing 0 0.546648 0.545435 0 0

Total 1 1 0.995176 0.995439

The next table is a frequency distribution of the error, or difference in expected return, between the simple strategy and the optimal strategy.

Error Frequency

Error Number Probability

0 2576244 99.125958%

.01% to .99% 5064 0.194847%

1% to 1.99% 1872 0.072029%

2% to 2.99% 2820 0.108505%

3% to 3.99% 5496 0.211469%

4% to 4.99% 4656 0.179149%

5% to 5.99% 2376 0.091421%

6% to 6.99% 432 0.016622%

7% to 7.99% 0 0%

8% to 8.99% 0 0%

9% to 9.99% 0 0%

10% to 10.99% 0 0%

11% to 11.99% 0 0%

12% to 12.99% 0 0%

13% to 13.99% 0 0%

14% to 14.99% 0 0%

15% to 15.99% 0 0%

Total 2598960 100%

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