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Watch Out for the IRS

Here comes the Internal Revenue Service. Is this another myth? When someone wins a big jackpot, does the tax man get you? It's not a myth, it's a reality! Maybe the tax man (IRS employee) does not appear in person at the side of your slot machine, but the casino is required to do the IRS's work for them. This means that the casino must help the IRS make sure that slot winners report their winnings above a certain level and subsequently pay taxes on those winnings.

The casino accomplishes its task by completing and filing with the Internal Revenue Service a form called a "W-2G." One such form is submitted to the IRS on every slot winner of a jackpot of $1,200 and over. The W-2G form is somewhat similar to an ordinary W-2 form, which most of us receive from our employers, it shows how much we've earned over a given period of time.

For the most part, slot winnings, as far as reportable income is concerned, are just like income received from your job. As far as the IRS is concerned, what you normally earn in a year will be increased by the amount of your slot winnings.

Another question is: Are taxes taken out before the jackpot is paid off, or does the winner get paid the full amount of the jackpot? If the winner is a permanent United States resident, with the proper identification, no tax is deducted from the winnings at the time the jackpot is paid. But if the winner is a foreign resident (lives outside the United States), tax is withheld in an amount determined according to country of residence. Except for Canadians, most foreign-resident winners would be subject to a withholding of 30 percent from the jackpot proceeds. Canadians incur a withholding of 15 percent on any jackpot of $1,200 or more.

Is it necessary to give the casino your Social Security number and be able to provide appropriate ID? Yes! If you win a taxable jackpot, you will be required to supply a couple of forms of identification. The usual kinds of ID such as a driver's license and credit card will do fine. Of course, you must have a Social Security number as well. Unfortunately, many people do not really expect to win anything very big when visiting a casino and thus leave their identification in the hotel room, or worse, at home. If you do that, you could receive a receipt for your newly acquired wealth instead of the real thing, check or cash and have to come back later with appropriate ID to get paid.

Slot players often ask, "Since the law requires that my slot winnings be reported as part of my gross income, can I deduct what I have lost?" The official answer is yes, you can. That is, if you itemize deductions on your federal income tax return, you are entitled to deduct losses to the extent of the amount you report having won. However, these losses must be claimed as a miscellaneous deduction and not simply subtracted from your winnings. Furthermore, should your losses exceed what you've won during a taxable year, there is no provision for carrying the excess over to subsequent years.

Of course, it is necessary to be able to substantiate the losses you claim. This may be the most difficult part of the job. All slot winners claiming a deduction must show satisfactory evidence of their losses. How can you do that playing a slot machine? After all, after each pull of the handle the machine doesn't issue you a receipt that says, "Sorry, you lost. Save this slip for tax purposes."

If you keep diary of all gaming transactions and can provide corroborating documentation, the IRS will usually accept the diary as evidence of any losses. It should include all the obvious information, such as where you were playing, the date and time, the floor number or location of the slot machine you played, and of course, whether you won or lost at the end of the time you were playing. You should also list people with you, other witnesses, names of cashiers or change persons who waited on you, and anything else you can think of that might substantiate your entries. Taking time to add all the miscellaneous comments is most important.

In addition, the IRS will want to see all records, charge slips, cashed checks, and personal documentation that will support such a claim. Supporting documentation may include hotel or motel bills, losing keno tickets establishing that you were actually in the casino on the date you claim you incurred losses on slots, casino credit slips, airline tickets or gasoline receipts, etc.

Also, some casinos will have their employees fill out a gaming loss statement for you. This form, which states that you lost a specific sum of money, can be used as supporting evidence for your deduction. Many casinos, however, do not have the ability to substantiate a slot player's losses and may not be willing to issue a loss statement. Ask ahead of time if someone is available to confirm any losses that you might incur and if a loss statement would be available to document such losses.

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