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Tax Tip of the Week | No. 466 | Gambling – Taxes Behind the Curtain June 27, 2018

Posted by bradstreetblogger in : General, Tax Tip, Taxes, Uncategorized , trackback

Tax Tip of the Week | June 27, 2018 | No. 466 | Gambling – Taxes Behind the Curtain

For federal income tax purposes, most people are aware that their gambling winnings may be offset dollar for dollar by their gambling losses. And, most people know their gambling losses may not exceed their gambling winnings. And, a few people even know that in order to deduct any gambling losses you must be able to itemize your deductions on your federal income tax return. So, if you are unable to itemize, your gambling losses are of no tax value – nada. Since the new law makes itemizing deductions even more difficult, fewer people will now be deducting their gambling losses.

Now that we have discussed the federal income tax effect of gambling, let’s switch it up and discuss Ohio, School District and your city income taxes (assuming you live in a taxable city and a taxable School District with an income tax). How do you offset your gambling income by your gambling losses in these other taxing entities? The answer is REALLY easy – YOU DON’T! Ohio, School Districts and any cities tax only your gambling winnings. No credit is allowed for your losses.

Example:  You decide to visit a casino and you get lucky and win $5,000 on your favorite slot machine on a small wager of $10. The casino operators will issue you a Form W-2G for the $5,000. And, usually at a minimum, withhold state and city income tax (if applicable). Okay, out of your $5,000 winnings, you now have about $4,700 after your $10 bet. Life is good! You are on a roll and you keep on betting. But the tides have turned and by the end of the day your winnings are all gone. Oh well! Other than an over-priced lunch at the casino, it has been a cheap day. You would have spent even more at the movies. WRONG!

Assuming you can not itemize and you live in a taxable city and School District, as many do. Your $5,000 of winnings, of which you have none left, may cost you depending upon your bracket, 40% of the $5,000, or $2,000 in tax. Yup, $2,000 for the money you no longer have. A movie would have been far cheaper! No wonder the State likes gambling. Unlike you, they can’t lose.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

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