Tax

Can I File My Taxes Separately from My Spouse?

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

Filing a joint tax return with your spouse has many advantages, like receiving one of the largest standard deductions every year and providing several tax breaks for those who choose to file jointly. When deciding whether or not you want to file jointly, it is important to consider both the positive and negative aspects and how you can be directly affected. 

Married Filed Joint

The advantages of filing jointly with your spouse can allow you to deduct a significant amount of your income. Couples who file together will typically qualify for the following tax credits:

  • Earned Income Tax Credit
  • American Opportunity and Lifetime Learning Education Tax Credits
  • Exclusion or credit for adoption expenses 
  • Child and Dependent Care Tax Credit

Those who file jointly receive higher income thresholds for certain taxes and deductions. If you and your spouse earn a higher amount of income, you could potentially qualify for tax breaks.

Married Filed Separate

If a couple chooses to file separately they will receive fewer tax benefits compared to those who file jointly. Those who file separately from their spouse will only receive a standard deduction of $12,200 compared to those who file jointly and receive a deduction of $24,400.

  • Filing a separate return will automatically disqualify from several tax credits and deductions.
  • Separate filers are limited to smaller IRA contribution deductions.
  • You cannot take a deduction for student loan interest.
  • The capital loss deduction limit is $1,500 each when filing separately, instead of $3,000 on a joint return.

If you are unsure of how you want to file this tax season, consider filing both separately and jointly to see which way will be beneficial for both you and your spouse. Always be sure to double check your calculations as well as the amount of income you are placing on your return and review if you have a net refund or a tax liability. This should help you decide how you should file moving forward in order to receive the most out of filing your taxes. 

If you need tax help, contact us for a free consultation.

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How long should I keep my Tax Return?

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

work session at table

If you’ve been holding on to a stack of old tax returns because you’re afraid to throw them out just in case the IRS starts asking you questions about a return that you filed nearly ten years ago, it may be time to start reevaluating that old tax paperwork.  

Here are a few tips that will help you determine what tax paperwork you should keep and what you can throw out. 

How long should I keep my tax return for? Typically you should plan on keeping your past tax returns or any tax related documentation for at least three years following the date that you’ve filed your tax return.

Is it important to keep at least three years of tax returns? It is important to keep your tax return for three years because it is tied to the statute of limitations. This means that a taxpayer has up to 3 years to collect a refund on any unclaimed tax years up to three years from their original tax filing date. In addition, the IRS generally has only three years from the filing date or due date of a tax return to assess an additional tax. 

Are there exceptions for how long you need to keep tax documents? In some instances, it may be necessary like retirement accounts such as IRAs. These tax documents should be kept for up to seven years after filing as this is the period of time the IRS can go back and reassess tax years with this specific information.  

What type of tax records should I keep? In order to properly file your taxes, you will need supporting forms. This includes W-2s, 1099s, expense tracking, mileage logs, records supporting any itemized deductions and any other documentation that may be applicable to your business.

How should I discard my old tax return? Once the period of time to keep older tax returns is up, it is important to dispose of them carefully as you don’t want any of your sensitive information exposed to possible thieves that can use your information against you. Taxpayers should shred any important tax documents to avoid any future fraud issues.

If you need tax help, contact us for a free consultation.

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These Errors can Cause Your Tax Return to be Rejected

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

It only takes one minor mistake on your tax return like leaving out vital information such as your name, social security number, or even claiming a credit or deduction that you don’t qualify for to completely disrupt your tax return from getting processed. 

Here’s what you can do to avoid common mistakes on your taxes:

  1. Including credits and deductions you don’t qualify for. It can become overwhelming for a taxpayer when they start reviewing the number of credits and deductions they might qualify for. When you do find credits that you feel could be placed on your tax return, make sure to read the fine print. Some credits could have phased out for you if your income exceeds the required threshold you would need in order to qualify for the credit. Or, if you have already included your tuition and fees deduction for the same expenses that you are attempting to apply for, that could also cause a rejection. Sometimes even your filing status could hinder you from qualifying for a credit or deduction.
  2. Health Care Reporting Error. There are many reporting requirements that a taxpayer must review before placing any health care information on their tax return. One of the most common errors that the IRS sees when reviewing a tax return is when a taxpayer fails to claim coverage exemption and not reconciling advance payments for the premium tax credit. 
  3. You forgot to sign your tax return. If you’re in a rush to mail in your tax return, you may just forget the most important part, signing your return. The IRS even cites this as another common mistake that a taxpayer will make when sending in their return. It’s also important to note that any unsigned tax return will not be processed by the IRS and will be considered invalid. 

Always be sure to take your time and review all the information that is placed on your tax return. Taxpayers should always review any potential credits or deductions they could potentially qualify for and if you are unsure of what those are, speak with a tax professional for assistance.

If you need tax help, contact us for a free consultation.

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Would You Cheat on Your Taxes?

Would you cheat on your taxes? If you said “no,” count yourself in the majority of people who wouldn’t commit tax fraud.

According to the Taxpayer Attitude Survey, about 87% of American Taxpayers say that it is not acceptible to cheat on taxes, while more than 95% agree that it is every American’s civic duty to pay their fair share of taxes. In addition, 91% of those surveyed agreed that everyone who cheats on their taxes should be held accountable.

Think that if you look honest, you can get away with fudging your taxes? Think again.

However, actual revenues collected by the Internal Revenue Service tell a somewhat different story. The so-called “tax gap” is defined as the difference between the total income tax liability and the amount of income tax payments that are made voluntarily and on a timely basis. This tax gap totaled $450 billion in 2008 but shrank to $385 billion after late payments were posted.

Taxpayers across the country under-reported their income by an estimated $376 billion the same year, while underpayments amounted to $46 billion, and $28 billion was owed by non-filers – people who did not complete tax returns at all. All told, the compliance rate in 2008 on the estimated $2.66 trillion tax obligation was about 83 percent.

Under-reporting Income to the IRS

Most taxpayers are diligent about paying taxes on income reported on W-2 forms. After all, the IRS receives the same information, so skipping out on paying what is owed is fairly difficult. Self-employed workers who receive 1099 forms have somewhat more latitude about how much total income they report due to legitimate business-related expenses. Nonetheless, earnings listed on 1099 forms are also reported to the IRS; therefore, most self-employed workers at least acknowledge those earnings.

On the other hand, a significant amount of cash income is never reported to the IRS. If you were paid $100 to fix someone’s computer, you will probably get by with not reporting that income. However, if you collect a cool $5,000 on the side through your online storefront, you shouldn’t expect to fly under the IRS radar if you don’t acknowledge the sum on the following year’s tax return.

Questionable Tax Deductions

There is nothing wrong with claiming every penny to which you are entitled through legitimate tax credits and deductions. This is not regarded as cheating on your taxes. If you are self-employed and you have established an authentic home office, you should absolutely claim the home office deduction. If you are a wage earner whose boss expects you to call on out-of-town clients on your own dime, go ahead and claim the deduction for work-related travel. As long as you can document your claim, you won’t be accused of tax fraud – even if you are audited by the IRS.

On the other hand, taking a vacation in Hawaii and claiming a deduction because you attended a seminar during the trip likely won’t pass muster with the IRS. Likewise, the cost of your daily commute from your home to your cubicle is also unlikely to be deductible. If you have doubts about whether a deduction or credit is legitimate, it’s best to check with a tax attorney or with a certified public accountant to avoid being accused of cheating on your taxes.

Discredited Tax Protests

A persistent movement exists among a small group of individuals who claim that federal income taxes are unconstitutional because the Sixteenth Amendment to the Constitution (which was ratified in 1913) was improperly ratified. These tax protesters insist that they are exempt from paying income taxes as a result. The IRS has repeatedly dismissed such claims, frequently charging delinquent taxpayers with filing frivolous returns.

One of the more prominent figures snagged for adhering to discredited tax protester claims is actor Wesley Snipes. Snipes was released from federal prison in 2013 after serving nearly three years for misdemeanor charges related to willfully failing to file tax returns. Snipes claimed that he was misled into believing that his actions were legal by his co-defendants, tax-protesters Eddie Kahn and Douglas Rosile. Federal prosecutors had also pursued felony charges against the three for tax fraud and conspiracy, alleging that Snipes had shipped more than $15 million overseas in an illegal bid to avoid paying taxes. Kahn and Rosile were convicted of those charges, but Snipes was acquitted.

Straight-Up Tax Scams

While the actions described above can be described as questionable claims and gray-area tax-related behavior by otherwise honest citizens, straight up tax evasion scams are also prevalent. Such tactics as strictly paying employees in cash and setting up questionable business and family trusts are among the more common tax evasion schemes attempted by both individuals and companies attempting to skirt paying income taxes.

While a case can sometimes be made for leniency concerning unwitting tax evasion, the IRS frequently takes a dim view of defendants that in its view have deliberately attempted to commit fraud. Outright scams, once uncovered by the IRS, are likely to result in criminal tax evasion charges and long prison sentences upon conviction. This contrasts with civil tax evasion, which can carry hefty fines but no jail time.

What is the Penalty for Cheating on Your Taxes?

Even if you get away with underpaying your taxes (or failing to file returns at all) for a short period, the odds are good that you will be caught eventually. The statute of limitations for federal tax audits is doubled from three to six years if you fail to report at least 25 percent of your income, or if you have income on undisclosed foreign assets that totals $5,000 or more. There is no statute of limitations on IRS audits for filing fraudulent returns or unlawfully failing to file tax returns, which means that you could be looking over your shoulder for years – or even the rest of your life.

Optima Tax Relief offers a range of tax relief services to help you prepare your taxes. Schedule a tax consultation with one of our licensed professionals today to discover how we can help you.

Tax Tips for Uber Drivers and those Working in the Gig Economy

So you just joined Uber. Now you have a little extra cash, and you’re the one picking up the tab at dinner when you go out with friends and family. There couldn’t possibly be a downside to earning this additional income, right? Well, while there isn’t necessarily a drawback to having more money in your pocket, there are a few factors to being an Uber driver that you should consider from a tax standpoint. Here are some common questions and tax tips that first time Uber drivers should think about before getting started.

What is the difference between a 1099 earner versus a W2 earner?
If you have taxes being deducted out of every paycheck, you are most likely a W2 earner. At the end of the year, a W2 earner will receive a form that will state their annual wages along with a breakdown of the taxes that were withheld throughout the year.

A 1099 earner, however, does not have any taxes withheld from their income. The total amount of pay you received from Uber (or any other person or entity for whom you were a 1099 earner) during the year will be reported on a 1099 form. It is the responsibility of the 1099 earner to either make estimated tax payments (more on this below) or pay any balance in full at the end of the tax year.

What are estimated tax payments and can they help me avoid owing at the end of the year?
Estimated tax payments, or ETPs, are based on the amount of income that you expect to have earned in the current tax year. ETPs are usually made if a taxpayer believes that they will have a tax balance at the end of the year. A taxpayer may also wish to make ETPs if they are not withholding enough taxes from their paycheck, or if taxes are not being deducted from their income at all. A 1099 earner (or even a W2 earner who does not have enough withholdings listed) has the choice to pay their estimated tax payments bi-weekly, monthly or even quarterly. ETPs must be made in order to avoid owing at the end of the year, and it is even possible to receive a penalty if ETPs are not being made. The IRS allows you to make your estimated tax payments by either mailing a payment in, paying over the phone, or even paying online.

What are tax write-offs and how do I keep track of all my business expenses?
Being that you are a 1099 earner for Uber, it’s a little like running your own business. And just like if you were running your own business, you must document and report any income you have received and expenses you have made. Many of these expenses are tax write-offs. Some expenses that you may experience as an Uber driver include car maintenance, gas, and mileage. You will need to keep proof of your expenses throughout the tax year in order to write them off with the IRS. In order to do this accurately, you will need to keep track of how much of your mileage is used for business and how much is used for your personal life. There are multiple downloadable apps on the market designed to keep track of this for you. If you forgot to do this, don’t worry – you can request this information directly from Uber. Once you know what percentage of your mileage is used for business, you can calculate what percentage of your gas and maintenance can be listed as a tax write-off. Don’t forget to save those receipts; you will need them in case you are ever audited by the IRS!

Whether you’re using Uber to pay the bills or to give you a little extra income on the side, paying your taxes doesn’t have to be scary. Following the steps above and stashing away a little bit of your income can help ensure you don’t get blindsided come tax season. Now get out there and have some fun with your extra cash and remember, drive safe!

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

Medical Identity Fraud – A Risk to Your Health and Wealth

Imagine this scenario: you’re sitting in a doctor’s office with a long-lasting fever after your camping trip. Because it may be an infection from a tick bite, the doctor decides to give you an antibiotic shot. She glances at your records, swabs your arm with alcohol, picks up the syringe and says “this little dose of penicillin should help…” and you interrupt: “wait, I’m allergic to penicillin.” “But, that’s not what your records say… we gave you penicillin last time you were here.”

Frightening? Yes. Impossible? Not at all.

Medical identity theft is on the rise and it can not only have crippling effects on your finances but can seriously put your health in jeopardy.

The Medical Identity Fraud Alliance, a group of concerned corporate and non-profit partners,  speculate that over 2 million Americans were put at risk of medical identity theft in 2014, a figure that leaped 22% from previous research. This doesn’t even take into account the nearly 80 million individuals affected by the Anthem data breach in 2015 – the country’s largest healthcare breach.

Identity thieves steal personal health information (PHI) such as social security numbers and medical insurance identification numbers for two main reasons:

  • For financial gain by filing fraudulent claims to your health insurer (including Medicaid/Medicare) in order to receive a reimbursement check
  • Free medical care of high cost or elective procedures or to secure prescription medication – specifically narcotics that can be abused or sold on the black market

Financial fraud such as a stolen credit card can be frustrating, but can be quickly resolved since it’s easier to detect, and often doesn’t have significant long-term financial impacts. Medical identity fraud, on the other hand can cost a victim $13,500 on average and be notoriously difficult to resolve.

Because of advancement in electronic communication and collaboration in the healthcare industry, PHI is more exposed and accessible. At the same time, this doesn’t always mean that your health provider is on the same page with your insurer. PHI is rarely tracked across multiple networks and this gap can make stealing and using it feasible.

Here are a few things you can do to minimize your risk of medical identity fraud:

  • Carefully read all correspondence from your medical provider and Health Insurance Company. Treat each line item like you might for a bank statement and ensure that each charge or claim is valid.
  • Safeguard your Social Security number and healthcare data. Make sure that when you provide it, it’s absolutely necessary. It’s always okay to ask.
  • Avoid putting medical procedures and hospital stays on social media. You never know who’s looking and this piece of data could be the last one that the thief needs to commit their crime.

Our identity protection program provides comprehensive, proactive monitoring for several data points, including your medical information. To learn more about how we can help you minimize your risk of medical identity theft, visit https://optimatax.idprotectiononline.com/enrollment/.

 

Identity Safety And Staying Secure With Wearable Devices


The increasingly connected world brings new conveniences that greatly benefit our everyday lives. No new connected device seems more ubiquitous than wearable devices – nearly 33 million were in use in the U.S. in 2015 by an estimated 20 million people. Smartwatches like Pebble and Apple watch allow us to access the internet with a flick of a wrist. Wearable health tech like the Fitbit and the gadget-class favorite Jawbone help improve the livelihoods of millions.

As much as wearables bring value to our lives, they also create a new opportunity for criminals to extract personally identifiable information. Like many other new technologies, security vulnerabilities in wearables are being exposed and potentially exploited.

The more information that’s collected, the easier it is to identify account numbers and passwords as well as medical ID numbers and tax return data. Better understanding the individual’s routines and habits ensures that criminal activity will go unnoticed for longer periods of time.

But some wearable data can provide quicker wins for identity thieves:

Most wearable devices use an accelerometer and gyroscope to track forward motion and directional orientation. Some even contain an altimeter to measure altitude for hikers and climbers. All of this data is crunched into code that orients the user’s specific location and tracks their activity – sometimes down to a few inches. Shockingly, new research found that ATM PIN codes could be discerned from the data in wearables’ sensors with 80% accuracy on one try and 90% accuracy after three tries.

A flash survey conducted by corporate identity management firm Centrify exposed some worrying trends:

  • 69% of wearable device owners don’t utilize login credentials such as passwords, fingerprint scans, or voice recognition to access their device, and
  • 56% of wearable owners use their device to access corporate applications such as Outlook, Dropbox, and Salesforce.
  • While the sample size was small, the survey was conducted at the RSA Conference, one of the world’s largest gatherings of information security professionals. If those on the frontline of data security leave their personal and corporate data at risk, it’s easy to imagine that the population at large may be even less cautious – jeopardizing their identities and your corporate data security.

Staying Secure With Wearable Devices

While wearables (and all technology, for that matter) are never 100% secure, there are a number of tactics that can be undertaken to minimize the risk of data theft:

  • Opt-out of automatic data transmission that will continually upload information via Wi-Fi or other networks.
  • When using a Wi-Fi, stick to known and/or secure networks.
  • Enable passwords and change them regularly. If available, use two-step authentication.
  • Physically secure the device if it’s not in use. Particularly, when traveling, utilize hotel safes.
  • Take time to learn how to remotely erase data so that the device can be “cleaned” if it’s lost or stolen.
  • Make sure to regularly update the operating system in order to patch known security gaps.

Looking for ways to minimize your risk of identity theft? Maintain a peace of mind while using your wearable device by enrolling in Optima’s ID Protection Plan at optimatax.idprotectiononline.com.

Tax Season Is Here…And So Are The Scammers

The start of each new year typically brings renewed resolve to get healthy, strengthened desires for personal improvement, and of course, tax season.

Tax season can mean different things to a lot of people. Some look forward to a large refund; for others, it’s one more thing to tack onto their to-do list. For the scammers out there, it means the annual opportunity to rake in fraudulent refunds has finally arrived. Tax scammers are ruthless. They’re unaffected by the thought of families and individuals dependent upon what is likely their biggest check of the year being denied this financial relief.

If there’s one thing we can be sure of, it’s that there will be scams this tax season. Fortunately, there are safeguards you can take to stay protected this tax season.

  • Schedule time with your tax preparer now so you can get your taxes done as early as possible. This will help decrease the chances that a fraudster will get your refund before you do.
  • Sign up for Scam Alerts from the FTC to stay abreast of all the dirty tricks scammers are currently using.
  • Talk to someone in your HR department to see if you can get your W-2 before it’s mailed out. This will help ensure that you actually receive it so you don’t have to risk it being lost or stolen in the mail.
  • Never send emails with personally identifiable information (PII) attached. It’s best to never send them through email at all, but if you must, you should encrypt your message by making a change in your email’s security settings.
  • Beware of computer scams. These can come via email or as popups on your computer asking for your personal information. The IRS saw an approximate 400% surge in phishing and malware incidents in the 2016 tax season.
  • Always use a professional, trustworthy tax preparer. Sometimes, even national tax preparation chains can scam you out of your money or use less-than-secure procedures when it comes to handling your personal information. Make sure you use someone you trust.
  • Never provide any personal information over the phone to someone who says they are from the IRS. The IRS will never contact you via phone, email or social media.

Tax season is stress enough as it is; worrying about tax fraud shouldn’t have to be a part of it. Maintain a peace of mind by filing taxes as early as possible and by enrolling in an Optima Protection Plan at optimatax.idprotectiononline.com.

IRS “Courtesy Disconnects” Skyrocket During 2015 Tax Filing Season

During this year’s tax filing season, the IRS processed 126.1 million individual federal income tax returns and issued 91.8 million refunds, compared with 125.6 million income tax returns processed and 94.8 million refunds issued the previous year. Taxpayers also received larger refunds from the IRS in 2015hold – averaging $2,711 compared with an average refund of $2,686 last year.

However, many taxpayers faced significant challenges in filing their returns due to new filing requirements related to the Affordable Care Act and other changes in the tax code. Unfortunately, millions of taxpayers who attempted to contact the IRS by telephone for assistance with their tax returns encountered long wait times. Nearly 9 million taxpayers who called the IRS seeking assistance encountered a dial tone instead.

New Challenges, Less Funding

In her mid-year report to Congress, National Taxpayer Advocate Nina E. Olson declared that the IRS generally had a successful tax filing season for 2015, at least for taxpayers who were able to file their own returns without assistance from the IRS. This was despite the fact that the IRS was forced to operate with a budget about 17 percent smaller than the allotted funds for fiscal year 2010 – when adjusted for inflation. In addition, the 2015 tax filing season was the first to occur after the full implementation of the ACA. In 2015, the IRS also began implementing major portions of the Foreign Account Tax Compliance Act (FATCA).

“Courtesy Disconnects”

During the busiest periods of the tax filing season, the IRS switchboard can become overloaded. During such periods, taxpayers could be subjected to what is known as a “courtesy disconnect” – essentially having their calls disconnected without being answered. In 2014, the IRS executed about 544,000 “courtesy disconnects.” During the 2015 tax filing season that number shot up to an eye popping 8.8 million, an increase of more than 1500 percent over the previous year.

In her report, Olson wrote “For the segment of taxpayers who required help from the IRS, the (2015) filing season was by far the worst in memory.”

More Calls Dialed, Fewer Answered

olsonAccording to Olson’s most recent report, taxpayer calls referred to telephone agents increased by 41 percent during the most recent tax filing season, with an average call duration 10 percent longer than the year before. The number of calls actually answered by IRS agents plunged by 26 percent – only 37 percent of all telephone calls placed by taxpayers, with an average hold time of 23 minutes. This is in sharp contrast to the 2014 tax filing season, when the IRS answered 71 percent of calls from taxpayers, with an average hold time of 14 minutes.

Only 39 percent of calls placed to the National Taxpayer Advocate toll-free hotline were answered by the IRS, with an average wait time of 19 minutes. About 45 percent of calls placed by practitioners to the Practitioner Priority line were answered by the IRS, with hold times averaging an astonishing 45 minutes. The news was worse concerning calls from taxpayers who called the IRS after being notified that their tax returns had been blocked by the Taxpayer Protection Program because of suspected identity theft. Only 17 percent of those calls were answered by the IRS, with an average hold time of 28 minutes. For three consecutive weeks during the tax filing season, the IRS answered fewer than 10 percent of such calls.

Rethinking the IRS Mission

Much of the blame for this sharp decline in service can be attributed to cuts imposed by Congress on the IRS’ operating budget. But the IRS also bears some responsibility. For instance, IRS Taxpayer Assistance Centers and outlet partners such as local libraries and post offices did not receive paper forms until February 28. Facilities that ran out of forms could not order more – and many outlets never offered paper forms at all. Such limited availability of paper forms hampered taxpayers with limited access to personal computers or the Internet, many of whom traditionally collect significant tax refunds.

national-taxpayer-advocate-american-expats-692x300Olson also cited continued IRS emphasis on enforcement and ensuring compliance instead of providing customer service as a contributing factor to the agency’s woes. Despite occasional splashy headlines generated by prosecution of big-time tax cheats, less than 2 percent of all revenues collected by the IRS are gained through enforcement efforts. The remaining 98 percent of tax revenues are paid voluntarily – and in timely fashion. According to Olson’s report, focusing the limited resources of the IRS on snaring tax cheats makes it more difficult for honest taxpayers to navigate the system. The effort could actually be detrimental to the overall efficiency of the operation of the IRS.

“This focus has all sorts of consequences for the vast majority of taxpayers who are willing to comply, not the least of which is that they bear an increased burden in navigating processes designed for evaders. That is unwise, counterproductive, and expensive,” Olson wrote.

The IRS Response

Volume 2 of the 2015 Taxpayer Advocate’s report includes IRS responses to the Taxpayer Advocate’s 2014 report, along with additional comments. The 2014 report made 93 recommendations. According to the IRS, 45 of those recommendations have been or will be implemented, although additional resources would be required to fulfill some of the recommendations. With luck, taxpayers seeking assistance during the 2016 tax return season will receive answers – rather than a dial tone.

Gambling Taxes & Casino Win-Loss Statements

In the last thirty years, gambling has changed its image from a quasi-legal activity to a major player in the economy. The IRS has responded accordingly, now requiring gambling winnings to be reported as a source of income, with losses deductible only to the extent of winnings. A professional gambler, or someone who gambles often would especially need to be mindful of gambling taxes. (IRC section 165(d).) (If you win a prize in a drawing, that does not count as  “gambling.” It is reported on 1099-MISC, and other rules apply.)

Do you have to pay taxes on gambling winnings?

If you are fortunate enough to win $1200 in a jackpot at a slot machine, $1500 from keno, $5000 from a poker tournament, or $600 or more from “other” gambling winnings, then the casino will record your Social Security Number and the amount of the win, and write it off as an expense. Casinos offer a win-loss statement for their slot players that itemizes coin-in and coin-out, but vary in their player-tracking policies for other types of play. The casino will give you a copy of the gambling win, on Form W-2G and send a copy to the IRS. The IRS will use this gross figure as increased ordinary income unless you can indicate losses against this win. Senior citizens beware: the amount indicated on line 21 of Form W-2G will potentially make more of your Social Security benefits taxable!

Can you claim gambling losses on your taxes?

The traditional place to declare gambling losses is on Schedule A under miscellaneous deductions, but there are problems with doing it this way. First, you must “qualify” to itemize deductions on Schedule A.  For Schedule A to do you any good, your deductions must be greater than what you would receive as the standard deduction.

Let us say that you are single, so your standard deduction for 2014 is $6,200. If your allowable itemized deductions total less than this amount, then filing a Schedule A won’t benefit you. However, if you have sufficient mortgage interest, real estate taxes or charitable contributions to justify itemizing your deductions, then declaring a $1200 loss on Schedule A will help to offset the $1200 win.

If you don’t qualify for a Schedule A, or if you want to report less than what appears on line 21 of Form W-2G , then you have significantly more bookkeeping to do. All winnings, not just W-2G winnings, are reportable. Therefore, you must maintain a day-to-day diary that itemizes ALL of your winnings and losses per session, not just amounts of $1200 and over. The diary, similar to a tip diary, must be credible. It’s a good idea to back it up with bank records, ATM slips, and casino win-loss statements.

If you travel to gambling resorts once or twice a year, be prepared to keep a log of your winnings and losses per trip. As you arrive at your resort or hotel, make a dated note of your “buy in”, the amount of cash that you brought along to play with. When you check out of the hotel or resort, make a note of your “win” (or loss). This is considered the end of your gambling session.

If you live in a gambling city such as Reno or Las Vegas, then there is technically no way to delineate a gambling session, since slot machines are available in supermarkets and convenience stores 24 hours a day, as well as in bars and restaurants. If you are reporting less than the amount of winnings reported on Forms W-2G, be prepared for an IRS letter or an audit, and have all of the records required for a day-to-day record of wins and losses.  You should also be aware of various state laws that may vary from federal requirements. In such cases, it’s a smart strategy to have a tax professional assist you with the reportable figure. This option will require conforming to the situation in the court case Shollenberger v. Commissioner T.C. memo 2009-306, as referenced in The Tax Book, by Tax Materials , Inc.

Don’t expect casinos to proactively withhold any portion of your winnings for tax purposes unless state law requires it. Most state laws do not. Exceptions include foreign winners or other special circumstances.

There are two obvious reasons casinos won’t voluntarily place tax withholdings on your gambling winnings:

  1.      Withholding creates added administration paperwork
  2.      Withholding disrupts the flow of business (if the money is withheld, then you won’t lose it back)

You can request that gambling taxes be withheld from your winnings (perhaps based on your marginal tax rate or higher) at the time of the payoff. But you should not request withholding if your winnings come from the casino where you work. (Some states and casinos allow casino workers to gamble where they work; others do not.) However you go about doing so, having tax withholdings from gambling winnings can potentially save you hundreds or even thousands of dollars at tax time.