Sessions Reporting to Reduce Tax on Gambling Income – Simple Explanation
Sessions Reporting to Lower Gambling Tax, IRS Tax Attorney (Naperville IL)
For those of you who have gambling income and know there might be a tax problem developing, you may want to ask your tax accountant about the Sessions Reporting method for your winnings.
What Sessions Reporting can do for you is help you reduce the winnings that you could be taxed. In turn, it could help lower your overall tax liability, both state and federal.
Here are three realities:
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Gambling income is taxable. But most people don’t realize that ALL gambling winnings are potentially taxable. Maybe you can offset wins with losses and pay no tax on your winning bets. But now, that “offset” that we all assumed to reduce taxable gambling income to $0 is harder to get. The rules, specifically the “hobby loss” rules under Tax Code Section 183, haven’t changed. The IRS is just paying closer attention to the rules.
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Frequent gamblers and habitual gamblers: The IRS is also paying closer attention to you. The IRS Examination Division is now targeting your gaming activity for audit. This is because the technical rules mentioned above do not favor you.
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With more electronically tracked play and online betting, your wins are easier to see. Unreported wins are now easy for the IRS to track. Your losses are not.
To avoid a bad result in an audit, you or your accountant must understand the rules.
Again, that “offset” we relied on to reduce taxable gambling income to $0 is harder to get. That’s where Sessions Reporting comes in. This method applies the “hobby loss” rules in a way that closely matches your wins to your losses.
Simplified Explanation of the Session:
There is now a safe harbor for electronically tracked slot machine play. It allows taxpayers to report their gambling activity on a per-session basis instead of each wager.
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It is reasonable to determine net gambling gains or losses over a session, not every spin.
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The IRS acknowledges that winnings shouldn’t be treated as income until the player redeems their tokens.
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Therefore, a session starts when the taxpayer places their first bet on a specific game type, like slots, and ends when they finish their last bet on that game before midnight that same day. One calendar day. One game type. One location or platform. That’s the formula for a session.
If you need further explanation before filing your taxes, speak with your tax return preparer.
If you are under an IRS Audit or you owe taxes from gambling income, contact a tax law firm like Tax Law Offices, Inc.