[quote]Dr. Pangloss wrote:
Beans would be your best bet to ask.
I don’t understand how they only tax winnings, but not losses. Typically, losses are allowed, but only to the extent they offset winnings.
My understanding is Federal and Massachusetts State both count “actual winnings” as income; Federal allows losses to be itemized on Schedule A; Massachusetts does not allow losses to be offset against wins at all unless the player does it as a business.
(Further research seems to indicate “actual winnings” or losses in a poker session is the net gain or loss for the session; not hand-by-hand.)
What is a “session”?
I don’t see any good way to do this other than hand-by-hand in a cash game and offset losses (assuming any way to do it is “good”). In a cash game, you can get up and walk at any time and that money is “earned” or “realized” once you rake the pot. The other members of the game also realize the loss at the same time. Calling it a “session” and not offsetting losses might be the way they do it, but its stupid if they do.
Get in your car; drive from home to the casino; buy some chips; play poker for a few hours; cash out the chips; drive home. That is definitely one session (although there could be other situations that are more ambiguous).
In my first post I was wondering if the gains and losses hand-by-hand within one session are legally considered as separate items for tax purposes.
But additional info seems to indicate that the overall net for one session is a single gain or a single loss, for tax purposes.
Like changing casinos on one trip, changing card rooms, changing the game you are playing, going to the bathroom and sitting out a hand, staying in the hotel for three weeks but gambling in the same casino and sleeping at night, or doing the same and gambling in multiple casinos, etc.
A “session” isn’t easily definable and doing it that way is stupid. Just my opinion.
Win and loss amounts hand by hand at a poker table would be impractical for most players to record. Admittedly, there are a few people who have steel-trap memories or write very fast or type very fast; while also being able to precisely count and track chips going from and coming to their stacks. But those are not the majority of recreational poker players. (Here I am making the possibly stupid assumption that the law or its interpretation should be feasible for people to obey, even if it is foreseeable that most people will choose not to.)
For the gambler/player, a “larger granularity” for defining actual wins and actual losses is usually more favorable: the win total and loss total will both be smaller; resident of a state that does not allow gambling losses to be deducted against gambling wins has lower gambling winnings for tax purposes; and someone for whom exceeding some type of gross income cap would be an issue also has lower gambling winnings factored in.
From what little I have read on the subject, my impression is that anything that could reasonably be considered a single session (even multiple days in a row with most waking hours devoted to gambling) might be allowed as a single session. But if there is a “smaller granularity” win (single slot machine play; single blackjack hand) with a payoff big enough to trigger a reporting requirement at the casino, then there would need to be acceptable documentation for the other activity in the “session” to avoid having that single-hit amount by itself count as income.
The above is partly based on a tax court case where the IRS conceded that multiple days spent in a casino by the taxpayer in a single visit actually should be considered a single session with a single gain or single loss for the entire session. But the IRS claimed a tax deficiency based on inadequate record-keeping to demonstrate sufficient losses within the same session during which a big win occurred, to reduce the net for that session to the amount claimed by the taxpayer.
i.e. Taxpayer had a big win of X at a slot machine, and claimed X-Y in income. The IRS agreed that a multiple-day visit to the casino spent playing slots where X is won and Y is lost should count as income of X-Y; and the IRS agreed that the taxpayer lost Y dollars at some point during the year. But the IRS claimed and the tax court agreed that the taxpayer could not net X-Y together as (much less) income because the taxpayer did not have sufficient evidence that the Y was lost during the same visit when the X was won. The X had to be claimed as a win and the Y had to be claimed separately as a loss, because there was insufficient evidence as to when they occurred relative to each other to net them together.
The tax court actually did not rule on whether or not X-Y could have been netted together if there had been sufficient evidence that Y occurred in the same visit as X. But the IRS would have allowed it.