• gambling activities are entered into and carried on in good faith for the purpose of making a profit;
• gambling activities are carried on with regularity;
• gambling activities are pursued on a full-time basis, or to the fullest extent possible if taxpayer is engaged in another trade or business or has employment elsewhere;
• gambling activities are solely for the taxpayer’s own account and taxpayer does not function as a bookmaker;
• taxpayer maintains adequate records, including accounting of daily wagers, winnings and losses (see I.R.S. Rev. Proc. 77-29);
• the extent and nature of taxpayer’s activities which further the development of a gambling enterprise; and
• taxpayer claims deductions associated with the conduct of a trade or business for gambling-related expenses.

New Jersey which generally taxes gross income and does not recognize losses or itemized deductions, does in fact allow the netting of gambling winnings. (see line 23 of the 2004 form NJ-1040, which is not to be reduced below zero).



Gambling Winnings
Gambling winnings, including lottery winnings, are taxable to the City of Akron. Gambling losses are not deductible against gambling winnings unless the taxpayer is deemed to be a "professional gambler," where gambling is the taxpayer's business activity for federal tax purposes. Gambling losses are not deductible against any other taxable income.
http://ci.akron.oh.us/asp/TaxFAQs.asp



The Village of Mariemont, Ohio INCOME TAX RULES AND REGULATIONS
(5) Other compensation and other income, as reported on W-2's or 1099's, including but not limited to tips; bonuses; profit sharing; severance or termination pay; wage continuation payments made as a result of early retirement or employment termination; wage continuation payments made as a result of sickness or temporary disability and whether paid by the recipient's employer or by a third party; tips or gratuities received; employee contributions to tax sheltered annuities, non-qualified pension plans, or into employer or third party trusts or pension plans as permitted by IRS; ordinary income portion of stock options or employee stock purchase plans; strike pay; jury duty pay; employee contributions or amounts credited to non-qualified pension plans or deferred compensation plans at the time of deferral and to the extent subject to Medicare Tax; working conditions fringe benefits subject to tax by IRS; guardian, executor, conservator, trustee, or administrator fees; ordinary income portion of lump sum distributions which become subject to federal tax because the recipient did not roll over the distribution within the time required by IRS; lottery winnings, sports winnings, gambling winnings of any type, income from games of chance (from which no deductions are permitted, unless the taxpayer is considered a professional gambler by IRS rules and is accordingly required to file a Schedule C with the IRS; in such case the taxpayer may take appropriate deductions against income from gambling activities); gifts of any type in connection with services rendered; compensation paid to casual employees and other types of employees, and compensation received by domestic servants.
http://www.mariemont.org/forms/mariemont_tax_rulesregs2.htm