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IRS Deducting losses: If you itemize deductions, you can
deduct your gambling losses for the year on line 27, Schedule A (Form
1040). You cannot deduct gambling losses that are more than your
winnings.
It is important to keep an accurate diary or similar record of your
gambling winnings and losses. To deduct your losses, you must be able to
provide receipts, tickets, statements or other records that show the
amount of both your winnings and losses.
For more information see IRS Publication 529, Miscellaneous Deductions,
or Publication 525, Taxable and Nontaxable Income, both available on the
IRS Web site, IRS.gov, or by calling 1-800-TAX-FORM (1-800-829-3676).
http://www.irs.gov/newsroom/article/0,,id=108277,00.html
State Gambling Laws:
http://www.gambling-law-us.com/State-Laws/
California refers taxpayers to the above IRS web page for
taxation of gambling winnings and losses.
http://www.taxes.ca.gov/Small_Business/running/run_credits.html
Connecticut Gambling losses are not deductible for
Connecticut income tax purposes even though, in certain circumstances,
they are deductible for federal income tax purposes. Neither a resident
nor part-year resident is eligible to claim a credit against his or her
Connecticut income tax for income tax paid to another state on gambling
winnings.
Connecticut Income Tax Treatment of Gambling Winnings:
http://www.ct.gov/drs/cwp/view.asp?a=1510&q=306106
Connecticut Income Tax Treatment of State Lottery Winnings:
http://www.ct.gov/drs/cwp/view.asp?a=1510&q=306134
Peter B Stone v. Commissioner of Revenue Services (New Britain, CT
February 7, 2007):
http://www.jud.ct.gov/external/super/Tax/Decisions/CV-04-4001070.pdf
http://cga.ct.gov/2005/pub/Chap946.htm#Sec53-278b.htm
Sec. 53-278b. Gambling; professional gambling; penalties.
(a) Any person who engages in gambling, or solicits or induces another
to engage in gambling, or is present when another person or persons are
engaged in gambling, shall be guilty of a class B misdemeanor; provided
natural persons shall be exempt from prosecution and punishment under
this subsection for any game, wager or transaction which is incidental
to a bona fide social relationship, is participated in by natural
persons only and in which no person is participating, directly or
indirectly, in professional gambling.
(b) Any person who engages in professional gambling shall be
guilty of a class A misdemeanor.
http://cga.ct.gov/2005/pub/Chap946.htm#Sec53-278d.htm
Sec. 53-278d.
Transmission of gambling information.
(a) Any person who knowingly transmits or receives gambling information
by telephone, telegraph, radio, semaphore or other means, or knowingly
installs or maintains equipment for the transmission or receipt of
gambling information, shall be guilty of a class A misdemeanor.
http://www.ct.gov/drs/cwp/view.asp?a=1510&q=306106
1. Are gambling winnings subject to Connecticut income tax?
Whether gambling winnings are subject to Connecticut
income tax depends on whether or not the winner is a Connecticut
resident (resident).
If the winner is a resident of Connecticut and
meets the gross income test, all gambling winnings are subject to
Connecticut income tax to the extent includable in the winner’s federal
adjusted gross income.
If the winner is a part-year resident of
Connecticut (part-year resident) and meets the gross income test,
gambling winnings are subject to Connecticut income tax to the extent
includable in the winner’s federal adjusted gross income and to the
extent received during the residency portion of the winner’s taxable
year.
If the winner is a nonresident of Connecticut
(nonresident), gambling winnings, whether from gambling in Connecticut
or from gambling outside Connecticut, are not subject to Connecticut
income tax.
3. May a resident or part-year resident claim a
credit against his or her Connecticut income tax for income tax paid to
another state on gambling winnings?
No. Neither a resident nor part-year resident
is eligible to claim a credit against his or her Connecticut income tax
for income tax paid to another state on gambling winnings.
7. What if there is more than one winner?
If more than one person is entitled to a share of the
winnings, one federal
Form
5754, Statement by Person(s) Receiving Gambling Winnings, must be
completed identifying each of the persons entitled to a share.
Federal Form 5754 is also used when the recipient is not a person
entitled to a share. This form will list the name, address, and
taxpayer identification number of all persons entitled to any payment of
the winnings. The form must be signed, under penalties of perjury,
by the person (or persons) receiving the winnings. The payer uses the
information on federal Form 5754 to prepare federal Form W-2G for each
of the winners. A copy of federal Form 5754 must be retained by the
payer. A copy of federal Form 5754 need not be submitted to DRS, but
must be made available upon request. If the person receiving the
winnings is unable to properly identify any of the persons entitled to a
share of the winnings or their state of residence, the amount of the
winnings applicable to the other person is considered to have been won
by a resident of Connecticut and Connecticut income tax must be deducted
and withheld from such winnings.
CT and NJ taxation:
http://www.cga.ct.gov/2003/olrdata/fin/rpt/2003-R-0481.htm
Massachusetts Directive 03-3, Factors for Determining When
Gambling is a Trade or Business.
Issue: What factors does the Commissioner consider in determining
when the gambling activities of a taxpayer constitute a trade or
business for purposes of G.L. c. 62?
Directive: In determining when the gambling activities of a
taxpayer constitute a trade or business for purposes of G.L. c. 62, the
Commissioner will consider a set of factors, as set forth below.
Discussion of Law:
Massachusetts gross income is federal gross income, with certain
modifications not relevant here. G.L. c. 62, § 2(a). Federal gross
income is all income from whatever source derived, including gains from
gambling. I.R.C. § 61.[1] Thus, gambling winnings are included in
Massachusetts gross income. See also TIR 79-2, DOR Directive 86-24.
Massachusetts law adopts the deductions permitted under section 62 of
the Internal Revenue Code ("Code"), with certain modifications. G.L. c.
62, § 2(d). The deductions allowed under section 62 of the Code include
those deductions that are attributable to a trade or business. I.R.C. §
62(a)(1). In particular, section 165 of the Code allows a deduction for
losses from wagering transactions to the extent of wagering gains. I.R.C.
§ 165(d). Thus, a Massachusetts taxpayer may deduct wagering losses to
the extent of winnings, but only if the wagering activities of the
taxpayer constitute a trade or business.[2]
In the context of professional gambling, in Commissioner v. Groetzinger,
480 U.S. 23 (1987), the Supreme Court held that determining whether a
taxpayer is engaged in a trade or business "requires an examination of
the facts in each case." The Court further held that "if one’s gambling
activity is pursued full time, in good faith, and with regularity, to
the production of income for a livelihood, and is not a mere hobby, it
is a trade or business within the meaning of the statutes…." Id. at 35.
In Massachusetts, the Appellate Tax Board has relied on Groetzinger and
its fact and circumstances test in determining when a taxpayer’s
gambling activities constituted a trade or business. Cerpovicz v.
Commissioner of Revenue, A.T.B. Docket No. 128164 (1987); DiCarlo v.
Commissioner of Revenue, A.T.B. Docket No. 139866 (1989); Menard v.
Commissioner of Revenue, A.T.B. Docket Nos. 139277, 144198-99, 151689
(1990) (a taxpayer may be in two trades or businesses).
The determination of whether a taxpayer is engaged in a trade or
business remains one of facts and circumstances. However, in determining
when the gambling activities of a taxpayer constitute a trade or
business for purposes of G.L. c. 62, the Commissioner will consider a
set of factors. These factors are not exclusive, and are meant to
provide illustrative guidance to taxpayers. The burden of proof rests
with the taxpayer claiming to be a professional gambler. See William
Rodman & Sons, Inc. v. State Tax Commission, 373 Mass. 606 (1977);
Uniacke v. Commissioner of Revenue, A.T.B. Docket No. F210466 (1995);
Olson v. Commissioner of Revenue, A.T.B. Docket No. C256266 (2001).
The following factors will be considered:
- 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.
This Directive modifies DOR Directive 86-24 to the
extent that the position taken therein is inconsistent with the decision
in Groetzinger and the decisions made by the Appellate Tax Board in
reliance thereon.
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).
Under the provisions of N.J.S.A. 54A: 5-1(g), all gambling winnings,
whether they are the result of legalized gambling (casino, racetrack,
etc.) or illegal gambling, with the exception of New Jersey Lottery
winnings, are subject to the New Jersey Gross Income Tax for resident
taxpayers. The lottery winnings of residents are subject to tax no
matter where these winnings are received. Similar to the treatment of
gambling winnings under the Federal Income Tax Code, losses from
gambling incurred during the same period as the winnings may be used to
offset winnings. In other words, taxpayers may deduct gambling losses
from their gambling winnings during the tax period not to exceed the
total of the winnings.
Although no specific rider to the New Jersey Gross Income Tax Return is
required, it is requested that a taxpayer who enters gambling winnings
(net of losses) on the New Jersey return indicate the total winnings and
total losses on a supporting statement. This supporting statement may
eliminate certain questions in the event the return is selected for
audit.
http://www.state.nj.us/treasury/taxation/pdf/pubs/tb/tb20r.pdf
New York Publication 88, page #15
New York source income of a nonresident does not include the following
income even if it was included in your federal adjusted gross income:
Gambling winnings, other than lottery winnings won in the New York State
lottery as described on page 12, unless you are engaged in the business
of gambling and you carry on that business in New York State.
http://www.tax.state.ny.us/pdf/publications/income/pub88_1206.pdf
Akron, Ohio
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
Mariemont, Ohio
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
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