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Posted by Harlan Lunsford on August 10, 2007, 2:03 am
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Geoff wrote:
>> webmas...@onfirebikinis.com wrote:
>>>> webmas...@onfirebikinis.com wrote:
>>>>> Recently the IRS notified me that they changed my 2005
>>>>> return. They took my gambling winnings of $60,000, which I
>>>>> had indicated on line 21 (Other Income), and decided to call
>>>>> this self employment income. The result is a new tax bill
>>>>> of $8,000.
>>>>> IRS specifically states in their tax guide that gambling
>>>>> income is to be stated on line 21. Thus, how can they now
>>>>> justify calling this self employment income when I did
>>>>> exactly as they reference in their tax filing instructions?
>>>> After thinking about this some more, the questions are how
>>>> did you win $ 60,000 and how much earned income did you have
>>>> from your stated oddupation?
>>>>
>>>> The IRS has a fairly sucessful history of fighting claims
>>>> of "Professional Gambler" as an occupation. There are no
>>>> professional Lottery, Keno, Slots, or Craps players. But
>>>> there are professional Blackjack and Poker players. In the
>>>> latter two, you would have expenses to get to and stay at
>>>> casinos - unless you were playing at home on the Internet
>>>> or even worse running the game at your home.
>>>>
>>>> Without a full understanding of the facts, I suspect you're
>>>> going to need a tax professional with audit experience!
>>>> Adams' Rule #1: NEVER represent yourself before the IRS.
>>> I appreciate all the responses.
>>>
>>> I was notified by a letter in which I was given 30 days to
>>> respond. The winnings came from sports betting, mostly
>>> football. My income apart from the sportsbetting was only
>>> around $12,000.
>>>
>>> When I state $60,000 in winnings that is
>>> after subtracting all my losses.
>> Aha, that may be part of your problem. Gambling winnings
>> reported on Line 21 are supposed to be the GROSS WINNINGS,
>> not netted with expenses. Expenses are an itemized deduction
>> (NOT subject to the 2% of AGI limitation) on Schedule A. If
>> you don't have enough deductions to itemize (i.e. must use
>> Standard Deduction), then too bad. You get to claim the
>> income, but not subtract the expenses (if any).
> "Gross Winnings" are the amount he won less the amount he
> bet; which is what he did. He didn't subtract any expenses;
> losing bets are not expenses, they are losses.
Ah, but gross winnings are entirely reportable and losings
only deductible on schedule a, assuming he's not in the
trade or business and thus net would be reported on the
schedule c.
When a gambling entry is made on line 21, it is ALWAYS
gross!
And if you don't believe it, I can tell you about some new
clients whose VITA preparers did just what you are
suggesting, i.e. line 21.
ChEAr$,
Harlan Lunsford, EA n LA
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