Casino accounting

I hate gambling. I even hate attending conferences in Las Vegas when I don’t gamble.

For me gambling at a casino is a noisy, smoky waste of time and money. However, evidenced by the number cars in the parking lots of the Choctaw or Cherokee Casinos, I might be one of the few people with this opinion. (A side note: If you have to go to a casino, go to the Cherokee casinos. You are helping pay for my mother’s health care.)

This lack of interest in gambling probably started in high school. I participated in a few penny ante poker games and honestly, I never won a hand. If I ever had my name in a hat for a drawing, my name would never be drawn. At games of chance, I am a born loser.

I have played the slots a few times in Vegas but after 15 minutes I got totally bored and walked away. I was temporarily interested in throwing dice, but my money disappeared too fast to hold any entertainment value.

But that’s just me.

People get excited when they win a big jackpot. They love to tell their friends about it. But they have started to avoid telling me about their victories over the slots. I’m compelled to ask them one of two questions. “How much do you think that jackpot increased your income tax?” Or “How much money did it cost you to win?”

Winning at the casino can increase your income tax, even if you have lost more than you have won.

It is true you can deduct your gambling losses to the extent of your gambling winnings. But based on the structure of your income tax code, that doesn’t mean your income tax liability won’t increase.

Gambling winnings are reported as gross income. Gambling losses are reported as itemized deductions. Said another way, winnings are reported “above the line” while losses are reported “below the line.” In between, on the way to computing taxable income, there is a subtotal in the computation: adjusted gross income. Adjusted gross income is the “line.”

Many tax benefits available to individuals are reduced as your adjusted gross income increases. If you don’t qualify to itemize your deductions, gambling losses won’t help. If you are a Social Security recipient, gambling winnings can cause your previously untaxed Social Security benefits to be taxable.

Potential tax savings from college tuition credits, student loan interest, individual retirement accounts, medical expenses, and employee business expenses can all be affected by income levels. What a drag.

To increase the drag on a winner’s excitement, the IRS instructs you to keep an accurate diary of your gambling activities that include, at a minimum, the following information: the date and type of your wagering activity, the name and location of the gambling establishment, the names of the people with you, and the amount lost. If you are playing the slots, the IRS wants you to also to record the slot machine number and the amount of money won or lost by date and time the machine was played.

If you gamble regularly, you have to spend time bookkeeping. Another drag on the winner’s excitement. See IRS publication 529 Miscellaneous Deduction for more information.
www.irs.gov/pub/irs-pdf/p529.pdf

And of course, I always have to tell a jackpot winner about the law of large numbers. According to Wikipedia, the law of large numbers states “the average of the results obtained from a large number of trials should be close to the expected value and will tend to become closer as more trials are performed.”

Slots are designed to take your money. Every game in the casino is designed to take your money. That is the expected value in the law of large numbers. It basically means the more you play the more you lose. You might win big early in your gambling life, but if you keep gambling the law of large numbers almost guarantees you will be a loser.

If you are interested in good financial advice, here is some. Don’t go to the casinos.