The IRS Gambling Session Method for Tax Reporting

All gambling winnings are considered taxable income by the Internal Revenue Service (IRS), which requires taxpayers to report the full amount. To simplify reporting, taxpayers can use a “session method” for accounting. This approach allows for a more practical calculation of gambling income by focusing on periods of play rather than individual wagers. Understanding how to define, calculate, and document these sessions is necessary for accurate tax reporting.

Defining a Gambling Session

A gambling session is a continuous period of play that starts with the first wager on a specific game and ends with the final wager on that same game. The consistency of the game type is an important part of this definition. Switching from slot machines to a poker table ends the first session and starts a new one. Similarly, playing slots at one casino and then driving to another to play the same game would be two separate sessions.

The IRS has provided specific guidance for electronically tracked slot machine play. For these games, a session begins with the first wager and ends with the last wager on the same type of game within the same calendar day. This means the session cannot extend past midnight.

For other types of gambling, the definition of a session can be more flexible. A single poker tournament spanning three consecutive days could be considered one session. If an individual plays blackjack at a casino from 1:00 PM until 4:00 PM, that is one session. If they leave, have dinner, and return at 7:00 PM to play roulette, the roulette play begins a second session.

Calculating Net Winnings and Losses Per Session

The primary function of the session method is to determine the net financial outcome of a period of play. The calculation is to subtract the total amount wagered during the session from the total amount won in that same session. This result will be either a net win or a net loss for that period.

For example, a person begins a slot machine session by inserting $200 into a machine. After two hours of continuous play, they cash out a ticket for $550. The net win for this session is $350, calculated as $550 (total won) minus the $200 (total wagered).

A session can also result in a net loss. If a player buys in at a blackjack table for $400 and cashes out with only $150 remaining, the session resulted in a net loss. The loss is $250, calculated as the $150 cash-out amount minus the $400 buy-in.

Over a tax year, a taxpayer will have numerous sessions with varying outcomes. For tax purposes, all sessions resulting in a net win are added together to determine total reportable gambling income. Sessions resulting in a net loss are also totaled separately. For example, if a taxpayer has a $350 winning slot session, a $250 losing blackjack session, and a $100 winning poker session, their total reportable winnings are $450. The $250 loss is tracked separately for potential deduction.

Reporting on Your Tax Return

To report gambling income, you must separate the winning sessions from the losing ones for the tax year. The sum of all net winnings from every profitable session is reported as “Other Income” on Line 8 of Schedule 1 (Form 1040).

The total of all net losses from unprofitable sessions is handled differently. These losses can be claimed as an itemized deduction on Schedule A. Gambling losses are only deductible up to the amount of gambling winnings reported, and they cannot be used to reduce other types of taxable income.

Taxpayers may receive a Form W-2G, “Certain Gambling Winnings,” for specific wins, such as $1,200 or more from a slot machine. Even if the session where the W-2G was issued resulted in a net loss, the form is still sent to the taxpayer and the IRS. The amount on the W-2G does not override the session calculation; the net outcome of the session determines the reportable win or loss.

Required Record-Keeping

The taxpayer is responsible for substantiating all reported gambling winnings and losses. The IRS requires records to support the figures claimed on a tax return when using the session method. Without proper documentation, reported losses may be disallowed during an audit, leading to a higher tax liability, penalties, and interest.

A detailed gambling log or diary is a useful tool for record-keeping. For each session, this log should contain:

• The date of play
• The name and address of the gambling establishment
• The specific type of game played
• The starting and ending times of the session

The log should also record the financial details of each session, including the buy-in amount and the cash-out amount. Supporting documentation is needed to corroborate these figures. You should retain documents such as:

• Forms W-2G
• Wagering tickets
• Casino player card statements
• Bank or credit card statements showing related transactions