Gambling Income- Could You Owe More in Taxes This Year?
Could you possibly owe more Oklahoma taxes as a result of your gambling income? Due to recently announced changes to the Oklahoma itemized deduction calculation for individuals, the method you use to track your gambling winnings and losses could result in substantially more state income tax due than in prior years.
Beginning in 2018, Oklahoma itemized deductions, without regard to medical and charitable deductions, are now capped at $17,000. In other words, your total deductions, not including medical and charitable, cannot exceed $17,000 for Oklahoma purposes. For example, if a taxpayer has Federal itemized deductions, consisting only of gambling losses totaling $100,000, the Oklahoma itemized deduction is $17,000. The result is $83,000 of additional taxable income at the state level.
This could result in a huge unexpected tax burden if proper preparations have not been made. The good news is that there are some planning strategies that you may be able to utilize in order to reduce or even eliminate this tax burden.
There are multiple accepted ways to track gambling winnings and losses, but there is one method, known as the “session method,” that could significantly save you tax dollars. Using this method takes some effort, but for many the results will be well worth it. It ensures that you benefit from your full gambling losses, to the extent of gambling income, even if you do not itemize. Furthermore, the benefit is not limited by the Oklahoma itemized deduction cap.
With the “session method,” taxpayers track all gambling winnings and losses by each gambling session, and the net income of each session is reported as the total income on the face of the tax return. There is no need to report losses as an itemized deduction, because income has already been reduced by the losses (but not below $0). A session begins when the first bet is placed, and it ends when the taxpayer cashes out. Gambling sessions may be logged in various ways, such as:
Mobile device apps available for download
Spreadsheet – CLICK HERE for an example.
Good old pen and paper
Regardless of how sessions are tracked, there are elements that must be included in the documentation for each session:
Date(s) of the session
Type of gambling activity
Name & location of the gambling establishment
Total amount wagered during the session
Total amount won during the session
The effect of the Oklahoma tax law change has ramifications beyond gambling losses. Other common itemized deductions affected are those for real estate taxes and mortgage interest. If you believe you need a review of your 2018 tax plan, now is the time to act. To set up a tax planning appointment with one of our professionals, call our office at (918) 392-7879.