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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 15587
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I won $300,000 from gambling and my losses equaled my wins

Resolved Question:

I won $300,000 from gambling and my losses equaled my wins this year. Therefore, I did not have to pay federal income tax on the win. However, it drove my income up to 347,004. I am wondering if my accountant filed this correctly. Why would it drive up my earned income when it was unearned? It has affected my social security benefits and I am a wreck. I know I can take my losses against my wins but I don't know if is is still considered EARNED income.
Submitted: 1 year ago.
Category: Tax
Expert:  Megan C replied 1 year ago.

MyVirtualCPA :

Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

MyVirtualCPA :

How are you today?

MyVirtualCPA :

This is not considered earned income, therefore you should not lose any social security benefits because of these winnings

MyVirtualCPA :

However, a portion of your social security would be taxable - 85%

MyVirtualCPA :

Your gambling winnings are placed on line 21 of your tax return

MyVirtualCPA :

Your losses are deducted on Schedule A

MyVirtualCPA :

so, in the end you don't pay tax on the $300,000 but you will have to pay tax on 85% of your social security benefits

Customer:

I already lost half of my social security benefits in the last two years because of gambling wins. Although I took my loss tax deduction it was added to my adjusted gross income. Only the deduction was taken on the itemized deduction page. line 28 miscellaneous

MyVirtualCPA :

Yes, that's correct

MyVirtualCPA :

it is added to your adjusted gross income - so 85% of your benefits would be taxable

MyVirtualCPA :

The loss is deducted as an itemized deduction - which occurs after your agi is calculated

Customer:

So it is still considered part of my adjusted gross income eventhough my losses equaled my wins. The casino is telling me I have been doing it incorrectly these past few years. Im confused

MyVirtualCPA :

Your accountant is correct

MyVirtualCPA :

You can only deduct gambling losses as an itemized deduction

MyVirtualCPA :

It is still part of your adjusted gross income

Customer:

Ok that's what I thought.....You are certain?

MyVirtualCPA :

yes, http://www.irs.gov/taxtopics/tc419.html

MyVirtualCPA :

I just sent you a link to the IRS page that explains this

MyVirtualCPA :

Is there anything else that I can assist you with today?

MyVirtualCPA :

If you need anything else, please reply below. Otherwise, please rate my response as "excellent" so that I may receive credit for assisting you today

Customer:

No it just doesn't seem fair....that my losses equal my wins and I am penalized by adding it to my earned income

MyVirtualCPA :

I'm truly sorry, but unfortunately that's how the IRS has it set up, where your winnings are added to your AGI and your losses are deducted as itemized deductions

MyVirtualCPA :

Is there anything else I can assist you with today?

MyVirtualCPA :

If not, please rate my response "excellent" so that I may receive credit for assisting you today

Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 15587
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and 2 other Tax Specialists are ready to help you

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Megan C
Megan C
Tax Professional
15587 Satisfied Customers
Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level