Question by powderbandit: A question about gambling, taxes, and legality.?
As I understand it, the IRS “doesn’t care” if you gamble, so long as you keep detailed records of your sessions and claim your winnings and losses.
About half of the states in the US have laws that make it illegal to PLAY AT gambling games (other than ones okay-ed by the state, such as the state lottery or bingo).
Let’s assume a gambler in one of these states is trying to do his taxes honestly. Remember, afterall, gambling is illegal in his state. As far as federal income tax, the so-called Silver Platter doctrine prevents the IRS handing the gambler over to authorities.
I think, in general, at this point, gamblers who are not evading taxes are not being targeted. But, here is my question: This gambler who lives in a state where playing at gambling games is illegal also lives in a state that incures state income taxes (not all states have a state income tax). What are his implications/risks about being honest on the state income tax? Can police or a summons to appear in court show up at his door?
In response to LegFuJohnson:
It is illegal to gamble in about half of states. A resident of a state that has laws against gambling can gamble somewhere where gambling IS legal, say, Vegas or a riverboat. It is not illegal to have gambling income. I guess I didn’t make my question specific enough. You have to have records of where you get income. If this hypothetical person got audited and his gambling records showed that his gambling was done, say, online in his state of residence, where gambling is illegal, does that put him at risk.
In response to Vegas Matt:
You are wrong about almost everything you said. So, I don’t trust your answer to my question.
1. I know that offering gambling games (i.e. running a gambling establishment not approved by state/federal law) is illegal in all states. I know about the various acts that have only made it more difficult to FUND online gambling. What I said is that certain states make it illegal to PLAY AT gambling games, and that is a fact, and includes online play.
2. You said there are no laws against gambling specifically online and that “broad” state gambling laws don’t apply online. This is a common falsehood. When there are no laws governing the online world, the laws of the brick-and-mortar world apply. If there is a general state law saying “gambling is illegal,” it MOST CERTAINLY applies to gambling online as well.
3. To think that tax evasion is “no big deal” is just plain assinine. I’d much rather get in trouble for gambling than tax evasion.
Best answer:
Answer by LegFuJohnson
I’d think the individual should report these winnings as “other income” and not mention gambling if he’s concerned.
If gambling is illegal in that state, then I suppose “gambling income” wouldn’t be a line item on the state tax return.
Add your own answer in the comments!