I know close to nothing about taxes. I received a 1099 misc form from a social casino. The form shows I withdrew about $6500 from their platform as “profit”. In reality, I spent about $5500 to get to $6500. Profit was about $1000. What do I do in this scenario?
Posted by Automatic-Tiger8584
2 Comments
Assuming this is all gambling income and you did not earn any of the income from them in some other way, the 6,500 is gambling (ordinary) income and the 5,500 is an itemized deduction.
Social casinos/sweepstakes casinos take the position that what they are doing qualifies as sweepstakes and *not* traditional gambling. The tax rules are different for sweepstakes than for traditional gambling – you don’t get to deduct losses for sweepstakes, and you pay tax on the entire winnings. If you agree with their position, then you have to pay tax on the entire $6500.
Or, you could say that realistically, this *is* gambling, and their legal argument is incorrect. In that case, you can claim your gambling losses as an itemized deduction. This only helps if your itemized deductions add up to more than your standard deduction, so it’ll depend on the rest of your situation. And there’s substantial risk here that the IRS may look at it and say “no, that’s not gambling, that’s sweepstakes” and make you pay tax on the entire amount + penalties for getting it wrong the first time.
As far as I’m aware, this is not a subject that has been tested in court (though I’m not an expert on that and I don’t routinely follow tax court cases, so I definitely could be wrong). It’s a pet peeve of mine, but it’s just another reason not to do business with shady casinos that intentionally avoid following the laws put in place to protect **you**.
If itemizing, even with the losses, would not exceed your standard deduction, then you likely should just agree with their position and report it as sweepstakes winnings. I highly recommend using more reputable casinos going forward.