Individual Strategies

Tax Rules and Due Diligence for Gambling

The vast range of taxable income and possible deductions and credits an individual may have for federal and state purposes creates a sizeable list of questions to ask clients annually. Regarding types of taxable income alone, the possible sources are almost too numerous to ask. So, is it enough for practitioners to ask for information reporting forms plus a general question about other sources of income? In 2021, the IRS expanded Schedule 1 (Form 1040), Additional Income and Adjustments to Income, changing line 8, “Other income. List type and amount” to lines 8a to 8p to highlight 16 specific types of “other income” with line 8z added for reporting any other income types.

One of the specific income types at line 8b is for gambling income. Possibly the detailing of the Form 1040 other income line starting in 2021 signals that the IRS wants self-filers to be aware of what is taxable and that tax preparers should ask clients more questions.

In addition to reviewing the tax rules for casual gamblers, two Tax Court bench opinions issued this year are to highlight recent gambling issues the IRS found. The opinions explored the tax gap from gambling activities along with its relevance to due diligence considerations for individuals and tax advisers.

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