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once before you can cash it out for money that you can put in your pocket Here again we have a gray area that is not specifically addressed by the IRS or any court cases Some people don t include free play in their gambling win since they say it s just like comps a non cash gift from the casino Some only count as a win what they actuallyhave left to cash out after they play it through the machine once as required by the casino Others keep churning it through the machine until they have nothing left in which case they feel they have no win or until they hit a big jackpot which they do count as a win MARISSA I recommend that free play be incorporated into one s log of session results If someone receives 2 500 in free play they should report the actual proceeds after playing it through the machine as a win A big difference between free play and cashback is the fact that free play always has an expiration date and is usually valid for only a short period of time Cashback can expire as well for example if for a lack of play during a set period your players account is closed but it s usually available to collect for a much longer period of time JEAN Here s another nuance of the cashback issue I feel that cashback should be reported as income when you earn it and it s available to you even if you don t collect it until a later time Others may disagree pointing out that there might be valid reasons for not collecting cashback as when it s a small amount or a player plans to pick it up later but doesn t get back to that casino before his account is closed Free play is a different situation Many players myself included don t always collect their free play especially if it s a small amount and or it s not convenient or a good use of one s time to go back to that casino before it expires Therefore it s logical not to count it as gambling income until you actually redeem it MARISSA The difference between cashback and free play involves the concept of constructive receipt It s like getting interest in a savings account When the bank gives you interest it counts it as income even though you don t spend it or withdraw it from your bank account But the money is yours with no restrictions for you to withdraw at anytime Free play is just that credits on a machine that you can use to play In order for the money to be yours you have to run it through the machine at least once Once it s been run through now you have control over the funds in other words you now have constructive receipt You can cash out or continue playing CASINO TOURNAMENTS AND DRAWINGS JEAN The IRS treats all prizes and awards as income and this includes those won in a casino tournament or drawing Awards and prizes given in goods or services must be counted as well as cash Those IRS rules seem clear enough and sometimes casino tournaments and drawing prizes are treated just like non gambling ones For example if your casino prize is a non cash item you can include it in your income at its fair market value The real value of most prizes is usually much lower than what tax accountants often call the fictitious value For example when I won a car in a drawing at the Stardust some years ago I had to pay taxes only on the amount I got when I sold it back to the dealer a lower amount than the sticker price listed on the 1099 form the casino gave me In the case of the cruise we won described above under Comps the casino put the brochure price on the 1099 issued an inflated amount that no one ever has to pay We attached a copy of a listing on the Internet that showed the same cruise at a much reduced price and put down that amount as the fair market value MARISSA If you happen to win a non cash prize in a casino drawing you can definitely report the fair market value of that prize even if it s less than the amount reported to you on a 1099 MISC But you need to attach a note to your tax return explaining why the amount you re reporting is less than the amount shown on the 1099 Otherwise a computer might kick out this discrepancy and trigger a letter from the IRS questioning you about this undeclared income To support the figure you give for the fair market value I tell my clients to save things like newspaper ads or copies of Internet catalog pages indicating the price for which you could have bought the prize These aren t attached to the original return but are useful for a possible future audit JEAN Even though some of the IRS general rules and instructions for prizes will be helpful to gamblers many issues with the tax treatment of casino tournaments and drawings are perplexing First let s talk about tournaments The IRS has ruled that a tournament prize must be counted as income without subtracting the tournament fee I once had to count a 600 tournament prize as a win even though I paid 1 000 to enter the darn thing Players can add the tournament fees to their losses if they itemize and list gambling losses as a deduction But often they reach the allowable loss amount before deducting the entry fees thus they end up paying taxes on the gross win amount and it becomes the prize that cost me money Poker tournaments have even more complicated rules set by the IRS and we discuss these in Chapter

once before you can cash it out for money that you can put in your pocket Here again we have

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