Since you are required by law to report your gambling winnings as income, it's to your advantage to deduct as many losses from your winnings as possible. To do so, you have to keep good records. In fact, the IRS requires it.

This might seem like an onerous task, but it doesn't have to be. Nor is there any reason to make it more complicated than it needs to be. You don't need a computer or a PDA (personal digital assistant), although you can use either or both if you want. Nor do you need a special software program, although, again, you can use one if you want. You can even write your own spreadsheet program to keep track if you like.

However, when it comes to keeping track of wins and losses, the KISS principle (keep it short and simple) is perfectly fine with the IRS. For this system, all you need is some discipline, a small spiral notebook, and a place to put receipts and other information. And you need to know what to keep track of.

Guidelines for Record Keeping

In 1997, the IRS issued Revenue Procedure 77-29, which details the agency's record-keeping requirements for gambling activities. It requires gamblers to maintain “an accurate diary or similar record” that contains “at least” the following information:

• Date and type of wager made

• Name of gaming establishment

• Address or location of gaming establishment

• Names of other people, if any, who were with you when you played

• Amounts you won or lost

That's not so bad, is it?

In addition to a diary or other written record, the IRS also requires that you keep supplemental records, which it defines as “W-2Gs, wagering tickets or receipts, canceled checks, credit records, bank withdrawals, and any receipts provided by the gambling establishment.” This can include information the casino gathers on your play through player's club cards and at some tables that are equipped with smart card technology. All you have to do is ask casino management about getting it.

Keeping good records is the best way to avoid problems with the IRS. The best approach is to set up a record-keeping system before you start playing, and enter wins and losses as you incur them. If you didn't do this when you started playing, it's never too late. Backtracking is hard, and it's never 100 percent accurate, but having some records is better than none at all.

Organizing Your Info

Everyone has different record-keeping styles. The IRS really doesn't care how you do it as long as you follow their guidelines for what to include. You can keep information diary style. Here's an example of what such entries look like:

April 12. Blackjack at the Bellagio in Las Vegas. Buy in was $300.

Cash out was $500. Net gain: $200. Total for day: $200

April 30: Blackjack at Caesar's. Buy in was $200. Cash out was $50. Net loss: $150.

Video poker at Caesar's. Buy in was $100. Cash out was $150.

Net gain: $50. Total for day: -$100.

Total for year: $100.

Or you can set up a simple chart. Here's an example:

Splitting Pairs — Single-Deck Blackjack

Date	Place	Who With?	Buy In	Cash Out	Day Total	Year Total
3/12	Caesar's	Bill	500	700	+200	+200
3/20	Bellagio	alone	250	50	-200	0
4/2	Gold Dust	Steve	700	1,000	+300	+300

In addition to your diary or log, you need to keep all your receipts and other written information in one place. The easiest way to do this is to put an envelope where you typically empty your pockets, purse, or wallet. Stick all your gambling receipts in the envelope. If the information on the receipts is a little sketchy, take a moment and jot down a few notes before you put them in the envelope. Don't figure you'll come back and do this later — you won't, and even if you do, memories fade pretty quickly.

Reporting Your Winnings

For tax purposes, the IRS lumps gamblers into two categories: recreational players and professionals. Each category reports income and deductions differently.

• Recreational players: Report winnings on Form 1040, page 1, line 21 (other income). Report losses on Form 1040, Schedule A, line 27 (miscellaneous deductions). Spouses who file joint returns can combine wins and losses.

• Professional players: The Supreme Court defines professional gamblers as individuals who “gamble with regularity, continuity and with an expectation of profit.” If this describes you, you'll need to file a Form 1040 Schedule C, which details wins, losses, and expenses related to your gambling activities. You'll also have to file a Schedule SE and pay self-employment taxes. Depending on your situation, you may be required to file other schedules as well.

Self-employed individuals, regardless of occupation, can deduct such expenses as professional training, professional advice, office expenses, transportation, meals, and others. Regulations in this area frequently change; consulting a tax advisor or planner is highly recommended should you want to make a business of gambling.