Imagine that you have just suffered a particularly devastating loss on the slot machine. You are trying to think of a strategy of explaining the situation to your wife without getting your head blown off. You promise yourself that you will never play slots again. That is not a very pleasant set of circumstances to be in. However I am going to give you some comfort by looking at the tax implications of losing video slot games. There is nothing that can replace winning or mitigate losing to the full extent but I hope this can make you feel a bit more philosophical about your situation.
There are also good ways to make sure that you lose too much in the first place though. Try some of these free online slot tournaments instead. Not only are they free to enter, but they are also cheap to re-buy and gives you a lot more time to play with less money.
If you make a significant loss on your slot machines, the IRS might be able to let you deduct that loss from your overall tax liability depending on your individual circumstances. The first rule to overcome is that you must be designated as a professional gambler and specifically as a slots player.
The requirements for these are that you have verifiable records that show that you continuously earn an income from playing. Therefore you might be required to produce documentation that points towards your status.
The second rule to be wary of is that you can only deduct the losses that are equivalent to your winnings. The IRS is not a charity and does not wish to give you free tax dollars. They create this rule so that all gamblers including slot players do not exploit the loophole to make excessive deductions.
The calculation is based on the total of winnings within the year so that you end up with a neutral situation. For example if you win a total of three thousand dollars in that year, you will only be able to deduct losses of up to three thousand dollars for that year.
Making sense of the tax code
As you can see the government is aware that slot machines like any other form of gambling has an element of pure chance. By just concentrating on your winnings, they try to ignore the chance issue. Thus the winnings become an income that no longer has anything to do with chance whereas your losses from slots are pure gambling chance.
I think that this maintains certain rationality to the tax system. I personally do not want to operate in a tax jurisdiction where the tax code is determined by the chances of winning on slot machines. This creates a very haphazard and shambolic framework.
At this juncture I have to point out that you have to go through a record keeping process for your losses on slots if you want to be allowed to make a deduction. This means that you have some basic information such as where and when you made the loss that you want to deduct from your tax bill.
From the above you can see that becoming a professional slot machine player is not as simple as it sounds. You might need some accountancy aptitude to get through the government traps that are set for you.