As a Canadian citizen having won a taxed amount in the United States, you can recuperate all or part of this tax by deducting losses in the same year from your winnings. As, legally, you must pay a federal tax of 30% on your net annual win, while they taxed you immediately on your gross amount, it is almost always possible to retrieve at least part of the money you left behind.
This recuperation can be achieved by a declaration on an income tax filing for aliens, on Form 1040NR. While you have proof of your taxed winnings, it might be quite different for your losses, as well as your other wins. Casinos do not give you receipts for your losses, so most of the time these seem to depend only on a player’s declaration.
An IRS audit or a simple verification are very rare for aliens but simply relying on your word will probably not be enough. Different tools will help you get tangible proof of losses, but ultimately nothing beats a good log book; it works pretty well if it answers the specific requests from the IRS. What does the agency have to say about this? Publication 529 on miscellaneous deductions specifies this:
Diary or journal of similar record of wins and losses. You must keep an accurate diary or similar record of your losses and winnings. Your diary should contain at least the following information. -The date and type of your specific wager or wagering activity.
-The name and address or location of the gambling establishment.
-The names of other persons present with you at the gambling establishment.
-The amount(s) you won or lost.
In addition to your diary, you should also have other documentation. You can generally prove your winnings and losses through Form W-2G, Certain Gambling Winnings, Form 5754, Statement by Person(s) Receiving Gambling Winnings, wagering tickets, canceled checks, substitute checks, credit records, bank withdrawals, and statements of actual winnings or payment slips provided to you by the gambling establishment.
As a whole, in case of an audit, the IRS reserves the right to require quite a lot from you! It doesn’t mean that any diary or log not completely in accordance with these guidelines will be rejected, but with the IRS you may as well have more than less. We can also note a large grey area regarding the word “session”. What constitutes a session? Is it determined by day?/hour?/machine or table?/trip? The IRS does not specify in any way and a lot of jurisprudence exists but they will vary their definition depending on different cases or agents. As diaries showing daily wins and/or losses have generally been successful in the past, the best advice we can give you is to keep one up to date while keeping it as precise as possible and as short as possible by session. In other words, be prepared for the worst to get the best! In slot machines, money in/money out is really the ideal scenario. A player card will do the work for you here. If you move to a different game, this should signal a new session also.
Another piece of advice. Case law has shown the court may very well throw out a diary that is deemed to have been prepared at the last minute following an IRS request, instead of having been built regularly after sessions. So, although it is more demanding, keeping notes when in a casino remains ideal and much more believable that one that you built much later from memory.
You have a perfect diary and are ready to file for a refund? There is no reason whatsoever to join it to you file! Never give more than what the customer wants. Your diary should only serve when requested by the IRS. It will never speed up the process and may even hurt you, as you give an agent a chance to look more deeply into your request.
We at Gamblingtaxes.ca can provide you with a blank log book that corresponds to the criteria of the IRS. Contact us to obtain a free copy!
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