Here is a short version of a friend of mine who gambles at the tracks. Well he regularly bets A$48 or $60 trifecta and superfecta bets in almost every race at the dog track. Well of course he wins some big trifectas and he bets pick 6's as well.
Well at the conclusion of the year, he had won $121,000 or so at the track that was reported in W2-G form each time. Well he had saved all losing tickets as well and got some tickets from other people and off of the ground. Well he EASILY had the $121,000 in losses from his tickets. Well he gets audited.
At the audit, he shows the IRS agent all of his losing tickets vs his reported winning tickets. Of course there were a few problems. The agent spent a good 2 hours looking at the tickets and here are his findings.
1. Well he did say that my friend had AT LEAST $120,000 in losses.
2. However, he wanted to know where my friend was including all of his $10-500 winning bets. I believe that was only over $600 that a ticket has to be reported, or 200X the bet size. So OBVIOUSLY my friend must have another 500 or so winning tickets that are NOT reported judging from his losing tickets.
3. Now the agent also said that these tickets WERE NOT my friends bets. How would he know that? Well because ALL OF THE REPORTED WINNING TICKETS were big tickets bets like the $60 trifecta bets. 90% of the losing tickets were bets to win, exacta bets and so forth. If those tickets were in fact his tickets, then he must have a few hundred winning tickets where his dog was the winner and so forth.
4. Now the agent said that MAYBE all of these could be his tickets. BUUTTTTT, how on earth could have placed bets at 4 different windows at the EXACT same time?? (My friend had put each days tickets in a rubberband) Also, why on EARTH would bet collectively $425 on #1 to win, $900 on number 8 to win and $300 or so to win on 3 other dogs?? Obviously no one would ever do that.
Of course my friend then had to come clean and say that 80% of these tickets were in fact NOT his tickets. Also, he obviously won MANY other trifecta and superfecta bets that paid less than $600 each. Well the agent worked out a deal with him, and ONLY counted his big bet trifectas and big bet Pick 6 tickets as losses. He had $38,000 in losses in those tickets. But he had to pay taxes on the remaining amount.
Now the moral of this story is this: ANY money earned is taxable. If you win $235 in live poker, well that is taxable