 Hello and welcome to the session in which we will discuss the taxability of gambling income and unemployment compensation. Starting with gambling income, what is gambling income? When you think of gambling income, think of a casino. Think of taking a chance, you're making a speculation and taking a chance. Well, what happened if you go to the casino or you gamble online or you gamble over sports or any sorts of gambling? Well, guess what? Gambling winnings would be included in the taxpayer gross income for the year in which they are earned. Now, that's the bad news. You might be saying, but I also, or if you want the lottery for that matters, any sorts of lottery, that's basically a form of gambling. But the question is, well, I did win $10,000, but I have a lot of losses. Maybe I have $30,000 and losses. Can't I offset my losses with my winning? Because usually gamblers, they only tell you about their winnings. They don't tell you about their losses. Well, guess what? Gambling losses may be deducted as an itemized deduction. So this is what you have to understand. You are going to report your winnings on schedule one, which we'll see schedule one in a moment. And that's income. Then if you have any winnings, it's going to be reported on schedule A. The losses will be reported on schedule A. Well, what if I don't itemize and use schedule A? What if I use my standard deduction? Then guess what? You don't use your losses. So you would only report your income. And your losses are only deductible up to your income. So what you can do, you can use your losses to reduce your income down to zero. Then what happened if you have additional losses? Any remaining non-deductible gambling losses may not be used to offset future learning, a future gambling winnings, or to reduce income from previous years. So any remaining too bad, you lost, you took a chance, don't gamble. Before we proceed any further, I have a public announcement about my company, farhatlectures.com. Farhat Accounting Lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Myles. My accounting courses are aligned with your accounting courses broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions, as well as exercises. Go ahead, start your free trial today, no obligation, no credit card required. So let's take a look at the form where you report those gambling. Well, if you look at schedule one, form 1040, and you look under 8B, there's a line called gambling winning. So this is, let's assume 10,000, you would report the 10,000 here. Then you will add up all your other income. And let's assume you only have $10,000 for that matter. So let's assume $10,000. Then this $10,000 would go to your other income, $10,000. We're assuming you have no losses. Well, that's not usually the case, but that's the point. So this is how you would report your winning. Then what happened if you have losses? Well, if you have losses, you can only use them if you prepare a schedule A, which is itemized deduction. So why did I say if? Because for any taxpayer, you have the option of a standard deduction, which is standard deduction could be any amount given by the government, for example, for this particular year, $12,554, a single, $25,100 for a married filing jointly, and those numbers will change. You could either use the standard deduction, or you can use the itemized deduction for schedule A, which is this schedule here where you add up all of your medical expenses, taxes paid, interest you paid, gift, casualty and theft losses, and other. Under other, you can include here your losses if you choose and as long as you itemized and your itemized deduction is greater than your standard, standard deduction, then you can do what? Then you can use the losses. Otherwise, if you don't itemize, then guess what? The $10,000 is reported as taxable income, and that's the end of it. So you did not take advantage of your losses. So the only way you can take advantage of your losses is if you itemize. Again, let's assume you have $30,000 in losses, the only amount you can use is $10,000 to bring your income down to zero, and the $20,000 losses you're going to have to take home with you. Basically, there's nothing you can do with it. And this is what you need to know about gambling losses. Think of hobby losses. We're going to talk about hobby loss later. So if you have a hobby and you incur a loss, you have some income, but also you incur expenses. Well, you can use your expenses to offset your income down to zero, but you cannot have a loss from a hobby loss. You could always have a zero. Same concept in gambling income. You could bring your gambling income down to zero, but any additional losses, which is for hobby, it will be additional expenses or additional costs cannot be used. Let's talk about unemployment compensation. What is unemployment compensation? Assuming you lost your job in the US for reasons other than your own, then you get paid from the state government. Well, although you get paid from the state government, those programs are federally funded. So you get paid in case you lost your job due to a layoff, downsizing, whatever the reason is unemployment benefit paid under a federal or state program. Usually the state pays you, but sometime when there's a, for example, COVID, you might have also federal unemployment, but generally speaking, the state will pay you in which you were laid off. Any benefit paid to employees who are laid off or lost their job for something that was not their own fault should be included in their gross income. And what do we mean by not their own fault? For example, if you quit, you cannot get unemployment compensation. If you were fired, it depends. You can file, so on and so forth. But the point is it's not your fault. So if you leave a job, you just, you cannot collect unemployment. That's the point I am trying to make. Now, whoever pays you, let's assume the state of Pennsylvania, the state of New York, the state of New Jersey, the payer of unemployment compensation should send you, should send you what's called the 1099G. And they will tell you the amount that you paid you for that particular year. And this amount is reported by the taxpayer. It used not to be taxable. Just know now it's taxable. Just historically, it was not taxable. Then they kind of, they taxed part of it partial. Now they tax the whole thing. Now it's taxed. So just know that that's the case. Now, what is it reported? What would you report this? Well, if you look at your schedule one, line 1040 under other income. And if you look at line 7, there's unemployment compensation, let's assume $5,000. Again, it gets added to your income. And it gets added to other income on your form 1040. So it's very important to see those where things go. What should you do now? What should you do? Go to Farhat Lectures and look at additional MCQs, true, false lectures that's going to help you, whether you are a CPA candidate or an enrolled agent or a student, invest in yourself, invest in your career. Accounting is important. Invest in it. It's going to pay you dividend down the road. Good luck, study hard, and of course, stay safe.