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Cashback is Taxable Income

Originally posted on Green Chip by Uncle Sugar

Here is the appropriate text from Section 61 of the Internal Revenue Code:

”… gross income means all income from whatever source derived …”

Cashback is money paid to you by the casino. It is reportable as income. It is the one component of video poker cash return that is known ahead of time (prior to gambling) and anticipated by the advantage player. Furthermore, the casino has a record of it.

Cashback is distinguished from a non-reportable rebate in that a rebate reduces the cost of something that you have purchased. For example, assume that I purchase a new Silverado pickup truck for $30,000. General Motors sends me a check for $2,000. The cost of my truck is $28,000. I report that value to the state when I register my truck. I cannot “make money” by receiving rebates on items that I purchase. If I receive a rebate on ten cases of beer, as opposed to buying individual six-packs, I cannot drink until I show a profit. I can make considerable money with casino cashback, and do.

Cashback is distinctly different from comps in that it is cash, the currency in which your income is measured. Comps are promotions, often of highly debatable value, offered to you by a business as a promotion to get you in the door. However, once you are there, cashback is money paid to you for the specific action you have shown. It is a part of your return on investment just as your winnings are. It is the part of your return that is knowable and non-variable, but it is definitely part of your reportable income from gambling.

For the losing player, cashback makes no difference. He loses even after receiving the cashback. He owes no taxes on his losses. For the advantage video poker player, it is a substantial amount of his return from gambling. If you report your video poker income on Schedule C, you are probably treading on very thin ice by not reporting cashback as income in the event of an audit.