Question

A taxpayer lost $5,000 his first night in Reno, the second night he won $12,000. He only needs to report $7,000 as income on his tax return.

a. true
b. false

Answer 1

The taxpayer must report the net gain of $7,000 from gambling as income on his tax return, which is the difference between his winnings and losses. The statement is true.

Step-by-step explanation:

The question poses a scenario where a taxpayer has experienced both losses and gains from gambling. On the first night, the taxpayer lost $5,000 and on the second night, he won $12,000. When filing a tax return, the taxpayer can only report the net gambling earnings. Therefore, the statement that the taxpayer only needs to report $7,000 as income on his tax return is true, as the net income is calculated by subtracting the losses from the winnings ($12,000 - $5,000 = $7,000).

Answer 2

He only needs to report $7,000 as income on his tax return is b. false

For gambling activities, the **net** winnings are considered taxable income. In this case, the taxpayer's net winnings are $12,000 - $5,000 = $7,000.

Therefore, the taxpayer must report the full $7,000 of his winnings as income on his tax return.