<p>legitamate is correct, in most cases the casino can provide a win/loss statement outlining the net winnings or losses for the year. This can be used to substatiate writing off all of the winnings on schedule A. However, they still have to be reported.</p>
<p>Swimscatsmom is correct - allowances are calculated based on the earned income. But that is because they are only paid on the earned income - payroll taxes are not deducted from winnings.</p>
<p>Ultimately, the gambling winnings were income that was available to your family - and your mother unfortunately used it to entertain herself in the casino. Flipping works with small winnings, because they are not reported. But larger winning are reported, and have to be shown on the tax return. If the IRS wanted to be sticklers, they could require the casinos to report ALL winnings for their card holders, even if they can be deducted.</p>
<p>Just as a heads up, your mother needs to be prepared for the rest of what this may end up doing to her tax return. With a low income, she may have been eligible for the earned income credit, but may also have lost that, because even if her earned income is in the eligible range, her AGI may be above the allowed limit.</p>
<p>I don’t mean to make things worse, but she needs to be prepared, in case her refund isn’t anywhere near what she is expecting.</p>