bankroll formula adjustments for taxes and living expenses

[Bubu]

Hi,
I am trying to work out my bankroll requirements for 0.1% chance of ruin. Since I will be using poker for living expenses I thought I should modify my winrate by subtracting off my (hourly) living expenses to get an effective winrate. Is this correct ?

However, how do you account for taxes ?

At first I thought I should multiply my effective winrate by (1 - taxation rate), so getting a net effective win rate. I don't think this makes sense. Afterall, you only pay taxes on profit, or when your bankroll increases, while the bankroll formula is designed to deal with the chance that your bankroll might decrease to zero.

Thanks,

Bubu

[Nottom]

I don't know why taxes would be any different than any other expenses for BR calc purposes. There is no real difference between making $30/hour at a 9-5 job or making it at the poker table as far as taxes are concerned.

[Bubu]

Thanks for your reply.

Well, at first that's what I thought. I am not sure how the bankroll formula is derived, however, I interpret it as measuring the likelihood of going bust give certain ev, std, and time period. The problem with taxes is that they only take effect if your bankroll grows. If your bankroll dips, then you are wins are not being taxed (as you can deduct your loses) until your bankroll recovers again.

If you adjust your ev to include taxes as an added expense you really need to get a much larger bankroll (proportional to to your taxation - so almost twice as big). But I think taxes are really not that pernicious as to bankroll calculations - they only affect you if you are winning, while BR eqt deals with the chance of lossing it all.

Bubu

[Dov]

Since you are only going to have to worry about it if you are winning, I would say that you should treat the taxes like all of the other expenses and take a refund at the end of the year on anything you can write off, just like normal withholding. If you are not a winning player, it won't matter, b/c your normal living expenses will chew up your bankroll anyway. If you are a winner, you will have had the money put away (from withholding) to pay the taxes.

[Nottom]

I sort of see what you are saying, but I think you are making it too complicated. I think you are better off figuring out what sort of weekly/monthly "salary" you need to live off then figure how many hours you need to achive your goal and base your BR needs off of that.

For example:
I need $1500 (pre-tax) every 2 weeks to support my glamourous lifestyle. I plan on playing 30 hours/week so that means I need $25/hour to support myself. If my actual winrate is $30/hour then I would simply calculate my BR needs using my actual SD but only $5/hour as my winrate.

If my SD is $130 and I want a RoR of 1% then it works out to be something like this:
BR = -(SD^2/(2*WR))*LN(RoR) = -(130^2)/(2*5)*ln(0.01) = $7782.74

(This would be a reasonable estimate of what a solid 3/6 player could expect from playing 3-4 tables)

[The Dude]

If you consider taxes as just another expense, then you don't really need to consider it separately.

Logistically then, you just set your monthly salary (technically referred to as your 'monthly nut') as the amount you need pre-tax to survive.

And, yes, the correct way to consider your montly living expenses is as you describe. Just to make sure we're on the same page, here's an example:

Let's say your real hourly rate is $20/ hr. You will play 150 hours/ month. Your montly nut is $2000. Your montly expectation is $3000, subtract your montly nut leaves you with $1000. Divide that by your 150 hours, and the hourly rate you would use in your formula is $6.67.

[Bubu]

Still, these calculations make no reference to taxes.

Usinf these examples, the WinRate=EV-HourlyNut,
but if assume tax reduces your ev, then
TaxedWinRate=(1-TaxRate)*EV-HourlyNut.
This can't be correct - it would kill your wins.

In this example, assuming total rate of taxation of 40%
your monthly winrate would be (0.6*3000-2000)/150 dollars per hour which is actually negative ! So one would now be a loosing player ?

Bubu