Re: Reporting Gambling Winings
[ QUOTE ]
That is unequivocally wrong. Your AGI goes up 100k, but you deduct the 100k on Schedule A. You're not directly increasing your tax burden as it is calculated after your deductions are taken out. However, you do lose the standard if you weren't already itemizing plus all the deduction phaseouts and AMT assocaited with a higher AGI.
[/ QUOTE ]
And that is the problem. You end up paying taxes on what is obviously zero income, an infinite marginal tax rate. I call this a useful application of the Laffer curve: it's not that people work less when in higher marginal tax rates, but that people are much less likely to report "income" when it is going to be taxed above 100%.
You have incentive: you don't want to pay tax. You have the opportunity: the IRS doesn't know about your gambling winnings. You have the justification: the tax is over 100% and far from fair. There we go, fraud triangle.
It's the same stupidity with the hobby income. Who reports hobby income unless they can weasel it on a Schedule C? An agreement starting with "Why, yes, Mrs. Fluffenstuff, I'll mow your lawn for $10 per week" certainly won't find its way to Line 21 of Form 1040, even on the tax return of the most honest taxpayers.
|