[Zetack]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
I gather that many marginally winning recreational players (and I am one) may be winners on paper but actual losers once tax liabilities and other "full costing adjustments" (such as gas to and from the casino, etc.) are included.

[/ QUOTE ]

First, while taxes reduce the winnings of a winning player, they can not turn a winning player into a loser! (unless they aren't paying their taxes)

Second, this discussion is about "online" poker players, thus B&M related issues don't apply!

[/ QUOTE ]

Incorrect on both points, though I do see what you're saying.

First, taxes CAN take a winning recreational player into the red, and it has everything to do with the tax law. Read Ed Miller's November 2+2 Net Mag story and the thread in the Magazine Forum to get a sense of what I mean.

Recreational players (e.g. everyone who isn't a full time pro) pay taxes on the total of their WINNING SESSIONS, and may, on their separate deductions (if not claiming the standard deduction) claim losses up to the amount of their winnings. Recreational players may NOT simply aggregate their winnings & losses and pay on the resulting net amount.

So lets see how this works for a player who is a marginal winner -- say 0.5BB/100 over 100K hands. If the player experiences high variance, e.g. big winning sessions and big losing sessions, then he may end up having his winning sessions equal to about 180 to 200% of his actual net win. If I win $150 one day, lose $200 the next, lose $150 the next day, and win $250 the next day, I have net winnings of $50, but a sum winning session total of $400... or 8x the amount of my actual win. As the year progresses, your taxable poker income will gradually increase over your net winnings until the point where it COULD foreseeably cause you to have tax liabilities in excess of your net winnings, thus turning a winning player into a loser.

Second, I know exactly zero players who play exclusively online. I'm sure there are many out there, but I don't know them. Online players like to go to B&M joints, and when they do they incur poker expenses that should count. Thus my mention of those things.

[/ QUOTE ]

I don't think your answer is right, although it may be that I'm just not understanding it. As long as you itemize your deductions, your taxable poker income should never increase over your total net winnings.

The point at which taxes can you drive you into a net poker loser is based on the standard deduction. If you itemize already, taxes won't drive you into the red poker wise. If you take the standard deduction, however, then you lose all benefit of your poker losses and are taxed on your gross poker winnings.

Ok, say you are married. You have no house, medical expenses, kids, or anything else that would cause you to itemize. Your standard deduction is 9720 dollars.

Now say you net 1000 dollars playing poker. It breaks out this way, you win 10 grand in total winning sessions and lose 9 grand in your losing sessions. Well you have to claim 10k in poker winnings, but you aren't going to claim any of your poker loses because its less than the standard deduction.

So if you are in the 25% marginal tax rate (say you made 70k at your regular job and your spouse made nothing). You pay 2500 dollars in tax on your one thousand dollars of poker winnings. Fun eh?

Ok, even if you lose enough to get to itemize you still lose out by losing your standard deduction. Say you made that same 1000 grand playing poker but this year you did it by winning sessions that totaled 25k and losing sessions that totalled 24k. Great, now you itemize your 24 k in losses and only pay taxes on your net win of 1K. So 250 dollars in taxes. Yea! You're still in the black for poker! But wait a minute, because you would have taken the $9720 standard deduction but for your poker play, you now have 9720 more in taxable income than you would have had. At a marginal tax rate of 25%, that's $2430 in extra taxes. Congratulations, winning that 1000 bucks caused you to lose cost around 1700 dollars in real money.

Now if you do itemize, I don't belive that you can be turned into a net loser by taxes, (please correct me if I'm wrong) but you could come out worse financially by the fact of having your Gross Income increased by having to report your total poker winnings before deductions for losses in your gross income. This could cause you to miss out on medical deductions and limit your ability to contribute money to various retirement vehicles among other things.

The bottom line is that the tax system with regard to gambling winnings is really screwed up, and seems almost designed to cause people to cheat on their taxes. The fair thing to do would be to simply let people net their winnings and report it as income. If the IRS is worried about cheaters under that system, they could still require taxpayers to fill out a schedule of wins and losses, if you can't document the losses you don't get to subtract them from the reportable net winnings.

Note all this only applies to the US.

--Zetack

Edited to use a marginal tax rate that exits in real life in the US.