Hypothetical: Reducing gambling winnings by "losing"?

[thwang99]

A what-if question, say you've won $150k this year. And are in a very high tax bracket. Your brother needs some money, say, $100k. I picked $100k cause there is a $11k gift exclusion, and I want a taxable gift for this example (talking about US tax laws here).

If you give it to him as a gift, you'd have to first pay tax on the $150k you've won, say 40%, so you'll left with $90k. Then you give your brother $100k, and he has to pay gift tax, so overall, the end result from your gambling and the gift is:

You: -$10k (+$90k from gambling - $100 to brother)
Brother: +$100k minus gift tax (with exclusion on first $11k)

Instead, if you play some heads-up poker with your brother, and "lose" $100k to him, the situation would be different, you'd be taxed on winning $50k at 40%, and be left with $30k. End result is MUCH better for you:

You: $30k ($50k poker winnings - $20k in taxes)
Brother: $100k minus his tax rate

I'm sure there's other situations like this where it's desirable in a tax perspective to "lose" gambling to another. Is this ethical? Legal? Not that I'm going to do this, just something I'm wondering, I wish I had the "problem" of winning $150k. [img]/images/graemlins/grin.gif[/img]

- Tony

[HUSKER'66]

I'll just call you SCUM......................hypothetical of course.


Looks like chip dumping to me, no HYPOTHETICAL about it.

My response stands, given you post

Husker

[GrannyMae]

Looks like chip dumping to me

where did he say anything about this game being online? i read it as a game that never really was going to happen, just information to be used in an audit if it comes up. as i read his post, i imagined him telling them it was at their kitchen table. i see no inference to online play.

what am i missing?

tony, to answer the questions you asked.

1. is it legal? in many states home poker is legal

2. is it ethical? that's a personal call. MANY that would say "no tony, that's not ethical", are the same ones that would never report it at all unless they got a w2-G

[thwang99]

Yes, it would be a kitchen table game. Sorry should have made this clear, but I guess posting it here makes people assume this would be done online. Let's say X is $150,000 and X' is 149,999.99 to make a point.

Basically what it's doing is instead of winning X, and being taxed on X, then giving a gift of X', and being taxed on X' (almost double taxation by a penny), what this would do instead is I'd win X-X', get taxed on that (basically taxed on a penny gambling profit), and my brother would win X', and get taxed on that.

We'd both get taxed but the total amount we'd be taxed on is X, which is what I won, instead of being basically double taxed, once on X, then on X' (which is basically X).

In my hypothetical example above I'm using $150k and $100k, so it's double taxation on $100k, while I pay single taxation on $50k.

- Tony

[thwang99]

Hi Husker,

Many posters assumed I was talking about doing this online at a online poker table.

That's not the case, I was talking about doing it at a kitchen table (my brother and me's home), a cash game. Would you still consider this chip dumping, since there are no chips (we'd bring cash, my brother and I, and buy chips, or just play with hundred dollar bills). Course, I'd have to cash out $100k from my checking, and my brother would be depositing $100k into his, at a future point.

Basically a huge cash game. If needed we could do this at a state where home poker is legal.

Disclaimer: Note that I'm not doing this, this is just a question I'm curious about what people thought of ethically, I'm pretty sure it's questionable legally, even though on the surface everything seems legit.

- Tony

[Frozen]

Ethical? Of course. The government is out to take away your hard earned money by force, and then use your money to take away your drugs by force. F*ck them. The U.S.A. was founded on the principle of tax rebellion.

Legal? No. This is clearly a scheme. IRS agents look for this sort of thing, and trying this increases your audit risk.

[Baulucky]

Just move to a tax free country.

[ChristinaB]

The gift tax is owed by the giver. It is actually part of a combined gift/estate tax (as if your estate is prepaying for the distribution of your assets upon death).

There is a $1.5 million dollar lifetime exclusion, so even though you will have to file the tax return if you go over the gift limit - you will not pay any tax until you reach this level.

If your brother is married, you can give a seperate strings-free gift of $11,000 to his wife. Bill Gates could give his entire fortune away tax free if he gave enough $11,000 or less gifts to a lot of people [img]/images/graemlins/grin.gif[/img]

ps - As a US citizen, moving to a tax-free country will not work.

[fluff]

People have had their account barred and money seized by Poker sites for dumping 1/10th of that amount.

[TimM]

[ QUOTE ]
People have had their account barred and money seized by Poker sites for dumping 1/10th of that amount.

[/ QUOTE ]

Why do they need to do it on a poker site?

Anyway can't you do something creative, like "lend" him the 100K, with 11K annual payments, and then gift him the 11K each year?