Do small poker winners/losers get really screwed by IRS?

[Easy E]

yes- as you know, if you don't itemize, you get screwed. You could self-adjust and report that, but you're SOL if you got W2-G forms for bigger wins.

[jdl22]

Can you explain when you can itemize and when you can't a little more? Does it have only to do with the amount you lost? Are there other things you can do so that you have to itemize (donating to charity and the like)? If so it may be a +EV move to dump money away to either a charity or "accidentally" losing a few hundred at the tables on new years eve.

[PuppetMaster]

[ QUOTE ]
I won in Fantasy Football last year, but had some winning and losing sessions with a net loss in poker. As a result my itemized deductions of losses didn't help that much in offsetting my winnings due to the itemization rule.


Maybe I'm missing something here. What is different about how you're itemizing your sports bet wins vs. fantasy league wins vs. poker wins vs. any other wins?

If the IRS were fair they'd simply let you offset the winning with all of your losses, at least to the extent of winnings.
I thought that's what you WERE supposed to be doing.

[/ QUOTE ]
You have to report total winnings under "other income", then report gambling losses under schedule A "itemidize deductions".

[Ulysses]

I'm pretty sure anyone can itemize. But you get a "standard deduction" of varying amount based on your filing status. If your itemized deductions add up to less than the standard deduction, it doesn't make sense to itemize. So, if you have a relatively small volume of gambling, you don't really get to offset wins v. losses. In fact, you could even be in a situation where you pay taxes on gambling losses.

Say you have $1500 in poker wins and $2000 in poker losses. But you have no other itemized deductions, so you take the standard deduction.

Without poker, your taxable income = income - standard deduction.

With poker, your taxable income = income + 1500 - standard deduction.

That sucks.

[jdl22]

Thanks for the info. I Googled "standard deduction" and got a nice page with a little tutorial complete with quiz (I didn't take it by the way but I think I could have performed decently). Here is what they said the standard deductions were last year for most people:

2003 Standard Deduction
Single $4,750
Head of household $7,000
Married filing a joint return $9,500
Qualifying widow(er) with dependent child $9,500
Married filing a seperate return $4,750

For those that can be claimed as a dependent it works out to what you make plus 250 bucks. Not sure why they don't just say that if somebody can claim you you're not paying any taxes but whatever.

So now when my fiance tells me I'm playing too much I can say, "but honey just let me play until I lose at least 5 grand then I'll stop, I want the taxes to be fair after all."

Actually I don't think I'll have too much trouble there. I'm still learning so my variance is pretty high meaning I've both won and lost a fair amount of money. I'm sure by the end of the year my itemized deductions will be well above that amount. Of course I'm not in the group that you're discussing since I currently play over 20 hours a week and that will only go up.

[jstnrgrs]

It is important to note that despite the insanity of the tax laws, it is never +EV to loose money intentionally. Consider the following examples (supposing that you are single and in the 10% tax bracket):
1) You win 10k, loose 1k. You pay taxes on 10K - 4.7k for a net of 10K - 1k -.53k = 8.47k .
2) You win 10k, loose 5k (so that you can write off your losses). You pay taxes on 10k - 5k for an net of 10k - 5k - .5k= 4.5k. You have reduced your taxes, but you have not increased your net result.

For everyone who thinks this is stupid, consider the Massachusetts state income tax where you cannot write off any losses, so if you win 10k, and loose 10k, you now owe the state $530.

[Ragnar]

Let me attempt to explain Easy E's question with an example.
Suppose I pay a $100 entry fee in Fantasy Football. I win $1100. So my net gain is $1000.

I play five poker sessions (I obviously play more, but this is simplified, my swings weren't as bad either.) I am +200, -500, +100, -700, -200. So my net is -$1100. My overall gambling loss is -$100.

I report +1300 in my gross income. I take 1300 as a deduction in my itemized deductions. (I can't take the other 100 because you can only deduct gambling losses up to gambling gains.) Since the income is above the line, and the itemized deductions are below the line I still end up paying some tax on my "winnings."--Even though I lost on the year.

The reason is that below the line deductions don't have 100% value, and the IRS has put gambling losses there. That is because below the line deductions only reduce taxable income and not gross income. Then your tax is a percentage of taxable income. So you only get a percentage of your losses, but your gains count 100%.

Even if we assume that I didn't play fantasy and had the bad poker record I detail above I'd still have a negative tax impact. I'd report $300 in wins, deduct only $300 in losses and the wins would be above the line, and the losses below the line. So there'd be some tax paid.

I hope this helps. Perhaps an accountant can help clarify.

Ragnar