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

[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?

[fluff]

[ QUOTE ]
Why do they need to do it on a poker site?

[/ QUOTE ]

I'm assuming that since this is posted in "Internet Gambling" that is where he's going to do it.

I suppose you can do it at a B&M casino, but I don't think they appreciate collusion and chip dumping either.

Or you can play it heads-up on your kitchen table, but then why bother, just give him the money straight up. The IRS is never going to believe it anyway.

[Mike Haven]

Why hypothetically bother?

Hypothetically telephone Pacific and ask what they could hypothetically do for you.

[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