? RE: tax reporting, how does AMT effect your schedule A losses?

[DING-DONG YO]

I remember discussing this a while back but I can't remember the outcome.

What are the disadvantages to filing your wins in other income and losses on schedule A as an itemized deduction?

1 - Does this push you into a higher tax bracket? I remember thinking it did but now I can't see how it would.

2 - Would AMT issues ever force you to disallow some of your losses in schedule A? I remember someone saying it wouldn't ever eat your poker loss deductions but your poker income could push your gross income so high that it would disallow some of your other itemized deductions (mortgage interest, etc.)

I'm trying to get ready for tax time and brush up.

Thanks!

DDY

[Berge20]

1 - Definately yes

2 - Let me do some thinking

[DING-DONG YO]

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1 - Definately yes

2 - Let me do some thinking

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I remember thinking it definetely would as well but I can't see how now.

Assuming none of your deductions were disallowed, then your net total income that you are taxed upon would be the same as if you just put your net wins in other income (which I know you can't do). Help Berge, I can't remember and I'd rather find out here than run numbers and figure it out myself.

[Berge20]

Well, the problem isn't the total net income...it's the total gross income. That figure will go up, tossing you potentially into a different bracket or getting snagged by the AMT. That can also impact potential deductions as some arent allowed if your gross is over a certain amount.

[DING-DONG YO]

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Well, the problem isn't the total net income...it's the total gross income. That figure will go up, tossing you potentially into a different bracket or getting snagged by the AMT. That can also impact potential deductions as some arent allowed if your gross is over a certain amount.

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But re: #1, tax is figured on taxable income which would be the same assuming no deductions were disallowed? Someone with a 500K gross income and 450K in allowed deductions would be in the same bracket as someone with 50K taxable income.

What am I missing here?

[Berge20]

Deductions arent all the same though. Some are above the line and others are not.

My brain isnt really working 100% today and i'm not a CPA, so it is possible I'm wrong (or we're talking past each other about different things)

[DING-DONG YO]

But for figuring taxable income, what difference would it make assuming none of the deductions were disallowed? Your taxable income and therefore your tax bracket would be the same as if you had just reported net wins in other income, so no higher tax bracket. And I guess the only way the deductions would be disallowed is through AMT.

Is there an AMT expert in the house?

[broiler]

DDY,
It's nice to see you getting ready for tax time on here. Prepare yourself for a long-winded response.

1-This is a definite maybe. You might not necessarily get bumped into a higher tax bracket, but you will ending up paying equal or greater tax by filing correctly. If you already itemize without gambling losses and have no income sensitive items (medical, misc. itemized subject to 2%, various tax credits, IRA deduction, etc.), then the tax will be exactly the same. Also, you have to consider that the gross gambling winnings can cause your AGI to increase to an amount high enough to trigger the phaseout of all non-gambling itemized deductions. However, most people don't fit into that highly constructed scenario and they will end up paying more in taxes when filing correctly. The only reason that I won't say definitely on the higher tax bracket is that the bracket ranges are fairly wide and the impact may not be great enough for any person to change their marginal tax bracket. I assume that the real point is to question whether or not a person is going to pay more in taxes and the answer to that would be a very likely yes.

2- AMT is a much trickier question since it is an entirely different approach to calculating the tax due. The big differences are in the deduction for taxes, which is not allowed for AMT, and medical, which is raised to 10% of AGI test for AMT. Many people filing their gambling income correctly end up phasing out their medical deduction for regular tax, so this is not an issue. The tax deduction can be a problem in states that don't allow gambling losses, where you end up paying higher state taxes, which end up as nondeductible items for AMT and possibly causing an increase in AMT for some people. AMT also disallows misc. deductions subject to 2%, but these may be gone after reporting your gross gambling winnings anyway. The state tax issue is the only problem that arises for AMT because of reporting gambling income correctly. I would also add that gambling losses are allowed for AMT, so these do not cause a problem directly. In general, poker winnings are not going to push someone into AMT, but I will concede that it could given the right set of circumstances.

[DING-DONG YO]

broiler, thanks for helping me clear it up. You go into a higher bracket (than you would have if just reporting net wins in other income for argument's sake) only if some of your non-poker itemized deductions are phased out b/c of the increased AGI, which is likely.

I think I got it and thanks for the detailed response!!

[Berge20]

He did much better than me /images/graemlins/smile.gif

[djoyce003]

[ QUOTE ]
[ QUOTE ]
Well, the problem isn't the total net income...it's the total gross income. That figure will go up, tossing you potentially into a different bracket or getting snagged by the AMT. That can also impact potential deductions as some arent allowed if your gross is over a certain amount.

[/ QUOTE ]

But re: #1, tax is figured on taxable income which would be the same assuming no deductions were disallowed? Someone with a 500K gross income and 450K in allowed deductions would be in the same bracket as someone with 50K taxable income.

What am I missing here?

[/ QUOTE ]

The gambling winnings go into other income...which is an adjustment to arrive at adjusted gross income. The losses are a deduction....there is a difference between an adjustment, and a deduction. Once your AGI is over a certain amount you start losing a percentage of your deductions. Your AGI has to be fairly huge for these to start kicking in however.

[theRabbit]

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I would also add that gambling losses are allowed for AMT, so these do not cause a problem directly

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I had believed, apparently incorrectly, that gambling losses would not save you from paying the AMT. Can you site a reference for this.

For example you have winning of 1,050,000 and losses of 1,000,000 for a net profit of $50,000. If I understand you the AMT would not apply and you would owe tax on $50,000.

[broiler]

AMT takes your AGI less your itemized deductions and then adds back certain deductions. Gambling deductions are not one of the specific items that are added back to determine your alternative minimum taxable income. Therefore, the gambling losses cause no new AMT problem that you didn't already have for some other reason.

There is no good reference for deductions that are not added back for AMT. Form 6251 and instructions have the entire list of deductions that are added back for AMT.

[theRabbit]

Thanks.

[Wools]

I had posted a few threads regarding something very similar to this a while ago and didnt get any responses. I've also found very little reliable info via google.

Broiler, are you saying that even filing as an amatuer, if a person has $50k in winnings and $40k in losses for a net of $10k, he or she will or will not get bumped into a higher bracket?

I understand from this thread that reporting poker income will most likely not cause AMT issues, so, to reiterate, will the scenario I used as an example above cause someone to get bumped into a higher bracket?(re: claiming the $50k and deducting $40k).

[broiler]

The best answer that I can give you on your example is that it depends on what other income you might have. If this is your only income, then you will pay more in taxes by reporting correctly than you would by reporting a net $10k. Your tax bracket change would be from the 0% bracket to the 10% bracket. I am ignoring the fact that putting $10k of income in "other income" as your only source of income will very likely generate an IRS notice where they ask for their 15.3% self employment tax plus interest and penalties.

If you have other sources of income, such as a full time job, then it is very likely that the change in tax will be minimal. The caution here is that you would already have to itemize in order to keep the effect minimal from this scenario. Losing the free deduction of the standard deduction will cause most of the change in tax. The loss of certain credits can also be a big problem for those who need that to mostly eliminate their tax liability.

I guess that the best way to summarize my response is to say maybe and it depends on your personal situation.

[Wools]

Broiler, thanks for the response; that clears things up.

I had a day job through April 3rd of this year, so I'll have that income to report, plus any poker income. Poker has been my only income since April 3rd. The example I cited was just random numbers, so I have no idea what the actual figures will be as of right now, but I'm certainly no high roller.

I spoke to my CPA in early September and he told me that he thought it would be better to just net it(which I know is technically illegal) since it isnt a large sum and I'd still most likely be claiming less than 20k. We did some rough calculations and he said I didnt have to pay any quarterly estimates since what I had paid in via my day job through April was over 90% of the total taxes I paid last year.

In his defense though, he admitted he was ignorant of filing as a professional gambler and would look into it. I dont think he has any idea that there is going to be such a large discrepancy between the net and gross figures.

[RoundGuy]

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I am ignoring the fact that putting $10k of income in "other income" as your only source of income will very likely generate an IRS notice where they ask for their 15.3% self employment tax plus interest and penalties.

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Hobby income is exempt from self-employment tax, is it not? Or are you saying it's not a hobby in this case.

[broiler]

You are correct that hobby income is exempt from SE tax. My point is that if that is the only income that you put on your return and you report the net winnings only, they will assume that it should be subject to SE tax.

The IRS does this with pretty much any type of income reported in "other income", so it is not a gambling specific issue. A single source of income for the year is the problem, since it must be your primary source of income in the opinion of the IRS.

[Poker_Ace]

I agree with the accountant -- just net it. While it depends upon one's personal situation, reporting correctly will pretty much increase everybody's taxes by some amount. For example, if somebody makes 200k+ per year from their day job, then reporting poker winnings correctly would drastically increase their taxes due to exemption and deduction phaseouts EVEN IF the individual's net winnings were zero.

[DING-DONG YO]

I don't think broiler was telling you to just net it. If you mean file a schedule C, maybe. If you mean just file net wins in other income, that wasn't what he was saying. Go ahead and do it if you like, but be aware that it is NOT an acceptable way to report gambling activity.

[Wools]

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I don't think broiler was telling you to just net it. If you mean file a schedule C, maybe. If you mean just file net wins in other income, that wasn't what he was saying. Go ahead and do it if you like, but be aware that it is NOT an acceptable way to report gambling activity.

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Oh, I know that's not what Broiler was getting at, and like I said in one of my posts, I know that is not correct. That's why I felt kinda uneasy when the CPA that's done all the work for my stepdad's business and all our family returns for the past 10+ years said it'd be easier to net it. He shrugged it off like "eh, we can work it out so you're claiming very little income, so there's no way they'd come after you." Too say I was less than impressed is an understatement.

I assumed it would be better for me to file a schedule C since poker is going to be the majority of my income this year, but the CPA didnt know if I needed to. What I need to do is find someone more knowlegable than him.