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you owe more tax when you don't net your winnings.

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Alright, explain this to me.
Use specific numbers / examples if necessary.

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For all, assume you are single, have no dependents, and no one can claim you as a dependent.

Example 1: You have $30,000 of wages, and no other income and no deductions. Your AGI is $30,000. The standard deduction is $5,100 and your personal exemption is $3,300. Thus taxable income is $21,550. The federal income tax is $2,859.

Note here: You are eligible to make a traditional IRA or Roth IRA contribution for the year.

Example 2: You have $30,000 of gambling income, no other income and no deductions. (For example, you bought a $1 lottery ticket and won $30,001.) AGI, exemption, deduction, taxable income, tax is exactly the same as example 1. ($30K gambling income and no deductions is the same as if you incorrectly say poker winnings of $30K is one long session.)

Note here: You are NOT eligible to make a traditional IRA or Roth IRA contribution for the year.

Example 3: You have $270,000 total gambling income, and $240,000 total gabling losses. You have no other income and no deductions. Your AGI is now $270,000. Your itemized deductions are $240,000 - they not reduced at all. (Note: you do not get the standard deduction.) Also, your personal exemption is reduced to $1,188. Thus, your taxable income is now $28,812. Taxable income is $7,262 more. Federal tax due is $3,946, or $1,087 greater.

Note here: Again you are not eligible to make a traditional IRA or Roth IRA contribution for the year.


Example 1A: You have $30,000 of wages, and no other income. However, you were really sick and have $10,000 of medical expenses for the year. You paid $2,000 in state income taxes or sales tax. You gave $3,000 to charity.

Your AGI is $30,000, so 7.5% of your AGI is $2,250. $7,750 of your medical expenses are deductibe as an itemized dedction. So is your $2,000 of state tax paid and $3,000 of charity. Total itemized deductions are $12,750. The personal exemption is still $3,300, so taxable income is $13,950. Federal tax due is $1,719.

Example 2A: $30,000 gambling income, same situation as Example 1A - all the numbers are the same as 1A.

Example 3A: You have $270,000 total gambling income, and $240,000 total gabling losses. You have no other income, but your other deductions are the same as example 1A. ]

Your AGI is $270,000, so 7.5% of your AGI is $20,250. None of your medical expenses are deductible.

The $240,000 of gambling losses are still deductible and not reduced. However, the $2,000 of state tax paid and $3,000 of charitable deductions are reduced to only $2,610. Thus itemized deductions are only $242,610. The exemption is still reduced to $1,188. Taxable income is now $26,202. This is $12,252 more than in example 1A. Federal tax due is $3,556, which is $1,837 more than in example 1A.

More to come.

-Tom