Taxes and quitting while you're even.

[Guthrie]

There have been some posts by recreational players who want to properly file and pay their income taxes, but have found that their particular tax circumstances, for example, taking the standard deduction, result in a bad beat when it comes to taxes.

Some of the tax professionals here can correct me if I'm wrong, but I think it's safe to say that for many people not filing as a professional gambler, a dollar in losses may not completely offset a dollar in winnings.

Let's say you have a full-time job and you are a winning poker player who plays for fun and a few extra bucks, so you can't file as a professional, but you want to properly file and pay your taxes, which means you declare your winnings as income, deduct your losses as ordinary deductions, and end up paying more taxes than you would if you were allowed to net your winnings.

You play X hours every night, and assume that the IRS will accept that as one session.

You accept that poker is really one life-long session, and quitting while you are ahead or behind each day makes no difference in the long run, so you quit when you hit your hours, your hands, the baby needs changing, or the wife needs servicing.

If you are down $100 at the end of your session, then you have to take that loss as a standard deduction, which may not completely offset a $100 win the next day.

Due to tax implications however, if you continue playing while you are down, every dollar in net winnings until you end the session is worth more than a dollar, so keep playing until you are even, or close, or have a small profit for the session.

The government's odd tax treatment of gambling has given you an overlay any time you are in a losing session.

By continuing to play when you are down, you are netting your wins against your losses legally, in the same session, before you report them. Sometimes, of course, you will just keep losing, but that's poker, and taxes. Overall the effort should be +EV.

You play the same number of hands per year, at the same BB/100, but you make an effort to even out the distribution of wins and losses to your advantage.

That's my theory. Flame away.

[Niediam]

I'm not sure that I am following your reasoning here. Could you show us with numbers what you are trying to say?

[Guthrie]

If you win $1.00 you declare that as income. The next day you lose $1.00 and take that as an ordinary deduction. If you are already taking the standard deduction, then that $1.00 in deductions might only be worth $.75. If you can shift winnings into a losing session, then each dollar in winnings is actually worth $1.25. So every dollar won in a losing session is worth more than a dollar won in a winning session.

[Niediam]

If you are taking the standard deduction then you will not be taking any deductions from losing sessions period...

I must be missing something. [img]/images/graemlins/smile.gif[/img]

[Guthrie]

No, you're not missing anything. If you take the standard deduction, then I believe your gambling losses can't be used to offset your winnings at all, greatly increasing the value of continuing to play in a losing session to reduce the loss before ending the session.

I'm no tax expert, but I think I've read posts here where some people who itemize deductions are able to deduct their gambling losses as ordinary deductions, but for some reason they don't get the full value of the deduction.

[Jim Easton]

[ QUOTE ]
I'm no tax expert, but I think I've read posts here where some people who itemize deductions are able to deduct their gambling losses as ordinary deductions, but for some reason they don't get the full value of the deduction.


[/ QUOTE ]

You have to itemize to deduct gambling losses. By switching to itemizing, you "lose" the standard deduction. If you already itemize (think mortgage interest), you should still get the full value of the losses.

[theRabbit]

Things are actually worse for the recreational player. (if I understand all the research I did)

1) It is not clear that you can include as part of your itemized deductions entry fees.

2) Must declare the fair market value of any satellites or prizes you have won (plus any expense money) as income.

3) And even worse; your total winnings (declared on page one of 1040) which are added to your income may subject you to minimum alternate tax. So if you win $400k and loose $400k in a year you may have a huge tax liability even though you have no net winnings (Because of the minimum alternative tax.) You can aggregate wins and losses but must report wins as income on a session by session basis. If you itemize then you can deduct losses only up to the total of you wins income.

4) Also for example I believe if your only income is social security and your winnings exceed 34k you would have to pay tax on 85% of your previously non-taxable social security income.

This is true not only for poker but any other kind of gambling (Vegas, horses, slot, lottery, etc.) on a per "session" basis. No, you cannot think of the year or even your login period as one big session.

I suspect the "bizarre" nature of the tax laws in regards to gambling are turning a large portion of the millions of people who gamble into tax cheats who are playing audit roulette, either because they don't understand the law or don't feel they should have to pay tax on money they didn't win.

I've spent considerable time researching this and believe I am accurate in the above.

You can declare yourself a professional gambler but that can have lots of problems also.

If anyone has accurate information to contradict anything I've said I would like to know where it is?

[RikaKazak]

[ QUOTE ]
If you win $1.00 you declare that as income. The next day you lose $1.00 and take that as an ordinary deduction. If you are already taking the standard deduction, then that $1.00 in deductions might only be worth $.75. If you can shift winnings into a losing session, then each dollar in winnings is actually worth $1.25. So every dollar won in a losing session is worth more than a dollar won in a winning session.

[/ QUOTE ]

you're wrong on this, go read the tax code again buddy

[Guthrie]

[ QUOTE ]
[ QUOTE ]
If you win $1.00 you declare that as income. The next day you lose $1.00 and take that as an ordinary deduction. If you are already taking the standard deduction, then that $1.00 in deductions might only be worth $.75. If you can shift winnings into a losing session, then each dollar in winnings is actually worth $1.25. So every dollar won in a losing session is worth more than a dollar won in a winning session.

[/ QUOTE ]

you're wrong on this, go read the tax code again buddy

[/ QUOTE ]
I read it buddy. Maybe you need to go read it again.

[BigF]

[ QUOTE ]
I'm not sure that I am following your reasoning here. Could you show us with numbers what you are trying to say?

[/ QUOTE ]

To a poker player, profit = winnings - losses. But you might not be able to deduct all of your losses, which makes your effective profit < (winnings - losses).

Assuming your win rate and hands played per year are constant, your profit of the year (winnings - losses) is a fixed number. Therefore to maximize your effective profit you need to minimize your losses.

To achieve that goal, you should always try to turn a losing session into a winning session or lesser losing session. Because you are a winning/break-even player, you should be able to do that.

The conclusion: if you are in that tax situation, it's +EV for you to keep playing if you are in a losing session.