Q: Why does the definition of a "session" matter for tax purposes??

[nevadaJACK]

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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.

[jively]

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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

[ADS]

Jively,

Good post. I am a CPA as well, but don't really deal with personal taxes that much....except my own.

Question for a quick analysis: Can you do the same analysis for someone who is:
-Itemizing deductions
-past the Fica max threshhold (don't think this is relevant if not a pro)
-No material medical expenses.

A couple of questions:
AMT is not an issue AT ALL here...correct?
The personal exemption reduction is a function of AGI, correct? Is that your only additional tax? What about a joint return?

Sorry for the rambling questions.

[Wake up CALL]

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Question for a quick analysis: Can you do the same analysis for someone who is:
-Itemizing deductions


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I am able to answer this question for you. If you are already itemizing deductions prior to considering your poker income the end result of using sessions vs netting will be nil.

[WhoIam]

I define a session as all play that takes place at a particular site in a 24-hour period. Sorry, that's just going to have to have to be good enough. I 8-table 6-max tables that often break up and can easily reach 100 "sessions" in a day. I don't have the time to keep track of all of these. There's no formal definition of what a session is exactly and I can't see a court ruling against me for making a careful daily record that's clearly a good-faith effort to stay within the law. It's ridiculous to expect me to spend more time accounting than actually playing.

[holdin2]

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Question for a quick analysis: Can you do the same analysis for someone who is:
-Itemizing deductions


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I am able to answer this question for you. If you are already itemizing deductions prior to considering your poker income the end result of using sessions vs netting will be nil.

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Well that's fine for federal taxes, but if you are lucky enough to live in the states that don't let you deduct your poker losses, then it does make a difference. Correct?

And doesn't my tax bracket point have validity to it? When you have to list your gross winning that could jump you up a bracket or two. I really dont' know if that affects the tax you pay or deduction you are able to claim or what, but it must make some difference.

[driller]

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I am able to answer this question for you. If you are already itemizing deductions prior to considering your poker income the end result of using sessions vs netting will be nil.

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Not so. See some of the above posts for examples of how having a MUCH higher gross income will affect your deductions, including personal exemptions.

[ADS]

Thanks,

But can you expand a some on this? It still would affect your personal exemption levels, correct? Or are you saying it would not?

Would this be the only difference?

The reason I was asking about a joint return, is that it would also affect the spouse personal exemption....wouldn't it?

Is there anyone who disagrees that this is the only effect of itemizing sessions vs. netting out?

If so, that is your maximum exposure..correct?

Just as a reminder, this is for us who are ALREADY itemizing deductions.

[jively]

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Jively,

Good post. I am a CPA as well, but don't really deal with personal taxes that much....except my own.

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Thank you, I'm glad it was appreciated. I am not a CPA. I am a CFP practitioner. I just made up numbers and plugged them into TurboTax.

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Question for a quick analysis: Can you do the same analysis for someone who is:
-Itemizing deductions
-past the Fica max threshhold (don't think this is relevant if not a pro)
-No material medical expenses.

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I agree that FICA max threshold does not matter if not filing as a pro. I could have done the examples with more state tax paid and no medical expenses. It would not have mattered unless AMT got involved. I was just picking something (medical) that had an AGI threshold.

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A couple of questions:
AMT is not an issue AT ALL here...correct?
The personal exemption reduction is a function of AGI, correct? Is that your only additional tax? What about a joint return?

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I'm not really an expert on AMT. I believe gambling losses are not reduced in any way regarding AMT.

Yes, the exemption is reduced based on AGI. Filing status does not matter; it would be simimar filing jointly or HOH or anything.

-Tom

[jively]

In example 1 with $30,000 of wages, you were eligible to make a Roth IRA contribution. In example 2 with only gambling income, you were not.

In example 4, if you have $30,000 of wages, and $30,000 of gambling income, your AGI is $60,000. You can still make a Roth IRA contribution.

In example 5, if you have $30,000 of wages, $270,000 of gambling income, and $240,000 of gambling losses, your AGI is $300,000. You are not eligible to make a Roth IRA contribution.

So, by correctly splitting your winning and losing sessions, even with the same net income, your ability to save for retirement is reduced.

-Tom