tax question on WSOP cash

[Kneel B4 Zod]

*mods don't know if this is the right forum, feel free to move*

So, I was given a seat to a $1,500 WSOP event. I cashed for about $4,300, and Harrahs gave me the tax form/will report the win to the IRS.

a couple questions - I will be on the hook for about 50% of the win for the federal and state (MA) taxes.

someone told me that if I have gambling losses to offset the $4,300, I will reduce the tax burden I have to pay. IE if I enter a $2,000 tournament and bust out quickly, I can deduct the $2,000 from the $4,300 in WSOP winnings I had, and only pay taxes on the difference ($2,300). this creates an oppty for me to play another tournament at a greatly reduced (effective) rate.

does this sound right?

I don't play poker much anymore, so I'm not sure I'll have other losses to apply to this.

[pacecar86]

correct, fed taxes allow gambling winnings to be offset by gambling losses (includes tournament buy-ins), up to the to the total amount of winnings (you can't deduct more losses than winnings. A nit point, but may save u from an audit, you can not report a net amount on your fed 1040 form. IRS computer matches total W-2G's filed by casinos to total you file. So, you have to include the total winnings on your 1040, and, the total losses on your Schedule A. Gambling losses are not subject to income limitations like other Sched A items. So, they net out by the time you calc you taxable income. If you have declared yourself to be a professional gambler then you have other options (Schedule C). For the State filing, it depends on the state. My state (Illinois) does not allow all itemized deductions from Schedule A, so gross winnings regardless of losses get whacked for another 3%. So check with your tax guy or look at the filing requirements for your state.

[JPinAZ]

If KB4Z doesn't already itemize deductions on Schedule A then he's most likely SOL for deducting gambling losses.

[pacecar86]

jp, ya, ur right.... he would be "using up" more of his standard deduction unless sum of gambling losses plus any other ded's he can come up with is > std ded, then obv better to itemize

[mtgordon]

I think this was posted around tax time last year. Suppose you won 10k. Now you go and coin flip someone for 10k. Some people were under the impression that it would make the coin flip +EV since they are only risking 7k (assuming 30% tax). However they didn't realize that if they won they were only really ended up with 14k because they still have to pay tax on that winning as well.

To look at it a different way, just to coin flip someone is -EV since you are risking 10k to win only 7k since you have to pay taxes. Being able to deduct the 10k as a gambling loss does increase the EV, but only to the break even point.

To apply this to entering a poker tourney you need to realize that you are only going to be winning 70% of what the 'prize' is and typically you are risking whatever the buy-in is. However, if you can write off your loss then you are only putting up 70% of the buy-in yourself.

Cliff Notes: Whenever entering a tournament realize you are only winning around 70% of what you probably think you are. Whenever you can write off the loss you are only paying 70% of the entry fee so it does increase your EV.

[Kneel B4 Zod]

[ QUOTE ]
I think this was posted around tax time last year. Suppose you won 10k. Now you go and coin flip someone for 10k. Some people were under the impression that it would make the coin flip +EV since they are only risking 7k (assuming 30% tax). However they didn't realize that if they won they were only really ended up with 14k because they still have to pay tax on that winning as well.

To look at it a different way, just to coin flip someone is -EV since you are risking 10k to win only 7k since you have to pay taxes. Being able to deduct the 10k as a gambling loss does increase the EV, but only to the break even point.

To apply this to entering a poker tourney you need to realize that you are only going to be winning 70% of what the 'prize' is and typically you are risking whatever the buy-in is. However, if you can write off your loss then you are only putting up 70% of the buy-in yourself.

Cliff Notes: Whenever entering a tournament realize you are only winning around 70% of what you probably think you are. Whenever you can write off the loss you are only paying 70% of the entry fee so it does increase your EV.

[/ QUOTE ]

tx.

so why wouldn't I be able to write off the loss? if I'm not using standard deductions?

[mtgordon]

1. If you are using the standard deduction you cannot write it off
2. If your gambling losses are greater than your earnings (which you said they aren't)
3. If you don't have proper documentation of your losses
4. On your state taxes: If your state doesn't let you claim gambling losses (but you could still claim on federal)
5. Other reasons I have forgotten

Note: as long as you don't use standard deduction everything else is probably fine

[PokeReader]

You also need to be filing as a pro

[mtgordon]

I'm pretty sure you don't have to file as a pro. If you file as a pro you do the whole schedule C thing and just the net ends up transferring I believe, but I'm pretty sure if you file normally that you put your winnings in as income and then you put losses in deductions. Where you can get nailed is if it makes your AGI too high and you get hit with AMT.

Disclaimer: I am most certainly not a CPA or someone who has studied Tax law.

[PokeReader]

As I've written before, the amateur gambler cannot net his wins and losses. Wins are other income (line 21) while losses are an itemized deduction that is not subject to the 2% AGI restriction on miscellaneous itemized deductions.

http://www.taxabletalk.com/gambling/