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?

[TStoneMBD]

interesting perspective, but doesnt this just mean that its better to play longer sessions for less days of the week then shorter sessions for more days? playing through your losses for a day isnt any different then playing longer sessions while youre winning, is it? im a bit confused and havent done the math but that sounds right to me.

[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.

[Guthrie]

Exactly the same result. If you play twice the number of hands for half the number of sessions, and have the same win rate, you should be in a better tax position.

Ideally you should play all your poker in one long session per year, and lots of people seem to think they can just tell the IRS that's what they did.

As long as the IRS uses sessions, your goal should be to minimize both the highs and lows in each session. Ideally you should win your win rate times the number of hands played each day. I doubt that I'd quit early just because I'm way up for the day, but if you are a proven winning player, then continuing to play when you are in a losing session should actually result in an overlay.

[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.

[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]

[Buzz-cp]

The only problem I see is the "stuck" syndrome. We can't allow this to change our game to so as to get unstuck. We just keep playing the same game we played whether or not we are stuck, making +EV decisions at every opportunity. Because we are stuck, we should still have the same inclination to juice strong draws, push all-in with strong hands, etc. I suppose there is a breakeven point where we could figure making a -EV play so that the tax offset would be better, but it seems a bit tedious to figure out how to do this while multitabling, calculating pot odds, etc.

[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.

[Guthrie]

This probably won't work for a player who tilts when he's losing, or is superstitious about quitting a winner or loser.

For a player who ignores short-term results and focuses only on the long term, playing his normal game, it could be significant. Ironically, it will require him to focus somewhat on the short term.

This isn't an all-or-nothing approach. If you're down $100 at the end of your pre-determined session, and you feel like playing a little longer, do it. If you end the session down $50 instead of down $100, you made more than $50.

If you aren't getting 100% tax deduction for your losses against your wins, then it is +EV to make a reasonable attempt to quit a loser as little as possible, even though your net results at the end of the year are unchanged.