Video Poker and Taxes

I'm surprised this hasn't come up here yet. I talked to my son-in-law over the weekend, and he said that people who get bumps to their gross income (such as with W2G's) are going to start noticing big hits to their taxable income because of new regulations being implemented. Not sure of all the reasons, but he said the amount of wins that can be deducted as losses no longer is up to the amount of the wins.

I think it goes something like this: you claim $75,000 in wins; it's been that you are allowed to deduct up to $75,000 in losses on schedule A (and who wouldn't, even if you lost zero); the change means you may only be able to deduct up to say, $30,000, thereby adding a cool $45,000 to your taxable income.

Since playing higher limits in 1999 I filed as a pro thru 2009, which really allows a high-value W2G earner to make out like a bandit on taxes if you squeeze every drop out of the loopholes. But the past few years I filed as a regular Joe, and my W2G earnings were far less than what they used to be anyway.

Anyone concerned about this?

Of course it is a concern but I never heard anything about this before. If the IRS restricts the percentage of wins that can be offset by losses then even lower limit gamblers could be effected.

Edited to add: if this becomes true, the casinos will find a big drop in the number of players at high limit slots and video poker, and perhaps an increase in the number of table game players.

We probably won't hear much about such a change until people start to complain a few years down the road. The IRS has no reason or responsibility to clarify this unless and until we see it in the preparation instructions. It's still not clear to me if it will be in effect this year, next, or even last year....or maybe even in a few years.

I do recall seeing something about this--in rumor form--on vpFree maybe 6 or so months ago.

Alan, if it becomes law then you can thank all those who voted for the Obama Administration to continue on with their illogical methods for another four years.

I've seen nothing indicating any changes in gambling losses. Maybe Robbie had a dream where he won money one year and had to claim some losses. Of course, it was just a dream.

I know....arci has so many medical deductions that it doesn't matter. I guess I'd be blind to it too if all I had to look forward to in life was collecting on life insurance.

It may be this that is the issue:

Tax Policy Center- Reinstate Personal Exemption Phaseout and Limitation on Itemized Deductions

That page appears to have been written prior to the passage of the law, so some things may not be the same, but it gives a good overview of the issue.

Quote:

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High-income taxpayers face reductions of their personal exemptions and itemized deductions as their income exceeds specified levels.

In its full form, the personal exemption phaseout (PEP) reduces the value of each personal exemption from its full value by 2 percent for each $2,500 or part thereof above specified income thresholds that depend on filing status. Personal exemptions are thus fully phased out over a $122,500 range

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That article states it applies to single people with an AGI above $200,000 and married couples over $250,000, but This Fidelity Article states the thresholds as $250,000 and $300,000.

If I'm reading this correctly it would seem to imply that high earners that have large amounts of deductions, gambling or otherwise, could find they have a greatly increased tax bill due to being unable to deduct everything, such as all their losses.

Good catch Spock.

The problem with the proposed changes is the AGI for gamblers with numerous W2Gs is meaningless. I would hope the casino industry is working to correct this. What is really needed is for gambling losses to be subtracted right away on form 1040 (through a worksheet). That way the AGI would never get inflated like it is today.

I would also expect there's a lot of gamblers whose income is easily higher than the threshholds with all their W2G's.

Quote:

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Originally Posted by arcimede$

I would hope the casino industry is working to correct this.

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This kind of tax law change would actually destroy all high limit play in casinos. Anyone who has ever played $5 or higher video poker can tell you that they can end a session with a stack of W2Gs without even having a profitable session. I personally know players with more than a million dollars of W2Gs playing $5 DDB video poker and never came close to having a profitable year.

It would literally change the complexion of casino play overnight -- with table games becoming crowded with former high limit slot and VP players, or higher limit VP players shifting their play to $1 and $2 games where W2Gs are limited to royals and quad aces with a kicker in DDB and other higher-bonus games.

Alan, you are 100% correct. In addition to moving down in denomination, many "whales" would quit completely. The casino industry would take a huge hit.

So what do you expect will happen? I think this is all somehow tied in to the pending legalization of on-line casino gambling here, where tax revenue drives everything. I don't believe the gov't. cares one bit about what it will do to those who get piles of W2G's because they know the gamblers won't stop even if they say they will. And when it comes to on-line gambling opportunity, I'm betting the table game players won't be able to "escape" any longer, since any winning--which probably none of them ever report--will be on every player's personal record there for the IRS to see.

Many of you will probably remember the old days when you didn't have to deduct the losses on Schedule A. Once that started, here in Illinois it became an even worse problem---we are taxed in Illinois on gross gambling winnings with no deduction (unless we file as pros). This used to be a 3% hit--now it's 5% and is a tuff house edge to beat.

The gambling lobby, of which I used to be a part but have since quit out of frustration, has no balls and no power. The casino industry funds the politicians accounts to get gambling in every state, but then the players are abandoned on tax issues. I have had some of my gambling losses phased out in previous years when I had a higher income. If it does happen again I will stop playing VP over 50 cents and probably go back to the old days where at the race track people with fake socials would sign for your big winners for a small fee.

There is no unearned income tax. And gambling losses can be deducted to the extent of gambling winnings and are not reduced by an itemized deduction cramdown. Originally, there were some interpretations of the law that included gross gambling winnings, in effect throwing everything in the "other income" line and including it in the definition of net investment income.

http://www.taxabletalk.com/tag/healthcarelegislation/

http://www.irs.gov/uac/Newsroom/Net-...ncome-Tax-FAQs

There were deduction phase outs at higher income levels. Has nothing to do with net investment income.