Tax ruling allows professional gamblers to deduct "business" expenses!

QFIT

Well-Known Member
#2
Article makes no sense to me. Unless I misunderstand what they are saying, this has long been true.

Again, tax advice on forums (including mine) should be taken with a ton of salt. Get a good accountant.
 

shadroch

Well-Known Member
#3
Someone I know who had thought of trying to be a poker tournament pro told me last year that the IRS was now treating winnings differently than they had in the past. If I understood him right, you could only deduct expenses directly tied to that tournament from your winnings.
An example- You win 100,000 at the Rio in August and youe expenses that trip are 5,000. You can deduct that from your winnings.
In September you fly to Aruba and have expenses of 6,000 but only win $1500. You can only deduct $ 1500 in expenses. They were in effect treating each event as a seperate job. You can only deduct expenses from winnings on each job. In the past you would add up your winnings for a yearly total, add up your expenses and deduct one from the other. Now if you enter 52 tournaments, you have 52 sets of books, and expenses don't carry over.
This ruling seems to put things back as they were. For the average gambler, it is meaningless.
For the pros, its huge.
 

Machinist

Well-Known Member
#4
Don't mess around with accountants........Get a good IRS attorney...preferrably a jewish one.........I am serious on all accounts...Money well spent..


Machinist
 

apex

Well-Known Member
#5
Free tax advice, salt added

This is basically how I do my taxes:

[salt]

1.) Determine how much I want to pay
2.) Determine how much net income I must show to pay that ammount
3.) Make my income and expenses add up to that number in the way least likely to trigger an audit.

For those dealing in cash this is super easy. Don't bother with many/any deductions, they can be questioned. Just report the ammount of gambling winnings you want to pay taxes on. You will be fine.

[salt]
 

shadroch

Well-Known Member
#6
apex said:
This is basically how I do my taxes:

[salt]

1.) Determine how much I want to pay
2.) Determine how much net income I must show to pay that ammount
3.) Make my income and expenses add up to that number in the way least likely to trigger an audit.

For those dealing in cash this is super easy. Don't bother with many/any deductions, they can be questioned. Just report the ammount of gambling winnings you want to pay taxes on. You will be fine.

[salt]
Its not often people will admit to being a felon, even on the internet.
 

BrianCP

Well-Known Member
#7
shadroch said:
Its not often people will admit to being a felon, even on the internet.
I love Dan Harrington's thing about taxes on cash game winnings. There is straight forward Sam and Tricky Tim. Both make exactly 100k a year playing poker, not bad. Tricky Tim hoards his money into safe deposit boxes and doesn't declare it to the IRS. He doesn't pay taxes on any of it! Straight forward Sam pays his taxes, both have the same cost of living expenses. Over enough years, Sam actually ends up with a significantly higher income due to investing his leftover declared money, while Tim's sits in his money pile after he uses it to pay for his living expenses. Indeed, Sam will end up passing Tim in money after a decade or so, 20 years in, he should be about twice as wealthy.

Let's assume they started at age 18 doing this. Both will live another good 60 years. By the time they both die, Sam will be significantly richer than Tim.

Lesson, give Uncle Sam his cut, learn to invest, laugh at hoarders.
 
#9
New tax ruling

I believe now they are saying you can deduct expenses in excess of your winnings. So if you won 18k but had 22k in expenses you could claim a 4k loss,and even carry that loss over to the next year. Is this anyone else`s interpertation?
 

apex

Well-Known Member
#10
People are ridiculous about taxes. It's not fraud if you pay what you owe. If we both make 50000 but you declare 60000 and 10000 in travel expenses and I just declare 50000 but no expenses we pay the same ammount. Why you would bother with the extra work is beyond me. I spend 2 hours on my taxes each year. If I did everything by the book it would be about 50 hours. If I get audited I will do it right at that time. As long as you pay about what you owe you can't get into serious trouble.
 

HockeXpert

Well-Known Member
#11
apex said:
People are ridiculous about taxes. It's not fraud if you pay what you owe. If we both make 50000 but you declare 60000 and 10000 in travel expenses and I just declare 50000 but no expenses we pay the same ammount. Why you would bother with the extra work is beyond me. I spend 2 hours on my taxes each year. If I did everything by the book it would be about 50 hours. If I get audited I will do it right at that time. As long as you pay about what you owe you can't get into serious trouble.
Apex:

That's not exactly what your prior post stated. To paraphrase, it started with "1. Determine how much tax I want to pay." That's a pretty broad statement that can be interpreted as I don't feel like paying taxes this year so I'll just make up a bunch of deductions.

Is the amnesty program still in effect?:laugh:
 

FLASH1296

Well-Known Member
#12
Here is a better read on this issue.
It is from Iowa State University —

I apologize for the poor text formatting.

Professional Gamblers Hit It Big in the Tax Court…Sort Of

2321 N. Loop Drive, Ste 200  Ames, Iowa 50010 http://www.calt.iastate.edu

January 26, 2011
‐ by Roger McEowen

A brand new, full decision of the U.S. Tax
Court recognizes that losses incurred by
gamblers can lead to a net operating loss.1
In so finding, the Court rejected a portion of
its 1951 opinion concerning a gambler’s
ability to deduct associated business
expenses where the court held that such
expenses were to be treated the same as
gambling losses – deductible only to the
extent of gambling winnings. The decision
was to be anticipated – the IRS had already
revealed it’s litigating position on the issue
in late 2008.
Overview
The Internal Revenue Code does not define
what a “gain” or “loss” is, and the courts
haven’t provided a great detail of clarity on
the matter either. According to I.R.C. §165,
“losses from wagering transactions shall be
allowed only to the extent of the gains from
such transactions.” So, if what a gambler
receives from a wager is less than what was
wagered, the “wagering loss” is the
difference. Further complicating the matter
is that wagering losses are not the same as
“business expenses” under I.R.C. §162(a) or
a net operating loss (NOL) from a business
under I.R.C. §172. In addition, NOLs have
another benefit to a taxpayer – they can be
carried forward or back to offset gains in
those years.
The historic rule has been that gambling
losses only offset gains from gambling2 and
only in the same tax year. That has been the
rule at least since the Tax Court decided a
case in 1951.3 But that rule only applies to
gambling losses. It doesn’t necessarily limit
the deduction for business expenses of
professional gamblers that is available under
I.R.C. §162(a).4
Mayo v. Comr.5
Facts of the case. The taxpayers were
engaged in the trade or business of gambling
on horse races during 2001 – the tax year at
issue. Their Schedule C reported gross
receipts of $120,463 and expenses of
$142,728. The expenses consisted of
$131,760 for wagers placed and $10,968 in
business expenses. They deducted the
excess of their Schedule C expenses over
their gross receipts - $22,265. IRS
disagreed, disallowing the entire $22,265.
According to the IRS, the deduction was
limited to the taxpayers’ gambling winnings
in accordance with I.R.C. §165(d). IRS also
claimed that the statutory phrase “losses
from wagering transactions” included both
the cost of wagers the taxpayers placed and
the expenses incurred in their business of
gambling.
Tax Court’s rationale. In its 1951 decision
in Offutt,6 the court held that business
expenses were to be treated the same as
gambling losses – deductible to the extent of
the taxpayer’s gambling winnings. But,
there are really two tax aspects to gambling
losses incurred by a professional gambler –
losses from wagering transactions and
business expenses incurred in the conduct of
the taxpayer’s trade or business. The Court
held that its Offutt decision was still good
law with respect to wagering losses.
Deductible losses remain limited to
gambling gains. That’s the case for amateur
as well as professional gamblers. However,
the Tax Court rejected its 1951 opinion as
applied to professional gamblers deducting
trade or business expenses. The real
question was whether such expenses were
deductible under I.R.C. §165(d) (where they
would be limited to gambling gains) or
I.R.C. §162(a)(where they are not limited to
gambling gains).
On the trade or business expenses deduction
issue, the Tax Court examined the statutory
phrase “gains from wagering transactions.”
On that point, the Tax Court noted that
courts have generally held that “gains” from
“wagering transactions” means what it says -
actual wagers entered into by the taxpayer.
So, not included in the definition are gains
that arise in the conduct of wagering
activities that aren’t a direct result of a
wager.7 Indeed, IRS conceded this point in
late 2008 in a Chief Counsel Memo.8 so
don’t expect IRS to appeal.9 Remember,
they still won on the point that deductible
gambling losses are limited to gambling
winnings.
Conclusion
Mayo is an important case, particularly
because it’s a full decision of the Tax Court.
It also is important because it allows
professional gamblers to utilize NOLs
arising from their gambling business. The
rules governing NOLs have been made even
more favorable in recent years. This is
exactly what we’ve been pointing out to
practitioners at seminars since late 2008.
1 Mayo v. Comr., 136 T.C. No. 4 (2011).
2 See Tschetschot v. Comr., T.C. Memo. 2007-38.
This is the rule regardless of whether the taxpayer is
a professional gambler or not.
3 Offutt v. Comr., 16 T.C. 1214 (1951).
4 See, e.g., IRS Chief Counsel Memo. AM2008-013
(Dec. 10, 2008).
5 136 T.C. No. 4 (2011).
6 16 T.C. 1214 (1951).
7 For example, on this point, the court noted that it
had held in Williams V. Comr., T. C. Memo. 1980-
494, that a blackjack player’s toke bets were not
“gambling winnings.”
8 AM2008-013 (Dec. 10, 2008). The memorandum is
of no precedential value, but has at least provided
insight into the IRS’s position on the issue for the
past two years.
9 Which raises the question why IRS took this
position in the litigation.
 

kewljason

Well-Known Member
#13
I emailed my financial dude and asked if he was familiar with this ruling. He asked me to forward it to him. I'm taking that as a very bad sign. :eek::laugh:
 

HockeXpert

Well-Known Member
#14
kewljason said:
I emailed my financial dude and asked if he was familiar with this ruling. He asked me to forward it to him. I'm taking that as a very bad sign. :eek::laugh:
It may be time for a new financial dude. The stereotype is true. Jews do make the shrewdest accountants.
 
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