w2g tests

TLDR note: I tried to see the effect of getting a W2g for some simple cases, skip to the tests below.

I do my taxes with Turbotax online. I had thought before I might test fake w2-gs to see what the real effect is, since part of the income we report is Social Security. But Turbotax online is a black box - maybe you would call it a gray box, as you get an idea of what's going on, but you don't see your forms getting filled till you see them completed, and that is after you file and pay too. I guess you could pay and print without filing, then try to use it starting over, but they might even tell you ixnay on that. In any case, not ideal.

One thing you can do though is start over before you actually pay. I have been reluctant to do that since I download broker and mutual fund info [BROTHER is that highly recommended if you have that] and I didn't know if you could repeat that process. Turns out you can't I guess - at least something is wrong, I might have to call or just do it myself.

This year, though, I realized I want to further fine-tune some IRA withdrawals amounts, having left some money on the table in 2016. So to speak anyway, it amounted to making donations that didn't count in the end, actually, how nice. In order to do this experimenting, I wanted to start over at various points as it has been my experience that too much experimentation is not good, leaving screwy remnants behind. You can't tell what's going on in that black box.

So it gave me a chance to do some w2g experiments. This was not my main concern, except someday I guess I might hit one, hard as I try to avoid them. If I ever go for a loss rebate, that would be one possible time. I was especially curious as to how W2gs might screw you over when it comes to the social security.

TESTS

Test 1
$20k in misc income with no withholding
21k in SS
10k in mortgage interest
$12k in w2g
12k declared in gamb losses
$0 fed tax

Test 2
same as test 2 except:
25k in misc income = $593 fed taxes
[clearly standard deduction kicked in and fouled this poor fellow up]

Test 3
same as test 2 exc:
$6k w2g
6k declared in gamb losses
$169 in fed taxes

Test 4
same as test 2
w2g = $2k
2k declared in gamb losses
no taxes

Test 5
41k in reg income
10k in mortgage interest
no SS
no gambling
note same income as test 1, but none is SS, and no w2g
$1934 in fed tax

Test 6
same as 5 exc:
$1200 w2g
1200 claimed in gambling losses
$2114 in fed tax

Test 7
same as 5 exc:
2500 w2g
$1200 in gambling losses [not 2500]
$2,309 fed tax

Test 8
same as 5 exc:
2500 w2g
2500 in gambling losses
$2,309 feds [note same as test 7]

Conclusions: when the gambling losses were ignored, the standard deduction was in play, not sched A deductions. Test 7 and 8 were particularly telling. As far as I can tell, the W2g does not have an effect on the SS income, which the testing shows does get handled differently. So, this was about as much as I could learn using a black box.

There is a seeming flaw in regard to calculating income and qualifying for an IRA deduction (when itemizing).

I have always listed gambling winnings on line 21 of my 1040 (other income), and written it off against gambling losses on schedule A (line 28).

The problem is that in doing the worksheet to see if I qualify for an IRA deduction, the formula requires that ALL income be added, including all of the winnings from casinos (before deducting them as losses).

So I called my CPA, who said not to report the figures from the casino win/loss statements (which I had been doing), he said to put down the amount from any W-2G's, and deduct the same amount as a loss on schedule A (line 28).

Doing that we qualify for a $6500 IRA decuction, but otherwise nadda.

Quote: MrV

So I called my CPA, who said not to report the figures from the casino win/loss statements (which I had been doing), he said to put down the amount from any W-2G's, and deduct the same amount as a loss on schedule A (line 28).

Doing that we qualify for a $6500 IRA decuction, but otherwise nadda.

Well, not sure about that advice as is, but you are in the clear about the statement since casino win/loss is not expected to be accurate, nor do they report to the IRS.

What it does show, though, is that you need to be keeping a log of your gambling activity

Personally, I think it is fair to assume you gave back to the casino all your winnings, that fits the bill for most of us. However, this is not the opinion of the IRS. For one thing, they do not allow carry-over losses for a year. So it is possible that even a ploppy would come out ahead in any particular year, and they want their share. If you do not keep a log they can mess with you, and just might I think if one of those w2gs is large.

Quote: odiousgambit

Well, not sure about that advice as is, but you are in the clear about the statement since casino win/loss is not expected to be accurate, nor do they report to the IRS.

W2-g's are.

IANATEBIALOOTI (I Am Not A Tax Expert But I Act Like One On The Internet), but I don't see to be getting the same numbers you do.

Questions, if you don't mind answering them:
(a) Is this is single or a joint return?
(b) Are you 65 or older?
(c) If this is a joint return, is your spouse 65 or older?

According to the IRS instructions, anything on a W-2G is counted when determining how much of your Social Security benefits are taxable.

I'll give you an example of what I am getting, using your "test 2":
$12,000 on W-2g's
$21,000 in Social Security benefits
$25,000 other income
$10,000 in mortgage interest
$12,000 in declared gambling losses
No other income or deductions (including, e.g., state taxes paid last year, although I don't think that's a problem if you live in Nevada)

If you are single:
Your income for SS tax purposes = 37,000 + half of 21,000 = 47,500; since it is more than 34,000, 4500 + 85% of the amount over 34,000 is taxable, which is 15,975
Your AGI is 37,000 + 15,975 = 52,975
Itemized deductions are 22,000, which is far more than your standard deduction would be, plus the personal deduction of 4050 = 22,750
Your taxable income is 30,275, which is 4078 owed in tax

If you are married:
Your income for SS tax purposes = 37,000 + half of 21,000 = 47,500; since it is more than 44,000, 6000 + 85% of the amount over 44,000 is taxable, which is 8975.
Your AGI is 37,000 + 8975 = 45,975
Again, itemized deductions of 22,000 are more than the highest possible joint standard deduction (if both are 65 or older and both are blind), plus the personal deduction is 9100 = 31,100
Your taxable income = 14,875, which is 1488 owed in tax

I am too far into my cups to reply now

I'll look at it tomorrow

I decline to give too much personal info

however, bear in mind there is this black box!

You can see the forms as they are filled in by switching to the view forms view. It is under one of the top menu pull-downs.

Quote: odiousgambit

What it does show, though, is that you need to be keeping a log of your gambling activity

I keep a running record of my daily wins / losses, going back many years, telling how well I do at each casino on each type of game, i.e.craps or slots.

Quote: MrV

Quote: odiousgambit

What it does show, though, is that you need to be keeping a log of your gambling activity

I keep a running record of my daily wins / losses, going back many years, telling how well I do at each casino on each type of game, i.e.craps or slots.

Well OK then! But then why were you using the win/loss statements?

btw I understand they want you to be meticulous - what that really means i don't know though

I had used the W/L statements because they conveniently total up the activity year by year, as opposed to my running total, which would require more work on my part to break out for the tax year in question.

Yeah, just lazy.

Casinos say win/loss statements are what they are, so you can't drag them into court I think. Otherwise, they'd have to give whatever you wanted, per machine win/loss, answer questions, testify, etc.

Quote: onenickelmiracle

Casinos say win/loss statements are what they are, so you can't drag them into court I think. Otherwise, they'd have to give whatever you wanted, per machine win/loss, answer questions, testify, etc.

I can say for sure that the only win/loss statement I've ever paid much attention to was totally inaccurate.
_

Let me repeat that turbotax is a black box - the user doesn't know what it is doing, so what I came up with is of limited use, more of a hint than anything. In particular I can't tell if the standard deduction is kicking in as a certainty. In order to see for sure, I would have to finish and pay.

Quote: ThatDonGuy

According to the IRS instructions, anything on a W-2G is counted when determining how much of your Social Security benefits are taxable.

Thanks for clearing that up. I am quite happy to turn everything to do with SS over to Turbotax. Results I got seem to indicate it would take a lot of gambling income to make the SS portion converted over to be fully taxable.

As for getting different answers than you, it is possible that what I show is not what Turbotax would ultimately arrive at. As you use Turbotax, it gives a preliminary indication of the tax in a section in the upper left. Since I had already entered all other information before adjusting the W2g amount, it seemed reasonable to pay attention to that. If I had gone as far as "federal review" and finished, then I would expect it to be accurate. I didn't want to do that since Turbotax would have driven me nuts wanting me to go back and check on why I reported something one way last year and now not that way.

So probably we should just leave it at that, as hints and indications, without the information as to single, married, age, or whatever else, so no one looks at it and feels he should compare it to his own taxes as an exact thing.

Quote: odiousgambit

Thanks for clearing that up. I am quite happy to turn everything to do with SS over to Turbotax. Results I got seem to indicate it would take a lot of gambling income to make the SS portion converted over to be fully taxable.

Social Security income will never be more than 85% taxable.

Here is the "quick version," if I understand the instructions right:
First, add up all of your income, including anything on W-2g's, but count only half of your Social Security income (and do not deduct any gambling losses), and then subtract any IRA contribution deduction (if you are not subject to the "partial deduction" rule).
If you are single, and:
(a) the amount is $25,000 or less: none of it is taxable
(b) the amount is between $25,000 and $34,000: the taxable amount is half of (this amount minus $25,000);
(c) the amount is more than $34,000: the taxable amount is $4500 plus 85% of (this amount minus $34,000)
If you are married, and:
(a) the amount is $32,000 or less: none of it is taxable
(b) the amount is between $32,000 and $44,000: the taxable amount is half of (this amount minus $32,000);
(c) the amount is more than $44,000: the taxable amount is $6000 plus 85% of (this amount minus $44,000)
However, in no case is the taxable amount more than 85% of the Social Security income.

It gets a little complicated if you made IRA contributions and are subject to the partial IRA deduction rule (this applies only if you - or, if filing jointly, your spouse - are covered by a retirement plan at work), because you have to determine your IRA deduction in order to determine your Social Security taxable amount, but you have to determine your Social Security taxable amount in order to determine your IRA deduction. I think what you do is:
(a) Figure out what your Social Security taxable income would be if you had no IRA deduction;
(b) Use that to calculate your actual IRA deduction;
(c) Use your actual IRA deduction to calculate your actual Social Security taxable amount.

Also, if you are single and have $10,000 in mortgage interest and $12,000 in offsetting gambling losses, then the standard deduction should never "kick in" as the maximum possible standard deduction for a single person is $9400, and for a couple is $17,600.

Quote: ThatDonGuy

Social Security income will never be more than 85% taxable.

Here is the "quick version,"

Thanks Don, if that is the quick version you can see why I use something like Turbotax!!

I take it this is your line of work? You are well informed. As for the need for the rest of us to be informed, how many of us knew absolutely nothing about how a w2g can unfairly screw you over till we heard 'stories'. GWAE*, for instance, has some good ones.

Quote:

Also, if you are single and have $10,000 in mortgage interest and $12,000 in offsetting gambling losses, then the standard deduction should never "kick in" as the maximum possible standard deduction for a single person is $9400, and for a couple is $17,600.

You are right, I should have also used no mortgage deduction [or other sizable such] as some of the testing. However, I think I am going to turn this thread over to you, sir!

*asterisk is to indicate member GWAE, not the radio show/podcast

Quote: odiousgambit

I take it this is your line of work? You are well informed. As for the need for the rest of us to be informed, how many of us knew absolutely nothing about how a w2g can unfairly screw you over till we heard 'stories'. GWAE*, for instance, has some good ones.

No, but when you do your parents' taxes for years, you learn a thing or two - they were in the same situation (father started receiving Social Security; mother was employed and had a pension plan; their combined income was between the "full IRA deduction" and "no IRA deduction" limits at that time).

Personally, after one too many errors (both stupid math ones and not reading the instructions carefully - for example, I learned the hard way that a net short-term capital loss is not deductible; fortunately, they caught it right away and, as the amount of the additional tax was less than my refund, they just reduced my refund without the 0.5% per month penalty), I use H&R Block software to do my taxes.