Big wins and taxes

Does anyone have any idea of the amount you can win on a table game before you have to pay taxes?
With a big win can you cash out a little at a time to dodge taxes.

You can win any amount at a table game without having a w2g generated, but:
1. any win with a payout greater than 300:1 (250:1?) requires a w2g
2. any large cashout will require an anti-money laundering government form to be filled out
3. all net gambling wins are taxable. You report all your winnings, right? :-)

If you don't want forms don't cash all of your chips at the same time.

Quote: 1arrowheaddr

If you don't want forms don't cash all of your chips at the same time.

Usually if you cash more than a couple thousand at once, they'll note it and keep a running tally when you come back. They'll either ask for your players card or ID, or list physical identifiers on the sheet.

A couple years ago my banker told me they have
to fill out the same forms casinos do if somebody
goes over a certain amount of cash transactions
in a day. I think it was $4000. If you withdraw
more than $4K, or deposit more than $4k, the
bank has to file a CTR, just like the casino.

Quote: EvenBob

A couple years ago my banker told me they have
to fill out the same forms casinos do if somebody
goes over a certain amount of cash transactions
in a day. I think it was $4000. If you withdraw
more than $4K, or deposit more than $4k, the
bank has to file a CTR, just like the casino.

That seems like a rather small amount to me. A $4000 salary semi-monthly is $96,000 annually in take-home pay, which basically means anyone whose normal salary is approximately $130,000 or thereabouts, perhaps a little more.

Quote: Gabes22

That seems like a rather small amount to me. .

Thats what he told me, $4k. It was $10k and then
9/11 happened.

I just had no clue it was that small. I have a friend who got a $500,000 commission check and the Feds seized his accounts until he was able to send in a pay stub, but $4000 just doesn't seem like something that should be flagged.

My understanding is a casino MUST fill out paperwork at $10k, but they can do it for any lesser amount if they wish. I've heard of CTR's being filed with as little as $2k being exchanged.

That 300 to 1payoff has to be an amount of 600 or greater,so if you hit a 300 to 1 on a $1 bet you would not need to file paperwork.
Also at the bank my friend works at they fill out paperwork on $3000 or more.

Quote: EvenBob

A couple years ago my banker told me they have
to fill out the same forms casinos do if somebody
goes over a certain amount of cash transactions
in a day. I think it was $4000. If you withdraw
more than $4K, or deposit more than $4k, the
bank has to file a CTR, just like the casino.

A CTR will be filled out at 10000.01 in or out of the bank

Quote: Hunterhill

That 300 to 1payoff has to be an amount of 600 or greater,so if you hit a 300 to 1 on a $1 bet you would not need to file paperwork.
Also at the bank my friend works at they fill out paperwork on $3000 or more.

3000 or more when purchasing a negotiable item, money order cashiers check

When I worked at harrahs we would "flag" a player or put them on a watch list if they had over $3k in transactions. Once they hit $10k a CTR was mandatory. If player refused to provide ID then we wouldn't cash their chips etc...

In response to some of the comments in this thread about large wins and taxes , there are a number of regulations pertaining to filing of different reports involving cash transactions--which may account for some of the confusion as to the different amounts being subject to inquiry.

I have had reports filed on my own large cash transactions involving the casinos and, as a result, I have looked into this a good deal.

Interestingly and perhaps understandably, casino management is not very forthcoming in disclosing their rules and regulations about this subject. I was told once when asking about this that if I accurately declare my winnings on my taxes, then it should not matter to me as to what is filed. That may be true to some extent, but I don't relish the prospect of an IRS audit as the result of a report being filed on me.

To begin with, you must declare all winnings for tax purposes regardless whether you receive a W2-G. Generally, you will not receive a W2-G for table game activity unless you win $600 or more and the win is at least 300 times the wager. This is not a common occurrence, but one example is the Fire Bet at craps. By the way, you will know if a W2-G is filed, since the casino will give it to you on the spot. You are required to provide the casino with your Social Security number. In Indiana (where I primarily play) they will withhold state income tax but not necessarily federal income tax.

Incidentally, the winnings (whether with or without a W2-G) are reported on your 1040, and you deduct gaming losses--but only to the extent of your winnings--on Schedule A for Itemized Deductions. I get screwed on this in Indiana since Indiana state income tax is based on the Adjusted Gross Income--which is your income before itemized deductions. In other words, I do not get to deduct my losses in determining my state income tax. That may be the same in other states. But that is a subject for another thread.

There are two different reports that may be filed involving large cash transactions. One is the Cash Transaction Report (CTR) and the other is the Suspicious Activity Report (SAR). Banks, brokers and other institutions--including casinos--must file these reports. The requirements for when the CTR must be filed is explicit while the SAR is subject to a good deal of discretion.

The CTR must be filed if there is a cash transaction (or a series of cash transactions) in excess of $10,000--within a 24 hour period. Casinos have procedures in place to track this--which is why you may find that your cash transactions of a lesser amount are being logged, since you may trigger the $10,000 amount as the result of multiple transactions in the course of the day. And this does not only occur at the cage when you cash your chips. It also occurs when you buy in at the table.

In addition, there may be state gaming laws that require logging cash transactions well under $10,000. For instance in Indiana, casinos must record cash transactions in excess of $3,000.

Separate from the reporting requirements of the CTR, casinos are interested in also tracking large chip transactions. I've been asked for my player's card many times at the cage--including in Las Vegas--when cashing in for larger amounts with $1,000 or larger chips even though the total amount may be well under $10,000. In these instances, the cashier may call surveillance which in turn may call the pit to double-check or further document the transaction.

As for the SAR, this is filed when there is "suspicious" activity and the actual amount necessary for the filing of this report is not set out so clearly. Some bank tellers will routinely consider the filing of the SAR when the cash transaction exceeds $5,000. Other bank tellers may file the SAR for even less amounts.

I assure you that if you have several cash deposits or withdrawals within a short period of time (even though days apart) and each transaction is slightly under the $10,000 amount for CTR, that they will file the SAR on you even though the CTR may not be required. This is called "structuring" and it may involve violation of other federal regulations.

Personally, I have had CTRs filed by casinos on me on many occasions and I have not been subject to an audit--yet. That may not be the case if I failed to show winnings and losses on my tax returns. I also have a strong suspicion that SARs have been filed on me by my banks when I deposit winnings. That probably bothers me more than the CTR. In either case, I have taken certain steps to handle these transactions differently so as to not generate these reports. It involves some planning--and this is where the knowledge comes in. It is not an effort to evade taxes. As with anyone, I simply don't want my cash transactions reported if I can avoid it.

As far as you guys are concerned, is there anything wrong with cashing out a thousand at a time over a few days? Assuming you have over ten thousand in chips. Purely curious, won't hold anyone to it.

Quote: Jimbo

In response to some of the comments in this thread about large wins and taxes , there are a number of regulations pertaining to filing of different reports involving cash transactions--which may account for some of the confusion as to the different amounts being subject to inquiry.

I have had reports filed on my own large cash transactions involving the casinos and, as a result, I have looked into this a good deal.

Interestingly and perhaps understandably, casino management is not very forthcoming in disclosing their rules and regulations about this subject. I was told once when asking about this that if I accurately declare my winnings on my taxes, then it should not matter to me as to what is filed. That may be true to some extent, but I don't relish the prospect of an IRS audit as the result of a report being filed on me.

To begin with, you must declare all winnings for tax purposes regardless whether you receive a W2-G. Generally, you will not receive a W2-G for table game activity unless you win $600 or more and the win is at least 300 times the wager. This is not a common occurrence, but one example is the Fire Bet at craps. By the way, you will know if a W2-G is filed, since the casino will give it to you on the spot. You are required to provide the casino with your Social Security number. In Indiana (where I primarily play) they will withhold state income tax but not necessarily federal income tax.

Incidentally, the winnings (whether with or without a W2-G) are reported on your 1040, and you deduct gaming losses--but only to the extent of your winnings--on Schedule A for Itemized Deductions. I get screwed on this in Indiana since Indiana state income tax is based on the Adjusted Gross Income--which is your income before itemized deductions. In other words, I do not get to deduct my losses in determining my state income tax. That may be the same in other states. But that is a subject for another thread.

There are two different reports that may be filed involving large cash transactions. One is the Cash Transaction Report (CTR) and the other is the Suspicious Activity Report (SAR). Banks, brokers and other institutions--including casinos--must file these reports. The requirements for when the CTR must be filed is explicit while the SAR is subject to a good deal of discretion.

The CTR must be filed if there is a cash transaction (or a series of cash transactions) in excess of $10,000--within a 24 hour period. Casinos have procedures in place to track this--which is why you may find that your cash transactions of a lesser amount are being logged, since you may trigger the $10,000 amount as the result of multiple transactions in the course of the day. And this does not only occur at the cage when you cash your chips. It also occurs when you buy in at the table.

In addition, there may be state gaming laws that require logging cash transactions well under $10,000. For instance in Indiana, casinos must record cash transactions in excess of $3,000.

Separate from the reporting requirements of the CTR, casinos are interested in also tracking large chip transactions. I've been asked for my player's card many times at the cage--including in Las Vegas--when cashing in for larger amounts with $1,000 or larger chips even though the total amount may be well under $10,000. In these instances, the cashier may call surveillance which in turn may call the pit to double-check or further document the transaction.

As for the SAR, this is filed when there is "suspicious" activity and the actual amount necessary for the filing of this report is not set out so clearly. Some bank tellers will routinely consider the filing of the SAR when the cash transaction exceeds $5,000. Other bank tellers may file the SAR for even less amounts.

I assure you that if you have several cash deposits or withdrawals within a short period of time (even though days apart) and each transaction is slightly under the $10,000 amount for CTR, that they will file the SAR on you even though the CTR may not be required. This is called "structuring" and it may involve violation of other federal regulations.

Personally, I have had CTRs filed by casinos on me on many occasions and I have not been subject to an audit--yet. That may not be the case if I failed to show winnings and losses on my tax returns. I also have a strong suspicion that SARs have been filed on me by my banks when I deposit winnings. That probably bothers me more than the CTR. In either case, I have taken certain steps to handle these transactions differently so as to not generate these reports. It involves some planning--and this is where the knowledge comes in. It is not an effort to evade taxes. As with anyone, I simply don't want my cash transactions reported if I can avoid it.

This is a great recap.

The fact that you must itemize gaming losses on Schedule A is a real pain in the ass and is not "fair" in any way, especially for people who would normally take the standard deduction due to few other itemized deductions. But, I guess I shouldn't complain too much since you get extra-screwed by Indiana. I'm lucky in that my state has no income tax so I don't have to worry about my gambling wins for local taxes. Still, having an inflated AGI can be problematic for other reasons.

It would be great if they just let everyone net out the wins/losses, which is what professional gamblers are allowed to do on Schedule C, since it is business income/loss. Thus all the problems are avoided...no inflated AGI, still able to take the standard deduction if applicable, etc...but I digress. Life's not fair after all.

Quote: ahiromu

As far as you guys are concerned, is there anything wrong with cashing out a thousand at a time over a few days? Assuming you have over ten thousand in chips. Purely curious, won't hold anyone to it.

This is not a bad idea if you are worried about having to produce ID at the cage. APs will frequently do this to avoid having to give up their name. The problem is that it can bring other forms of suspicion...often times if you bring a large denom chip to the cage, they will want to confirm what game you were playing and will call over to the pit to confirm that's where the chip came from. With just a single $1K chip at a strip casino, this probably wouldn't be a big deal. It's a fine line to walk.

As for having a CTR filed, the law is written in such a way to be heavily open to interpretation. If you cash out multiple times in small increments, you could technically be guilty of "structuring," but it is doubtful you would ever be caught unless you were doing something else illegal (tax evasion, money laundering, etc.)

In my experience as a casino cashier, it is not worth it to the player to waste your time and cash in chips every few days. If you cash in a few grand in chips and have not been playing that day (surveillance could verify this is seconds) then you're probably going to have a SAR filled out. Whose chips ar these, when did you gather them, etc.. There is a thread a while back about someone finding a large denomination chip on the ground in vegas. Popular opinion on this forum was that she wouldnt be able to even cash in the chip because surveillance would have no record of her play. As a regular customer, I'd be much less concerned with a CTR being recorded than with a SAR

Quote: AcesAndEights

It would be great if they just let everyone net out the wins/losses, which is what professional gamblers are allowed to do on Schedule C, since it is business income/loss. Thus all the problems are avoided...no inflated AGI, still able to take the standard deduction if applicable, etc...but I digress. Life's not fair after all.

If you have won enough money that you are worried about the taxes you will be paying, then why not just report them on Schedule C? Keep track of all your expenses, related to anything really, but if you want to get specific to gambling, just keep a book with all your expenses, including travel. If, at the end of the year, you're going to show a profit and/or you received a W-2G, then indicate you had a business gambling, and fill out a Schedule C.

This isn't going to work if you made one trip to Vegas and hit it big. But, it seems like a lot of people here are regular travelers to Las Vegas and/or other gambling meccas, so why not just treat it as a business anyway? Granted, if you're losing money every year doing gambling, then this won't help you. But if you can manipulate the numbers, and everybody can, to show a profit motive under the 3-of-5 test, then you can have your big deductions the other two years.

Quote: konceptum

If you have won enough money that you are worried about the taxes you will be paying, then why not just report them on Schedule C? Keep track of all your expenses, related to anything really, but if you want to get specific to gambling, just keep a book with all your expenses, including travel. If, at the end of the year, you're going to show a profit and/or you received a W-2G, then indicate you had a business gambling, and fill out a Schedule C.

This isn't going to work if you made one trip to Vegas and hit it big. But, it seems like a lot of people here are regular travelers to Las Vegas and/or other gambling meccas, so why not just treat it as a business anyway? Granted, if you're losing money every year doing gambling, then this won't help you. But if you can manipulate the numbers, and everybody can, to show a profit motive under the 3-of-5 test, then you can have your big deductions the other two years.

I'm reasonably certain that it doesn't work that way for professional gambling - all of everything I've read, including news articles on the internet, opinions here, and from the book Tax Help for Gamblers indicates that to use Schedule C, gambling has to be your primary source of income, i.e. you need to actually be a professional AP or poker player or whatever. Since I have a day job that provides the vast majority of my income, I would be ineligible to report my gaming activities as part of a business.

If you know differently let me know! I would love to use Schedule C, but I don't want to get audited.

As a business owner and gambler I'm sure AcesAndEights is right. You can only use a schedule C if gambling is your primary business. I.E.-- do you derive most of your income that way. Otherwise it's a schedule A item.

If you play tables and try to avoid CRTs, the casino staff will report you are trying to avoid them in each instance and will not tell you they are doing this. I learned of this in the book God Wants You to Roll, but cannot find my copy to get the exact details. I don't see the harm in CRTs anyways since they don't prove anything.

I agree with the remarks that the CTRs at the casino level are not that big of a deal. This is not intended to be a report that is indicative of taxable income. And you are correct in that if the casino thinks you are doing things to avoid the CTR, then they will simply file the SAR. As I have said, I have had CTRs filed on me on countless occasions (both when buying in and when cashing out) and nothing has come of it.

So in answer to the one person, I would not go to that much effort to cash out over a period of several days.

I am more concerned about SARs being filed on me and also about CTRs at the bank (as opposed to the casino). In my professional practice some time ago, my bank erroneously filed a CTR on me with regard to one of my business bank accounts. It was not a cash deposit, but for some reason the bank showed it as cash. About a year later, I got a call from the IRS to do an audit on that account and they had to check my business records to be sure I was not hiding cash transactions for my clients. It all went well--the agent was very pleasant about it. Nevertheless, it is not something I would want to go through with my gambling activity.

About the Schedule C. The rules for being able to use this is a little more complicated than simply showing that gambling is your primary source of income. You must show that you are a "professional gambler" in the eyes of the IRS. In any case, you still have the same limitation of only being able to deduct your losses to the extent of your winnings. I agree that, in addition, you would be able to deduct your business related expenses. But I am fortunate in that regard in that the casinos have comped everything for me throughout the year and consequently I do not have any deductible expenses. It would still help me out on my state tax return, but I can live with that. I simply set aside enough of the winnings to cover the taxes and file estimates throughout the year and all is good.

Quote: Hunterhill

That 300 to 1payoff has to be an amount of 600 or greater,so if you hit a 300 to 1 on a $1 bet you would not need to file paperwork.
Also at the bank my friend works at they fill out paperwork on $3000 or more.

Here's what I've heard at the casino I work. There's a special form for lower buy-ins like 2000 but the major one is 10000. No taxes, just tracking. And yes a tax form for 300:1 AND $600. So win over 600 on 200:1, no taxes. Win less than 600 on 300:1, no taxes. At least that's how I understand it. But I could be playing purple on craps and win 100,000 but no taxes. But certainly very close eyes from the pit.

Quote: AcesAndEights

I'm reasonably certain that it doesn't work that way for professional gambling - all of everything I've read, including news articles on the internet, opinions here, and from the book Tax Help for Gamblers indicates that to use Schedule C, gambling has to be your primary source of income, i.e. you need to actually be a professional AP or poker player or whatever. Since I have a day job that provides the vast majority of my income, I would be ineligible to report my gaming activities as part of a business.

If you know differently let me know! I would love to use Schedule C, but I don't want to get audited.

That would definitely change things. However, I haven't been able to find the specific IRC section and/or court ruling that indicates that gambling has to be a primary source of income in order to qualify for Schedule C. If that book references the IRC section or court ruling, could you please let me know what it is, as I would really like to read it.

From what I could find, the IRS has guidelines on what qualifies as a business for Schedule C, including the following:

Quote:

Does the time and effort put into the activity indicate an intention to make a profit?
Does the taxpayer depend on income from the activity?
If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
Has the taxpayer changed methods of operation to improve profitability?
Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
Has the taxpayer made a profit in similar activities in the past?
Does the activity make a profit in some years?
Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?

I file multiple Schedule Cs for my various business ventures. On one of them, I spend about 10 hours a year working on. That's way less time than most of you spend gambling in one weekend, much less those of you who travel to Las Vegas every month. And, of course, only one of my Schedule Cs would be considered my primary source of income, although, in my opinion, they are ALL my primary source of income.

I know that in COMMISSIONER v. GROETZINGER, 480 U.S. 23 (1987), the justices stated

Quote:

We accept the fact that to be engaged in a trade or business, the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer's primary purpose for engaging in the activity must be for income or profit. A sporadic activity, a hobby, or an amusement diversion does not qualify.

Again, nothing is mentioned about the amount of time spent doing it, nor that it has to be a primary income.

However, all that being said, it wouldn't surprise me in the least if the IRS treated gambling differently. I would suspect, however, that any difference in treatment is based upon an internal or unwritten feeling about gambling, and not backed up by an actual IRC section or court ruling. But again, I love to be wrong. And I would really love to see the section or ruling that indicates that gambling, as a business, should be treated differently than, oh say, gardening, as a business.

I don't have that book you referenced myself, nor do I wish to actually purchase it, as my interest in this is purely academic. But if you could let me know if the statement in the book that gambling has to be the primary source of income is based upon an actual IRC section or court ruling, or just based upon past history with the IRS, I would appreciate it.

Quote: konceptum

I don't have that book you referenced myself, nor do I wish to actually purchase it, as my interest in this is purely academic. But if you could let me know if the statement in the book that gambling has to be the primary source of income is based upon an actual IRC section or court ruling, or just based upon past history with the IRS, I would appreciate it.

I'll look it up when I get home - I believe it referenced a precedent-setting court case rather than the IRC.

I have not taken the time to research the question as to what, specifically, must be established to claim that you are a professional gambler in order to file Schedule C. But I suspect there are many reported cases and I further suspect that most of the decisions are fact specific. I also suspect that in most cases the IRS disputes the filing and the burden and cost falls on the taxpayer to prove his case.

I am not a tax expert, but there does not appear to be many reasons why a Schedule C (as opposed to going the Miscellaneous Income/Itemized Deduction route) is beneficial beyond the ability to deduct expenses. (Except in my case in Indiana where my Adjusted Gross Income is used for state income tax purposes, which means I cannot deduct any losses on my state tax return.)

There is a major drawback, however, in using Schedule C. That is the fact in profitable years, you will have the pay Self-Employment Tax.

Quote: AcesAndEights

I'll look it up when I get home - I believe it referenced a precedent-setting court case rather than the IRC.

Taxes! It's about that time, eh?

I've been working on my taxes slowly over the past few weeks, and hope to have them wrapped up and filed this weekend. So, back to the question about using Schedule C as a business vs. line 21 "other income" and a Schedule A deduction. To recap, it makes a big difference for me since I don't have many itemized deductions and using Schedule A removes the benefit I would get from the standard deduction. There are some other reasons why it might be good for me as well.

Quote: Jimbo

I am not a tax expert, but there does not appear to be many reasons why a Schedule C (as opposed to going the Miscellaneous Income/Itemized Deduction route) is beneficial beyond the ability to deduct expenses.

To answer this, you have to realize that going the Schedule A route will artificially inflate your AGI (adjusted gross income) since it is figured before any deductions. There are a bunch of things that are negatively impacted by a high AGI. There's a long list in Tax Help for Gamblers, but I'll just list a few here that might impact me now or in the future:

• Roth IRA contributions - phased out between 110K and 125K AGI. This one won't hit me this year, but might next year.
• Medical expense deductions - can only deduct the amount above 7.5% of your AGI

There's a bunch of other stuff like Social Security, Medicare premiums, Child tax credit, and Mortgage interest deductions that I don't have to worry about yet, and other potential impacts like AMT liability. So, there's a couple votes in favor of using Schedule C if possible. But, Jimbo's observation here is apt:

Quote: Jimbo

There is a major drawback, however, in using Schedule C. That is the fact in profitable years, you will have the pay Self-Employment Tax.

My net gambling income was about 7 grand this year. So 15% of that is going to basically wipe out the benefit I would get from taking back the standard deduction. I also managed to scrape together about $2300 in itemized deductions from state sales tax and charitable contributions, which would reduce further the benefit of going back to the standard deduction.

In addition, here are some relevant points from the book that dissuaded me from using Schedule C:

Quote:

However, filing as a professional gambler using Schedule C has its own set of problems. First, the IRS imposes rigid requirements on anyone wanting to claim gambling as his "business," although these are not all set in stone; individual situations are considered. However, court cases have established that your intent must be to make money as a primary source of income; it must not be just a hobby. The Supreme Court has defined a professional gambler as one who gambles "with regularity, continuity, and with an expectation of profit."

My case could be taken either way with just this information...regularity, sure. Expectation of profit? Yes when I'm playing blackjack; no when playing anything else. "Intent to make money as a primary source of income," nope. Further:

Quote:

The landmark Supreme Court case that allowed gamblers to file as professionals was the case of Commissioner v. Groetzinger. In that case, the Court concluded, "If one's gabling activity is pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby, it is a trade or business within the meaning of the stautes with which we are here concerned." Essentially, the court ruled that each taxpayer's situation must be evaluated according to the facts and circumstances of the case.

Given all that information, I feel like I would definitely lose in an audit if they came after me for filing Schedule C for my gambling activities. I know nothing is mentioned about specific amount of time spent, but I only played blackjack for about 47 hours last year. I don't keep track of my session length in craps, but I played 55 sessions, and I think about an hour per session would be a good estimate. The weight of evidence would be against me for it being a "business."

I'm not too unhappy with how it all has shaken out. I calculated my taxes a couple different ways, and if the IRS did the sane thing and allowed you to just report your net gambling income on 1040, then I would have come out just about even on my taxes (owed them about $160). With the rigmarole of using gross gambling income, filing Schedule A, and figuring all of my other allowable deductions, I'm going to end up owing about $700. Annoying, but I still made enough money gambling to make it worth it :).

Back to the CTR, I've cashed out more than 10K in a day (usually from multiple sessions which included buying back in with money that I had received from cashed chips), and I've never had to deal with one. I can't remember the last time they asked for my card or ID when I've cashed out a few grand, so I don't see why a different cashier a few hours later would know what I'd done earlier. I have no desire to defraud or hide my actions, and if they wanted ID and wanted me to deal with the CTR, I have no problem with that. My multiple cashes were never done to skirt any rule, just the way the long day shook out. But it's not on me to figure out my previous cashes...

In 1999 I was waiting for my wife and just to kill time
I put $5 in a $1 slot and won $3000. I cashed out and
went to the cage to do the IRS paperwork. I totally
forgot I won this money till about 5 years later. I took
a chance and to this day I've never heard a word about
it from anybody.

I heard that during the late 90's Indian casinos were very
bad about turning over the paperwork to the IRS. They
finally cracked down on them years later, but I'm sure
my win fell thru the cracks and never got reported.

I've always had people sign for me at the horse tracks. Going rate is around 10%

How about this as an advantage of filing schedule C as a "professional" gambler rather than just deducting gambling loses as a schedule A expense. If you are eligible to go that route, you should be able to deduct not just your losses in the casino but all of the expenses associated with your gambling activities, just as you would for any other business venture. That includes transportation, lodging, meals while in travel status, etc.

Now for an out-of-left-field question: suppose a casual gambler happened to win one of those outrageous lottery jackpots that is paid out over decades. During that period, "gambling winnings" are likely to be his/her primary source of income. If that person derives pleasure from playing in casinos, they could declare that they are a "professional", spend as much time at the activity as they like, and likely lose overall to the house. Even after deducting those losses as business expenses, plus those I listed above, they should still wind up with a sizable net win from gambling for the year. It would be like having the government subsidize not just your losses to the casino but also all of your expenses of going to play (though not at 100% -- only at your tax rate as a lottery winner). Would that work? Not that I or anyone reading this will ever have the opportunity to try it in real life.    ;-)

Quote: EvenBob

In 1999 I was waiting for my wife and just to kill time
I put $5 in a $1 slot and won $3000. I cashed out and
went to the cage to do the IRS paperwork. I totally
forgot I won this money till about 5 years later. I took
a chance and to this day I've never heard a word about
it from anybody.

I heard that during the late 90's Indian casinos were very
bad about turning over the paperwork to the IRS. They
finally cracked down on them years later, but I'm sure
my win fell thru the cracks and never got reported.

You always have something to say. Why does a casino care about 3 grand??? You just need to shut up sometimes idiot

Quote: JW17

You always have something to say. Why does a casino care about 3 grand??? You just need to shut up sometimes idiot

I'm going to go with a soft, in-thread Warning this time, but if you post to another Member with that sort of disrespect again, it will be a Suspension.

Quote: JW17

You always have something to say. Why does a casino care about 3 grand??? You just need to shut up sometimes idiot

I'm not quite sure why you feel this way. Its a taxes
thread, I made a taxes post. It doesn't matter what
the casino cares about, its what the IRS cares about.
If you fill out form, the casino is bound by law to send
a copy to the IRS.

Odd you didn't know that.

Federal CTR general requirements can be found here: http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=eea4ce912c90ae36d81dc4964a480cc0&tpl=/ecfrbrowse/Title31/31cfr1010_main_02.tpl

And for casinos: http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=eea4ce912c90ae36d81dc4964a480cc0&tpl=/ecfrbrowse/Title31/31cfr1021_main_02.tpl

Businesses must file a CTR on you if they are aware of cash transactions in excess of $10k within a 24 hour period (gaming day for casinos)....

Quote: Doc

How about this as an advantage of filing schedule C as a "professional" gambler rather than just deducting gambling loses as a schedule A expense. If you are eligible to go that route, you should be able to deduct not just your losses in the casino but all of the expenses associated with your gambling activities, just as you would for any other business venture. That includes transportation, lodging, meals while in travel status, etc.

I did think about that, and I probably should have done the math, but I doubt the additional deductions would have offset the cost of self-employment tax. All of my hotel stays in Vegas were comped, as was most of my food. I only flew there 3 times last year, so that would be the extent of the additional deductions, although I guess I could figure mileage driving to my local casinos.

Quote:

Now for an out-of-left-field question: suppose a casual gambler happened to win one of those outrageous lottery jackpots that is paid out over decades. During that period, "gambling winnings" are likely to be his/her primary source of income. If that person derives pleasure from playing in casinos, they could declare that they are a "professional", spend as much time at the activity as they like, and likely lose overall to the house. Even after deducting those losses as business expenses, plus those I listed above, they should still wind up with a sizable net win from gambling for the year. It would be like having the government subsidize not just your losses to the casino but also all of your expenses of going to play (though not at 100% -- only at your tax rate as a lottery winner). Would that work? Not that I or anyone reading this will ever have the opportunity to try it in real life.    ;-)

I doubt that would fly, but I would love to try it!

Quote: Doc

Now for an out-of-left-field question: suppose a casual gambler happened to win one of those outrageous lottery jackpots that is paid out over decades. During that period, "gambling winnings" are likely to be his/her primary source of income. If that person derives pleasure from playing in casinos, they could declare that they are a "professional", spend as much time at the activity as they like, and likely lose overall to the house. Even after deducting those losses as business expenses, plus those I listed above, they should still wind up with a sizable net win from gambling for the year. It would be like having the government subsidize not just your losses to the casino but also all of your expenses of going to play (though not at 100% -- only at your tax rate as a lottery winner). Would that work? Not that I or anyone reading this will ever have the opportunity to try it in real life.    ;-)

If I understand correctly, you're saying that a person who wins a large jackpot, let's say $10,000,000 opts for the annual payout over 20 years, or $500,000 a year, instead of a lump sum payout. They would then record that $500,000 per year as income, but since they are now operating as a professional gambler, they would have multiple deductions to offset some portion of that income.

First, I'm pretty sure most people know that opting for an annual payout is a bad idea for multiple reasons, and one of them is taxes. It's much more advantageous to pay this year's tax rate on a lump sum, than to "gamble" with how high taxes are going to be 20 years from now.

Next, I think that your idea would "sort of" work. If you decided to become a professional gambler, you would be able to deduct any expenses you might have. You would have to show that you were utilizing gambling as some sort of income, and might have to pass the 2 out of 5 rule as for any business vs hobby decision. However, the $500,000 you receive each year wouldn't be a part of your new business as a professional gambler, since that money had been won prior to you starting the business. In other words, you couldn't suddenly allocate it as business profits.

Finally, anybody who does win a large jackpot should automatically consider establishing a trust fund and/or LLC anyways, and having the money won by the fund and not by an individual. This helps in estate planning, taxes, as well as future uses of the monies.

Quote: AcesAndEights

Quote:

The landmark Supreme Court case that allowed gamblers to file as professionals was the case of Commissioner v. Groetzinger. In that case, the Court concluded, "If one's gabling activity is pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby, it is a trade or business within the meaning of the stautes with which we are here concerned." Essentially, the court ruled that each taxpayer's situation must be evaluated according to the facts and circumstances of the case.

The Groetzinger case is the one I was familiar with, and while it does state the phrase "full time", there is nowhere a definition of what that exactly means. My argument previously was that I have a business in which I spend only a few hours a month, yet it is fully considered a business by the IRS. Many people spend a lot more time than that gambling. My main question was, does the IRS treat the gambling profession differently than other businesses, and do they have a right do so?

Further research would indicate they do:

Quote: Pete C. Valenti and Peggy R. Valenti v. Commissioner, U.S. Tax Court,
CCH Dec. 50,147(M), T.C. Memo. 50,147(M), 68 T.C.M. 838, T.C. Memo.
1994-483, (Oct. 4, 1994)

Petitioners' contention is in essence that, by applying the
wagering loss restrictions of section 165(d) to petitioners and others engaged in the trade or business of
gambling, the Commissioner treats such taxpayers differently than other taxpayers engaged in different
trades or businesses.
...

Quote: Carmichael v. Southern Coal Co., 301 U.S. 495, 509-510
(1937):

This Court has repeatedly held that inequalities which result from a singling
out of one particular class for taxation or exemption, infringe no constitutional limitation
...
It may make distinctions of
degree having a rational basis, and when subjected to judicial scrutiny they must be presumed to rest
on that basis if there is any conceivable state of facts which would support it

Plainly, a classification
that differentiates the business of gambling from other business has “a rational basis, and when subjected
to judicial scrutiny * * * [it] must be presumed to rest on that basis if there is any conceivable state of facts
which would support it.”

So, the IRS can, and perhaps more importantly DOES, treat the business of gambling differently than other businesses. Which means they can enforce greater restrictions, make greater demands, etc.

Thus, I stand corrected. But I enjoyed the research. :)

Quote: konceptum

So, the IRS can, and perhaps more importantly DOES, treat the business of gambling differently than other businesses. Which means they can enforce greater restrictions, make greater demands, etc.

Thus, I stand corrected. But I enjoyed the research. :)

Thanks for the quotes! That lines up with my results too, although I did not dig that deep.

Quote: konceptum

First, I'm pretty sure most people know that opting for an annual payout is a bad idea for multiple reasons, and one of them is taxes. It's much more advantageous to pay this year's tax rate on a lump sum, than to "gamble" with how high taxes are going to be 20 years from now.

Except that taking the lump sum is always for a percentage of the advertised prize, not the whole thing. IMO it's not all that clear cut. You have to weigh the additional gross monies coming from the sum of all annual payments against the possibility (or inevitability) of higher taxes in the future.

Would that my gambling led to such problems :)

Quote: AcesAndEights

Except that taking the lump sum is always for a percentage of the advertised prize, not the whole thing. IMO it's not all that clear cut. You have to weigh the additional gross monies coming from the sum of all annual payments against the possibility (or inevitability) of higher taxes in the future.

True. I feel that the primary reason for taking a lump sump payout is not necessarily for taxes, but for the ability to plan better. For simplicity, let's take a hypothetical $1 million dollar prize. Lump sump payout is half that, or $500,000. Minus taxes. You know you're getting that much money in your hand. You have it, you can do what you want with it. If you instead take the prize over 20 years, you know that this year you're going to get $50,000 minus whatever the tax rate is. But, you have no idea what you'll really get next year, or the year after that, or the year after that.

I know that prize officials feel that halving the prize for a lump sum is considered "fair", since theoretical investments of the half you receive as a lump sum over the 20 years would equal out to the total prize anyway. Obviously, a lot of this has to do with your own financial acumen. If you have poor money skills, the annuity payout is probably the best option. But if you have some financial savvy, a lump sum will probably be better for you.