Gambling return once you factor in taxes

As most of us know, the way to report your gambling wins/losses for (U.S. federal income tax is):

(1) Report the total of your session wins as income.

(2) If you're itemizing deductions, report the total of your session losses as a deduction (but not more than the total of your session wins).

(3) Ignore W-2Gs, since IRS wants you to use the session method.

(source for the above)

That got me thinking: Only about 14% of taxpayers itemize deductions. The other 86% don't, presumably because they get a bigger tax break by using the standard deduction. This is unfair for gamblers who don't itemize, because they have to report their winnings as income, but don't get to offset those wins with losses. (We can't consider that they're getting the offset as part of the standard deduction, because they'd get the exact same standard deduction if they weren't gambling. Once they start gambling, they have losses, but they can't claim any extra deductions.)

So, I was wondering, what does the return look like on gambling once you factor in taxes? This is what it looks like, unless I've made an error. Let's assume Craps, with a 49.3% chance of winning and a 50.7% chance of losing, and a 24% tax bracket.

	Wager	Probability	Return Calculation	Return
Win	$100	49.3%	$100 x 49.3% * (1-24%) =	$37.47
Lose	$100	50.7%	-$100 x 50.7% =	($50.70)
				$13.23

So, that's like a 13.2% house edge. Ouch.

Let's take the case in which you *do* have enough deductions to itemize. Let's say your total wins are $1000 and total losses are $1300. You report $1000 in income, and a $1000 deduction on Schedule A. (You can't claim more losses than wins.) So, you have no net wins, and so by itemizing the house edge on your game isn't affected by taxes like it was if you didn't itemize.

Whether you itemize or not, by reporting your wins as income, you increase your AGI, which could reduce your ability to claim other deductions, such as medical expenses, mortgage interest, and charitable contributions. There are more details about this in my article about gambling taxes.

The thought of paying taxes on my gambling winnings makes me sad, very glad the system here in the UK runs differently.

Quote: blackjacklad

The thought of paying taxes on my gambling winnings makes me sad, very glad the system here in the UK runs differently.

The thought of somebody paying taxes on their gambling winnings makes me happy, very glad the system here in the US runs differently.

Most gamblers use roads to get to their destination. Somebody needs to pay for the roads :-)

Gambling should not be taxed because there is no real income. The overall gambling activity by all Americans in any year is a net LOSS. There is no net income to tax. Instead, the U.S. system taxes "winnings" that aren't really winnings, and losses aren't fully deductible.

If you win $100 on one day and lose $100 the next day, you have no actual winnings, but most Americans are taxed on the $100 "win", and can't offset it with their loss. That's just blatantly unfair.

Quote: MichaelBluejay

Gambling should not be taxed because there is no real income.

???????????
How do professional gamblers survive?
Doyle Brunson hated it when people found out he was a professional gambler and assumed he had a gambling problem and was not making money
Doyle did quite well and should pay taxes because he was making money

You can easily prove your losses. Save your receipts such as sports betting or horse betting.

If you are playing a game where you cant prove losses then dont play that game or figure in taxes as an additional house edge and maybe that will dissuade you from playing

Quote: terapined

The thought of somebody paying taxes on their gambling winnings makes me happy, very glad the system here in the US runs differently.

Most gamblers use roads to get to their destination. Somebody needs to pay for the roads :-)

Taxing the gambling providers rather than the customers is more effective and much easier to enforce.

Obviously I'm talking about recreational gamblers, which are 99.999% of all gamblers.

Quote: terapined

You can easily prove your losses. Save your receipts such as sports betting or horse betting.

You seem to be missing the point. The ovewhelming majority of Americans can NOT offset their gambling wins with losses, even if they can prove those losses. You win $100 and lose $100, you're taxed on the $100 with no offset for the loss (unless you can itemize, and the overwhelming majority of Americans don't).

Quote: MichaelBluejay

Obviously I'm talking about recreational gamblers, which are 99.999% of all gamblers.

Quote: terapined

You can easily prove your losses. Save your receipts such as sports betting or horse betting.

You seem to be missing the point. The ovewhelming majority of Americans can NOT offset their gambling wins with losses, even if they can prove those losses. You win $100 and lose $100, you're taxed on the $100 with no offset for the loss (unless you can itemize, and the overwhelming majority of Americans don't).

People that are too lazy to itemize should have to pay taxes.
I dont give a crap about the 99.9%
You got money to waste on gambling, you should be taxed at a higher rate.
By taxing the winnings, those in society that can afford to pay higher taxes are paying higher taxes.
Its perfect
Offsets all the bogus tax breaks these rich gamblers take advantage of.

Quote: terapined

Quote: MichaelBluejay

Obviously I'm talking about recreational gamblers, which are 99.999% of all gamblers.

Quote: terapined

You can easily prove your losses. Save your receipts such as sports betting or horse betting.

You seem to be missing the point. The ovewhelming majority of Americans can NOT offset their gambling wins with losses, even if they can prove those losses. You win $100 and lose $100, you're taxed on the $100 with no offset for the loss (unless you can itemize, and the overwhelming majority of Americans don't).

People that are too lazy to itemize should have to pay taxes.
I dont give a crap about the 99.9%
You got money to waste on gambling, you should be taxed at a higher rate.
By taxing the winnings, those in society that can afford to pay higher taxes are paying higher taxes.
Its perfect
Offsets all the bogus tax breaks these rich gamblers take advantage of.

It’s not laziness. It’s that the standard deduction exceeds most people’s itemized deductions.