It is not an easy task for the players.
If their game is slots, blackjack or craps, there is the house edge. Poker players have to face the rake. Sports bettors face a climb against the vig.
And if the gamer – whether he’s a pro, or just one of the tens of millions of casual gaming customers – is lucky and raising the money, there’s the not-so-trivial tax issue. And even there the game is stacked against the players.
It always has been, but the 2017 tax reform (technically known as the Tax Cut and Jobs Act, or TCJA) really underscored the inequity gamers, especially casual gamers, face.
Here is a problem. Many people find that players cannot calculate their net gambling losses and use those excess losses to offset other types of income. Tax rules have always been like this; Regardless of the gambling losses suffered by a player, those losses could be used to offset gambling gains, but only up to the total amount of money won. All the excessive losses, well, the player just ate them.
Technically, the rule of being able to deduct losses to make up for gains is still part of the tax code, but in practice most casual gamers never use this deduction these days. Why? Because these deductions are reported on Schedule A of a person’s income tax return as part of itemized deductions.
But – and voila – the new standard deduction for taxpayers as part of the 2017 tax reform is so high that the vast majority of taxpayers no longer itemize the deductions. Therefore, the casual gambler’s net gambling losses are no longer in play because the taxpayer cannot both itemize a gambling loss deduction and use the standard deduction. The standard deduction for 2020 is $ 12,400 for single filers and married filing separately, $ 24,800 for married filing jointly, and $ 18,650 for the head of household.
Report your gambling winnings
Okay, this helps deduct gambling losses (most taxpayers won’t take them), but the really uncomfortable news is what players have to do to report their gambling winnings. These winnings are reported on the front of the form. 1040 on line 8. And that would be the gross earnings figure with no provision for losses. Let it flow.
Meanwhile, just above that line 8 is (logically) line 7 where taxpayers report capital gains or losses. That’s right. A stock trader can trade even as a day trader (which some call gambling) and these taxpayers can get their bottom line.
“This is certainly not fair when you consider how business income and expenses are treated and how capital gains and losses are treated versus gambling gains and losses,” said Marissa. Chien, Las Vegas-based tax preparer and author of books whose clients include professional gamblers. . “It really goes back to our Puritan roots as a country, that gambling was considered a ‘sin’ – although that view is certainly changing.”
The consequences of requiring taxpayers to report gross earnings are considerable. This amount is carried over to line 11, adjusted gross income, which can affect a wide range of tax circumstances, such as whether a person qualifies for a stimulus check or how much of their Social Security benefits are taxable.
AGA challenges law on tax cuts and employment
The way players and winnings are handled is not lost on the American Gaming Association. When the 2017 TCJA made its way through Congress, the AGM, the trade group that represents the gaming industry, sent a letter to Capitol Hill noting how the gambling loss deduction was being phased out for many taxpayers.
Noting the higher standard deduction, the letter from the AGM stated in part:
âUnder such a high standard deduction, small and mid-level slot players may not be able to itemize their deductions, even with their gambling losses, and therefore may not be able to. offset gambling winnings declared as income with the total amount of their gambling losses.
âAGA strongly recommends, for the sake of tax simplification, that gambling players be allowed to subtract gambling losses from gambling winnings in order to calculate their taxable net gambling income for the purposes of reporting adjusted gross income, without being required to detail their deductions. “
This call went nowhere.
And note that the AGM pointed out that it would be the âsmall and medium slot machine playersâ who would be impacted.
Because slot machine players get tax documentation (a W-2G) every time they win a $ 1,200 jackpot, a pretty cool sum but certainly not life changing. Meanwhile, $ 500 a hand baccarat players can flip stacks of chips back and forth without these discrete events generating similar documentation.
âWhen you think of someone who isâ¦ a modest income person who is going to win a jackpot of $ 1,200 and then has $ 2,000 in losses over the year, but who is still responsible for paying marginal tax? on that $ 1,200 because that’s the (tax) form they got – and they have no way of itemizing – it’s a very potentially regressive tax for someone who actually doesn’t have any come back to that, âsaid Chris Cylke, AGA senior vice president for government relations.
Calling the slot machine jackpot
One fiscal area where the AGM hopes to make headway is the threshold to generate those W-2Gs on slot machine jackpots. This limit was set over 40 years ago and has never been recalibrated for inflation. Using common inflation adjustment formulas, the $ 1,200 jackpot under the Jimmy Carter administration when the limit was set would be over $ 5,000 today.
The AGA is appealing to the Treasury Department to increase the limit for these W-2G slots, but it may take action in Congress to make it happen.
âI wouldn’t say that something is imminent, but I would say that we think we have some momentum here and that it will be something that we will continue to focus on,â Cylke said. âBecause while there are many areas of disagreement within the gaming industry, I think we’ve spoken to all the operators in the industry who say, ‘This is ridiculous, this creates a lot of overhead. And during COVID, the less interaction you have with a customer, the better. And so, there are just too many of these $ 1,200 jackpots (today), which was never intended. “
The emergence of online gaming, be it sports betting or online casino games, obviously creates tax obligations for players who may be surprised to find that they are receiving notifications from gambling operators. their earnings. It has always been a good idea for players to keep track of their gaming sessions and keeping online betting logs is just as important, especially since mobile betting can go on at a brisk pace.
Professional players hit hard
While casual gamers and slot players who make up the gaming industry’s clientele are rocked by the inability to offset their gaming results, professional gamblers have also suffered a brutal shock with the 2017 tax reform. First of all, there is quite a test for a taxpayer to be seen as someone who practices gambling professionally with the intention of making a living doing it, as opposed to someone who plays for leisure, in which case the gambling activity is a hobby. .
Professional players, say a poker player who spends most of their time traveling the country playing tournaments and gambling, use Schedule C (Business Profit or Loss), just like any other. business man. This is where professional poker players would list travel expenses, meals, accommodation, etc.
And like other business operators, if these expenses exceeded income, the business loss could be used to offset other income. That was until the 2017 tax reform. Now, professional gamblers can only use these expenses to offset gambling gains. The limitation expires in 2025, and it remains to be seen whether Congress will extend it.
Don’t forget about state taxes
Finally, players can even get a raw deal from their home country. A handful of states – up to 11 according to some who keep track of it – allow no deduction for gambling losses, so every penny players earn is treated as taxable income.
Some of those states that don’t allow gambling loss deductions – Michigan is one – recently passed legislation legalizing online sports betting and gambling.
One point that is often raised when lawmakers consider such gambling legislation is that a lure to attract players who have outsourced their business to offshore bookmakers is that it is better to deal with gambling operators. legal and regulated money where bettors can be sure they will get their winnings back and where there is recourse in the event of a dispute.
While all of this is true, it seems lawmakers, when crafting a gambling law, might also consider giving the customers they are trying to attract a fair reward at tax time. .
Remember that federal taxes are due no later than May 17th after the date has been extended by the IRS from its normal April 15th due date.
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