Bob Dancer Tariff Blog

In the discussion of Bob's most recent blog, Jerry Ice 33 commented on the tax implications of paying taxes on an advantage play:

"It does suck and does get somewhat boring but if I hit a $1 royal for $4K on a small advantage play game, the tax hit very quickly makes that not a good play, right? "

I wanted to review my take on this and welcome any comments or corrections.

On a $4,000 Royal, I net about $2,900, yesterday at my local casino I had $90 in free play, I want to have a 100.7% advantage when I play video poker. It takes $10 to earn 1 tier point.

Using the Wizard of Odds return calculator, I put in that a Royal pays $2,900, which puts the return at 98.65% for the game.

I had $90 in free play yesterday, I want a 100.7% return, I take the $90 and divide it by .0205 (100.7% - 98.65%) for a total coin-in of $4,390. I stopped playing at 439 tier points.

Thoughts?

Uh, no, the Turd Bill doesn't actually change your tax liability on wins when you consider them in isolation. What it does is reduce your ability to offset them with losses. Here's how I used to calculate things back when I was playing $1 FPDW.

Let's say I play one "royal cycle" of 40,000 hands. That's $50K coin-in. So when I hit that "expected" royal, I'm not suddenly ahead $4000--that would equate to an 8% return. Plug in 100.7%, and you have a net win of $350.

The Turd Bill reduces your ability to offset wins by 10%. So let's do the thought experiment and calculate all wins and losses during that cycle. You won $25,175 and lost $24,825. Thus, the net of $350. But here comes the Turd. Now, you can only count $22,500 in losses (rounded). So despite the actual result of your play (+$350), you have to pay taxes on a $2675 "win."

This would, based on a 24% tax bracket, result in about $575 in additional taxes. That's a 1.15% -EV hit for that royal cycle. And that number is constant, regardless of denomination or volume.

A 100.7% game is now 99.55%, and not worth playing.

The rest of us aren't too thrilled with the significant increase in the SALT deduction. Too many loopholes for too many special interests. At least your tax burden did revert to 2016 levels. 

Oh good God, Max, it was obvious that you weren't discussing tariffs.

I went to a fair amount of trouble to give you an example of why positive EV play may be no longer possible, using your criteria. But never mind.

Your thinking is flawed, in that you're considering your royal hit in isolation. For tax, EV, and profit purposes, the aggregate of results is all that matters. When I hit a royal, I will have on average played X hands, which equates to Y coin-in, and if I am receiving my optimal mathematical return, I should be ahead by Z at that point. It's the best way to reckon over time.

Since the BBB legislation was signed, several congressional reps ( including Dina Titus of Nevada) have introduced bills that would restore the 100% deductions for gambling losses as it had been previously ( vs the 90% component in the BBB). There's apparently a fair amount of bipartisan support for repealing this aspect although some R's are opposed . We'll see.

The thief-in-the-middle-of-the-night way they snuck it in indicates that they suspected it wouldn't be popular. But MAGA absolutely controls the country. Any dissension in their ranks is brutally crushed. Why did they play this surreptitious game?

Only thing I can think of is that some obscure Republican wanted to score brownie points and pulled this out of his ass at the last minute. The rationalization no doubt was, oh well, it's a sin tax, and who gambles that much, anyway?

Lotsa people, actually. And if this idiot provision lives, a lot of gamblers will be surprised when they have to pay taxes on their losses. You get what you vote for...

I'm looking to calculate the amount of coin-in to keep my free play at a +EV. I ran that basic question by the Wizard of Odds on his live stream quite a while ago and he confirmed it. I'll post it on his next live stream.