The Taxing Part of Gambling

Just put our 2011 tax returns in the mail today.  This reminded me of the many questions about taxes down through the years.  Of course many of these have been answered in my book Tax Help for Gamblers, which, by the way, is now available in a new updated edition, both in paperback and as an eBook.

However, there has been interest in some of our personal tax details.  Of course, some of those we share only with the” friendly” government employees of the IRS, many with whom I have had far too much communication down through the years.  Fortunately, experience back in my high school teaching days working with slow learners has stood me in good stead.  Also, my writing skills have come in handy.  So by phone and letter I have been successful in “educating” many tax-collecting employees, both in federal and state governments, on the subject of professional gambling.  This has allowed us – so far – to avoid any face-to-face audits.

But there are some personal questions I can answer.  Yes, we have shown a profit – and paid taxes on it – every year since we started filing as professional gamblers when we moved to Las Vegas in 1999.  And surprisingly – probably to you and certainly to us – 2011 was our second-best year ever.  (Hard to top the year we won first prize in that big Caesars tournament!)  We certainly were no more skillful players in 2011 than we had been before that and we certainly were playing with a smaller edge that ever before.  We just “got lucky” and hit more royals than the math would indicate.    You can never predict luck, just embrace it when it is the good kind.  And before you become jealous of our 2011 results, I must tell you that the royal fairy has not been around much at all in 2012.  We are in one of our worst losing streaks ever.  No love for bad luck, of course – but fortunately we can look back at the past and know that if we keep doing all the right things, results will straighten out in the long term.  However, we are realistic and know that playing with a smaller edge will probably make the “long term” longer than in the past – and we won’t necessarily see black at the end of each year in the future.  Math does not go by a 12-month January-through-December calendar!

How do we file?  For many years we filed as a business S Corp.  However, the expenses (state license and fees, etc.) for that type of company kept going up and our profits were generally going down since we weren’t playing as much or at such high denominations.  So a couple of years ago we closed our “company” and switched to the simpler Schedule C filing.  We can still deduct expenses and losses and carry over our net win to page 1, avoiding a large gross income that would impact us negatively in many areas (Medicare, SS, etc.).  And we can still shelter some of our income with 401K plans.

One of the biggest tax headaches for us is dealing with states taxes.  Nevada, where we do the most of our play, does not have a state income tax.  But if we go to other states which do – and many are withholding that from W-2G wins – it is often a complicated job to get any of it returned.  First, we have to file a non-resident return for each of those states – and many of those are quite lengthy and complicated.  Then they often question our status as professional gamblers – sometimes year after year – and I have to take the time to “educate” them.  I have been able to satisfy both Indiana and Louisiana now for several years and we have gotten back most or all the tax withheld.  The tax that Mississippi withholds is non-refundable, so that is why we limit our play there.  It is, however, deductible as a business expense.  In 2011 for the first time we played in Iowa and hit a taxable.  Time will tell whether we get back any of that $100 Iowa state tax withheld!

Incurring extra taxes because we gamble isn’t one of the “fun” parts of our entertaining job, but we don’t complain.  After all it means we are winning!