1/3/2003
Editor’s Note: This week’s Frugal Fridays is written by Marissa Chien, EA, owner of AdvantageTax+, a Las Vegas tax and financial consulting firm, contributor to the Las Vegas Advisor, and video poker player. One of her clients is Jean Scott, the Frugal Gambler. She’s an expert in the tax ramifications of gambling, especially for video poker players. She can be contacted at 702/207-1040 or [email protected].
With the new year upon us, many video poker players and other gamblers are asking themselves, “”Should I file as a professional gambler?”” Unfortunately, the answer to this question is not a simple one as there are many considerations to take into account.
Some of the advantages of filing as a non-professional are as follows. First, it’s simpler. Second, you get to fully offset your losses on Schedule A as long as you have enough itemized deductions such as mortgage interest, property taxes, and charitable contributions.
The disadvantages? First, you don’t get to deduct expenses like travel, mileage, etc. Second, if you have a large amount of “”gambling income,”” it could wreak havoc with the other areas of your tax return that are AGI (adjusted gross income) dependent. Finally, if you live in a state like Illinois, Indiana, and Wisconsin that doesn’t take into account gambling losses, you’ll be paying additional tax.
On the other side of the equation, some of the advantages of filing as a professional gambler include getting to directly offset “”wins”” against “”losses.”” You can also write off expenses, such as travel. If you show a net profit, you can also put up to $40,000 into a personal tax-sheltered retirement account and be able to deduct it off of your income taxes. Most importantly, it doesn’t wreak havoc with other parts of the tax return that are dependent on the AGI (i.e., medical deductions, Schedule A deductions, rental real-estate losses, etc.).
The disadvantages of filing as a professional: You pay FICA tax on net income. You’re also subject to hobby rules — you need to show a profit three out of five years or you could lose the status. Finally, the IRS treats gamblers who claim they do it as a business differently from others who are sole proprietors. The IRS’ position is that in order to qualify as a professional gambler, you have to engage in this activity in a manner that’s of a full-time nature. One thing that will help your case is not having a regular job, though there have been cases where people have successfully claimed professional gambler status even though they had other employment. In those cases, the individual still had to demonstrate that he put in as much effort as if he was working a second full-time job. The IRS in the past has applied the elements to qualify as a professional trader to substantiating one’s claim as a professional gambler.
One bright spot is that IRS in Nov. 2002 issued a regulation stating that husband/wife partners in a business can be considered a “”disregarded entity”” in community-property states, such as California and Nevada. This effectively allows husband/wife pros to offset their gambling wins/losses against each other. Therefore, spouses are no longer penalized if one is really lucky and the other one isn’t.
At the end of the day, if you choose to claim to be a professional gambler, you’re probably taking the ultimate gamble. Some people have successfully filed as a professional without challenge for many years, while others get their return kicked out by the computer. At that point, each decision is based on the “”facts and circumstances”” of the case. With luck, you get an examiner who understands the tax issues regarding gambling.
What does one do? Best thing is probably to talk to a tax professional who is knowledgeable about the intricacies of gambling and the impact that it can have on the different parts of a tax return. If you go it alone, at least have a tax pro on speed dial so you can call him or her when you get the d”
1/10/2003 “Editor’s Note: As some of us suspected, it’s been a bit tough for Jean Scott to relax to the extent that she can refrain from expressing herself when she has something to say! The following is her comment on last week’s tax article by Marissa Chien. Jean and Marissa are friends and Jean’s a client of Marissa’s, so we thought it might be instructive and entertaining to listen in on one of their friendly discussions. Marissa should offer up her response next week; meanwhile, she can be contacted at 702/207-1040 or [email protected].
Dear Marissa,
Okay, I know you are the tax expert — and I’m trying to retire — but I just had to ask you about some of the things you wrote here in your guest column last week. As you well know, since you went over the rough draft, I have a long chapter about taxes and gambling in my new book, More Frugal Gambling, coming out soon. I researched this chapter until my eyes were crossing so that it would be accurate.
However, the problem is that there is no consensus among tax experts, or even among IRS agents themselves, about all the issues. Although the IRS has finally accepted the fact that there actually can be such a creature as a “”professional gambler,”” old moral prejudices still rule and it seems that gambling as a business must be “”punished”” by not being allowed the same tax benefits that any other business enjoys.
One big gray area is the matter of what makes someone a “”professional gambler”” so they can file as a business. Obviously, one’s intent must be to make a profit or it falls under a hobby, which has different rules. Marissa, you seem to be pretty clear that you must work at it full-time. I read about one Supreme Court case that defined a professional gambler as one who gambles “”with regularity, continuity, and with an expectation of profit.”” That didn’t say “”full-time.”” Lots of people have part-time businesses. I’ve known of quite a few people down through the years who have a normal full-time job, but gamble extensively and regularly and keep books in a professional manner, i.e., a Vegas local advantage player who plays 20-25 hours a week, who’ve been able to survive an audit as a professional gambler.
Are you saying a person should never try to file as a professional gambler if he has another full-time job?
Jean
1/16/2003
Editor’s Note: This week’s Frugal Fridays is the third in a series of articles about gambling and taxes. The first (1/3/03) was penned by Marissa Chien, EA, owner of AdvantageTax+. The second (1/10/03) was a response from Jean Scott, one of Marissa’s client’s. This is Marissa’s answer to Jean’s queries. (Marissa can be contacted at 702/207-1040 or [email protected].)
Jean,
You raise some excellent points, which illustrate the difficulty of being in “the trade or business” of gambling. Although the phrase “trade or business” is used in the IRS code more than 600 times, there is no formal definition of it! With respect to gambling, the authority that provides guidance is the decision of Commissioner v. Groetzinger 480 US 23 (S. Ct 1987). In that case, Robert Groetzinger claimed to be a professional gambler for 1978. He had spent between 60-80 hours a week studying and betting on the horses. He had no other full-time employment. His only other income was some interest and dividends. Although he ended up a net loser for the year, due to the tax laws back then, he got hit with a minimum tax adjustment. He claimed that he was in the trade or business of gambling and therefore not subject to those rules.
In the Supreme Court ruling, Justice Blackmun. writing for the majority. stated, “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.” However, he further stated, “If one’s gambling 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 statutes with which we are here concerned.”
What does this all mean? To me, it means that professional gambling is not a black-and-white issue. If you were to gamble for many hours a week and that was your only means of livelihood, then in my opinion, you have a very strong position in being in the business or trade of gambling. If you just come to Las Vegas four times a year to gamble, you’d have a very weak position. Everything else falls in between.
A good example would be the local advantage player you mentioned. Since I know who you’re talking about, in my opinion, there is more to his situation than him playing 20-25 hours a week. And I would use those elements to bolster his case as I’m sure he did.
Although it may not be very satisfying, the best advice that I can give is that each gambler needs to examine his or her own situation and proceed accordingly.
1/24/2003
Darn those Coast properties — they’re keeping me from staying retired. Like a former lover who just won’t stay away!
Back in this space on Dec. 6, I talked about some of the new policies of the Coast properties. I mentioned that although I didn’t like them all, I understood that they had to protect their bottom line. Then I came back on Dec. 20 and gave some suggestions to both casinos and players that might help the situation. (If you didn’t read those two columns, go back and find them in the archives so you’ll know what’s going on.)
Well, the Coast properties didn’t get the message — although I know for a fact that some of the executives follow this column — and they’re continuing on their slash-and-burn march to the sea. Now they’ve abruptly changed the earning period for their monthly mailers, with no notice so that loyal customers can adjust their playing times to fit the new requirements. (You used to have three months to earn a particular mailing; suddenly it’s now one month. And if you happened not to play that month, it didn’t matter how much you played the other two months.)
Well, most loyal customers, who love playing at the Coast properties, could have adjusted if they’d just been given a couple of months’ notice of this major change of a policy that has been in effect at the Orleans and the Suncoast since they each opened — and at the Gold Coast since they joined the new slot club system. I must ask you, Coast properties: Why the rush to be sure you do something that will make EVERY customer mad and decide to go play somewhere else?
Is there anything we can do to convince the Coast properties we still really want to play there?
I’ve received all sorts of suggestions. Here’s a post (slightly edited) from a local wag and friend of mine with his take on the situation
1) All Coast Properties have survey cards available in the slot club. Fill them out! Tell management what you think (without getting nasty) about the changes that have been implemented. If you’re a winning player, fill them out anonymously. If you’re a losing player, give your name and card number. Encourage others to fill out the cards; they are all read. Make a point to mention that you’ll be switching your play to (fill in the name of your favorite Station or other local casino) unless the changes are undone.
2) Don’t play the games with the short pay schedules. Tell your friends, especially those who don’t want to study proper strategy, not to play them.
3) Tell your host, floor people, change people, slot supervisors, slot club personnel, slot club supervisors, and anyone else who will listen how unhappy you are with the policy changes. Tell them all that you’ll be taking your business elsewhere, unless these changes are reversed. Tell them nicely; none of these folks had anything to do with instituting the changes. However, the more people who know the reasons why you’re leaving, the better. Word will get around. If/when business suffers, management will know why.
4) Follow through. If you say you’re taking your business elsewhere, do so. If you just threaten to, but continue to play at Coast, anything you say to them is meaningless, as their bottom line will not be adversely affected. Walk around your ex-favorite Coast Casino, pointedly NOT playing, wearing your Green Valley Ranch Station T-shirt or Palms baseball cap, and tell all the employees who know you how much fun you’re having playing at a place that still values customers who are loyal.””
My friend’s suggestions don’t all necessarily mirror my attitude exactly, but they’re typical of the many messages I’ve received on this subject. And this one thing is a fact: Most casinos DO take suggestions from their customers seriously. You may be just one person, but if every one person conveys his feelings, this can turn into a powerful group force that could achieve some changes for the positive.
1/31/2003
Editor’s Note: Jean Scott’s back this week. We had a feeling she wouldn’t be able to remain fully retired for long — especially when it comes to Frugal Fridays, her favorite writing assignment.
Jim and Janie Wolf and Brad and I want to thank everyone who visited our booth and attended my presentations at the “”Beat the House”” weekend at Sunset Station. It was a long three-day weekend and we were exhausted at the end, but it was such a pleasure to talk to old friends and make so many new ones. I was glad I was asked to autograph so many well-worn dog-eared copies of The Frugal Gambler; I wrote that book to be studied, not to collect dust. And I was glad that Jim and Janie were there to demonstrate the Frugal VP software Jim developed. I tried to do my best when filling in when they were on break, but it turned into a comedy routine. I learned on and have always used a laptop computer, so I’ve never used a mouse. Like my grandchildren who are skilled “”mouseketeers,”” the crowds were amused at my awkward efforts to gain this new skill!
BRIEFS
License plate seen at Green Valley Ranch Station: LA2VEGAS. License Plate Holder: VP Players Know How to Hold Hands.
The morality police are at it in New Zealand. The Warehouse retail chain there has been ordered to immediately withdraw toy pokie machines from their shelves. ( In Australia and New Zealand, video poker machines are called pokies.) HYPERLINK “”http://www.casinowire.com/news.asp?id=4547″” http://www.casinowire.com/news.asp?id=4547
Well, we’ve survived another year of crossing the Strip many times a week, even though Flamingo and Las Vegas Blvd., near our condo, continues to top the Las Vegas Metro Police Department’s annual list of the most dangerous intersections, not to mention that we often cross the next four most dangerous corners as well. I always say that “getting lucky in Las Vegas” has nothing to do with being in a casino; it’s more about gambling that a crazy driver won’t take out your vehicle as you tool along to get to the casino.
One of the best reasons I’ve ever heard for vacationing in Las Vegas, from a friend on the Internet: “What sold me on gambling was that, on average, I never spend as much on gambling trips as I did on trips elsewhere.”
Smile for the Day: (I love “religious” humor.) A few years ago, a conservative Maryland minister, who fervently opposed gambling (especially the state lottery) was surprised to learn that his wife had won a top prize in the lottery. She’d secretly been buying tickets, even though listening to the minister’s anti-gambling sermons. When the couple was interviewed by a television reporter, the wife looked slightly embarrassed as the reporter asked the minister what he thought about his wife playing the lottery and winning big money. “”The Lord moves in mysterious ways, his wonders to perform,”” he said.