Comments on: Taxes and Gambling

By: fivespot

fivespot — Wed, 14 Dec 2011 21:05:20 +0000

I don’t know what “you’ve been told” about rake in the WSOP, but maybe you shouldn’t be arguing about it with someone who actually plays in the WSOP and knows it firsthand. 😉 Rake in the $10k main event is 6%, of which 4.2% goes to the house and 1.8% goes to the staff pool. If you have winnings, they ask you, once, “would you like to leave anything extra for the dealers?” You say no, they don’t ask again.

Also, you are confused about gambling taxes; you most certainly CAN deduct losses from wins when determining federal taxable income even when not filing as a professional. I do so every year; I am eligible to file as a professional, but choose not to.

For a successful gambler who has substantial wins on the rest of the year, the WSOP main event is a gamble of $10000 that would otherwise be taxed – so only 60%-70% of that in after-tax dollars – for potentially hundreds of thousands or millions in winnings that will be taxed – so 60%-70% of those winnings in after-tax dollars. If the player is +EV in the WSOP, the tax implications subtract a little of that EV; if the player is -EV in the WSOP, the tax implications give a little back. The tax issues will not change whether or not the event is +EV. There’s a 6% rake to overcome, but that is a very minor factor compared to player skill which can easily range from -80% to +300%.

For an unsuccessful gambler who does not have wins on the year, the WSOP main event is a horrible gamble. But almost by definition, most unsuccessful gamblers make bad gambles on a routine basis; the WSOP is nothing special.

By: Kevin Lewis

Kevin Lewis — Thu, 08 Dec 2011 19:06:44 +0000

You are actually agreeing with me, fivespot, because I said that roughly 75% of winnings would be taxable (the other winners being from foreign countries). $17 out of $70 million is pretty close to 25%.
I also would imagine my 28% figure is low because many winners would be in an even higher tax bracket. If they file Schedule C, then they are liable for 15% (roughly) Self Employment Punishment Tax before they even compute their income tax liability. The result is that the feds and the state, if applicable, grab half or more of a player’s winnings. And if they aren’t Schedule C filers, the horrible losses they’ve suffered up to that point cannot be used to offset their wins.
Of course, the WSOP would have about 12 entrants if people realized that less than half of the winnings, one way or another, wind up in the players’ pockets.
I don’t know what CE grabbed this year in gross amount, but I’ve been told the dealer 3% is levied on TOP of the 6% or 9% they rake away. Then, the big winners are pressured to toke the dealers some more.
Regardless of the actual bottom line, the IRS makes the WSOP a negative EV event, especially because of their gross unfairness in evaluating gambling winnings. CE’s take is small by comparison; only in the tens of millions.

By: fivespot

fivespot — Tue, 06 Dec 2011 21:04:14 +0000

Germany doesn’t tax gambling wins, so Heinz is getting his full $8.7M.

Kevin, CE “only” takes 6% from the prize pool for $10k events, the 9% cut is for $1500 events. The 6% is split about 4% for the house and 2% for mandatory gratuity. A full 94% is returned to the players. CE makes a boatload off the WSOP, and probably should rake less than they do, but let’s not exaggerate here.

And speaking of not exaggerating, the IRS isn’t getting a full 28% of the prize pool. They get nothing from any win by players from many foreign countries, including the 1st place (Germany), 2nd place (Czech Republic), 6th place (Ireland), 8th place (Ukraine), and 9th place (UK) finishers this year. Just the tax-exempt final table winnings alone are over $17M that the IRS can’t get their hands on.

Many other winners have gambling losses they can deduct to reduce their tax liability; many other losers have gambling wins that they can deduct those losses against. All of this reduces the IRS’s share.

By: Kevin Lewis

Kevin Lewis — Tue, 06 Dec 2011 00:54:17 +0000

Let’s see. The WSOP main event had 7,000+ players. Call it a gross prize pool of 70 million dollars. CE took a massive cut of 9%, as well as 3% mandatory gratuities for the dealers. Let’s further estimate that 75% of the net prize pool went to those who are liable for taxes, i.e., Americans. The prize pool after CE’s bite would have been, based on 7,000 entrants, just 60,900,000, Call it 60 million. Even the smallest of the prizes would have shoved a player into the 28% tax bracket at least. So let’s have a prize list of the REAL winners of the WSOP, shall we?

1st: The IRS @ $16.8 million
2nd: Heinz @ $8.7 million
3rd: CE @ 6.3 million
4th: Stasko @ 5 million (don’t remember the exact figure)

I suppose we should also add in the profit from all the $10 sandwiches and $4 bottles of water to CE’s take, which might vault them into second place, behind the 8 billion pound gorilla.

By: fivespot

fivespot — Mon, 05 Dec 2011 06:22:29 +0000

for whatever it’s worth, last year i used what i expect is the same memo to convince the IRS to accept my friend’s session-based accounting, and it wasn’t a struggle at all. (however, her tax liability would have been exactly the same if we’d tacked on large amounts to both the gross win and gross loss to match the W2Gs, so that may have made them more receptive to our argument.)