The Las Vegas Advisor has a Question of the Day. These are questions sent in by readers where a bite-sized answer is sufficient. Sometimes when it’s about video poker, the LVA passes it on to me. They recently sent me a question which is printed below. While the answer isn’t difficult, there are a lot of things to discuss — depending on how advanced the reader is. Since it was more blog-length rather than QOD-length, I decided to answer the question here.
It begins with the question:
I go to my local riverboat casino and play bonus poker video poker. I do not play professional so I would have to pay any W2G that I would get. My question is if I include a 30% tax on the royal flush payout at the dollar machine ($4,000 royal), am I better off playing a 99.17% pay dollar machine or a 96.87% quarter machine where the royals will not be taxed. I would think you need to take the percent of the 99.17% that is the royal payout and multiply that by .7 and add it back in to see if it is better than the 96.87%. Is that correct and what is the percent of the 99.17% that is the royal payout?
For those of you who aren’t familiar with Bonus Poker payouts, the 99.17% version pays 40 for the full house and the 96.87% version pays 30 for the full house. The games are otherwise identical and the correct strategies for both games are essentially identical.
Most video poker software products will tell you that you’ll get a royal flush on Bonus Poker every 40,233 hands. To make this simpler to work with, I’m going to assume this number is exactly 40,000. It will not affect the conclusion.
Playing for dollars, every 40,000 hands (which means $200,000 coin-in) you have to pay $1,200 in taxes (which is 30% of $4,000) which I can treat differently because I file as a professional. If you divide $1,200 by $200,000, you come up with 0.6%. This makes the post-tax 8/5 Bonus Poker worth 98.57%, which is quite a bit higher than 96.87%.
So, obviously, since 98.57% is better than 96.87%, that proves playing for dollars and paying the taxes is the better play. Except there are more things to consider.
First of all, are you playing the same number of hands or the same amount in dollars? It takes the same amount of time to play $50,000 at quarters as it does to play $200,000 at dollars. Your expected loss at dollars is 0.0143 * $200,000 (which equals $2,860) while playing $50,000 at quarters will cost you 0.0313 * $50,000 (which equals $1,565).
Looked at this way, playing quarters is the “better” (meaning “less bad”) play.
(Is it impossibly rude to suggest that staying out of that casino is better than either of these plays?)
We haven’t discussed the slot club. Do you get money in the mail? Do you earn free play from your points? It’s possible that dollars could still be the cheaper play. Without discussing the slot club benefits, it’s impossible to make a final determination.
Another possibility is to play quarter single coins! Playing one quarter at a time is only worth 95.6329%, but in same time it takes you to play $200,000 at dollars or $50,000 at max-coin quarters, you’re only risking $10,000 at single-line quarters. That will make your expected loss $437, which is considerably “less bad” than either of the previous two expected losses.
Playing single coin, however, on those rare occasions you hit the royal flush, you’ll collect a lousy $62.50 instead of the $1,000 you’d get from a max-coin quarter royal, or $250 instead of the $2,800 you’d get from the after-tax max-coin dollar royal. If somebody sees what you did, they’ll tell you what an idiot you are for not betting max-coin and collecting the full royal. Never mind that your move makes financial sense. For some people, they’ll feel so bad at missing out on the max-coin royal that they are in misery, even though they just hit a royal flush.
I tell you, playing single coin isn’t for the weak at heart!
So, looking at these options, how would I boil it down to one choice? That is, what would I do were I to face these exact circumstances?
My answer is simple. I wouldn’t play at all. If the slot club doesn’t pay enough to make up for the shortfalls we’ve listed here, I’m not even frequenting this casino. Going into a casino knowing I can’t be a long-term winner is against my religion.
Author’s note: The basic premise of this QOD and the answer is seriously flawed, but I chose to answer it as given anyway. All gambling revenue is legally taxable — whether you get a W2G or not. The idea that you don’t owe taxes unless individual jackpots are $1,200 or higher is completely incorrect. If any of this is foreign to you, listen to the August 29 Gambling with an Edge podcast where Richard Munchkin and I interview tax expert Russell Fox.
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I can relate to the single coin theory. On my first ever trip to Las Vegas in 1992, I hit a royal on my first day in town. In fact it was within the first 6 hours. I was young and didn’t have much of a bankroll, so I was playing 3 coins and hit a royal for $185ish. While I was bummed I didn’t get the big payday, I was still happy and had no regrets. I was having fun, playing within my means, and won some money. I never questioned myself and didn’t chase the big bucks after hitting it.
I am much more “educated” about gambling now than I was then, and I would never play less that full coin now. But I still have no regrets about that day. To this day, I still stay within my means. It’s just the means are a lot bigger than they used to be.
The idea of being able to count on getting a Royal Straight Fush every 40,000 hands is flawed big time.
You can play 120,000 hands and never see it. To do any serious math based on that is a waste of time, big time.
For the purposes of this topic, I agree with John Dancer on the assumption. At a detail level, presuming perfect play and results within 2 standard deviations, it is expected that you will get a RF on Bonus Poker on average every 40,233 hands. Yes, the reality is that even with perfect play, you could go 120,000 hands without one — or hit twice in 40,233 hands.
I’m a novice at tax policy … Is there a need for a separate Author’s Note that anyone who itemizes their taxes can deduct gambling losses up to the amount of their stated winnings (https://www.irs.gov/taxtopics/tc419), even if they are not a professional? As I understand, a professional has the added options of deducting travel and related expenses.
You’re confusing the concepts of “happens on average” with “happens every time.”
Obviously the footnote to the column is on track. However, a system that taxes winnings, but doesn’t permit an offsetting deduction for losses when you don’t have sufficient overall deductions to warrant itemizing them (vs taking a standard deduction) unwittingly presents a near mandate for modest gamblers to effectively become tax cheats (and ignore winning sessions that don’t involve a w-2g when reporting gambling activity on their return).
The alternative (if you accept session-based play as a basis for the most practical accounting of wins and losses), is that one would report the aggregate of all your winning sessions as taxable income (without the ability to offset with session losses, except to the extent that they increase total deduction above the standard deduction amount). This could easily leave a casual gambler with a liability running into the $000’s, despite running a net loss overall.
So, it’s little wonder that most casual players simply report their aggregate w-2’s as taxable winnings in this scenario. From a practical standpoint, it passes muster with the IRS and is the lesser “evil”.
If you do not play enough to itemize your losses on tax returns, this is just an expensive hobby.
As a (former) resident of a high-tax state that did not permit offsetting winnings with losses, I determined (over a 3 year period) that I was better off – in 2 ways – playing Bonus Deluxe over Double Double Bonus: the total 4OAK win on BPD was higher than on DDB, and the W2G’s obviously much lower.
But I wonder if the lower number of W2G’s affects the casino’s view of a player? I know that many casinos track and can provide a report on W2G’s. But do they only look at total win/loss or do the number of hand pays impact the decision to bar a player or not?
Jerry, what do you mean “by do not play enough to itemize losses?” Don’t you mean do not have enough deductions to itemize? What am I missing?
As for the question itself–Who’s on first?
Replying to Guru Pref: In my limited experience, among a subset of smaller casinos, hitting multiple w2-g’s might attract attention, but it will be the recorded win/loss upon examination that will determine if any action is taken.
Truth is, there are any number of active higher denom players who incur multiple jackpots on their play, but because of the house advantage on that play, will likely only record a net win through an exceptional streak of luck.
The most bizarre story I’ve heard of a player cut from promotional mailers (“no mailed”) is report of a very lucky keno player. Now, understand, the possibility of an “advantage keno player” does exist, particularly with play in conjunction with jackpot bonus promotions. However, these were base-bone jackpot wins.
Any casino that would discourage play from a keno player is largely clueless in the bigger scheme of things.
Being the person who sent in the Question of the day question that started this column I want to thank Bob for his answer or answers. They gives a lot to think about. I do not play VP a lot, I normally play baccarat and like to start playing at the beginning of a new shoe. So at times I have time to kill waiting for the next shoe. Since the VP selection is not very good at this boat and I only play to kill time maybe the only play one coin is the answer. I sometimes play penny slots and only play one line at one cent. I may loss a dollar but it kills 20 or 30 minutes. Something I did not include in the original question is that both the dollar and quarter machines are progressive machines. I am sure that this would have complicated the answer so I left it out. I hit a Royal on the quarter machine for $1100 a couple months back so that brings up the question should I not play the quarter machine it it gets over $1200 because of W2G’s. I understand that all gambling wins are taxable, but for the part time gambler it is hard to prove your losses. I think it is BS that one could loss two thousand in year one, three thousand in year two, then win $1500 in year three and old uncle Sam is there with his hand out. Over the last couple years I am up playing Baccarat, so maybe I will be on Bob and Richards show after I write my book LOL.
The more you play, the more losses you will have to offset winnings. And, you need a large number to exceed standard deduction for itemizing.
There are a lot of 95% return keno’s which is loose for a slot, most slots are 85-90% return. And there are keno progressives which sometimes have overlays. And keno tournaments. For a while when IGT would take down one of their area wide jackpots, they would put the extra amount into megaKeno. There were some monster overlays.
You don’t get the part that’s covered by the standard deduction, which I believe starts at $12,200 for individuals. So, even if you have $20,000 in losses, you only get credit for $7,800, the amount over the standard deduction. I strongly suggest that anyone considering getting a W2G read the latest “Tax Help for Gamblers” first. And there have been a number of GWAE’s on the topic.
There could be a gap where it’s not worth playing, maybe $1199.01 to $2000 or so. Many casinos will round up, so $1199.01 could become $1200 (W2G). Or maybe the roundup is at $1199.76 . Maybe it’s not worth playing a W2G until it’s over $2000 or so. Just saying.
Yea, but when you get 3 standard deviations out only about 3% will have not seen at least 1 royal. Very unlucky that guy!–(
One more comment, if you’re just looking for a slot to play to kill time, I can’t see why you’d ignore the new “advantage slots”. Pretty much every casino has them now. If you don’t know what an “advantage slot” is, do a search or check on youtube or check wizardofodds or wizardofvegas.
All VP players should keep a session by session diary for tax purposes no matter how they choose to report on their returns.
hi,my wife and i go to atlantic city casinos every 5 months after saving retirement money.we play the triple play jokers wild starting off progressives at $50,000.one time a woman hit it when it got up to 80 thousand plus.there are 2 circles of 8 machines.she hit it after 12 pm.question:is there any advantage to playing these machines in wee hours of am when not a lot of people playing them?
Replying to jerry and brenda: The odds of hitting do not vary by time of day. The best time to play is when the jackpot is large enough to merit a potentially positive EV.