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Old 01-01-2013, 05:20 PM   #1
CrazyLond
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Fiscal cliff deal may make poker impossible game for recreational players

As it stands, non-professional gamblers are supposed to report all winning sessions as taxable income and then are allowed to report losing sessions as an itemized deduction. The proposed fiscal cliff deal claims to phase out itemized deductions for individuals with income over $250k. I am not sure the specifics of how quickly the phase out occurs for income over that amount or if there is an exception for gambling losses, but this could have a big effect on gambling.

Let's say Gambler makes $200k in wages every year and regularly plays in a poker game where he breaks even in the long run but regularly wins or loses $1,000 in any given session. In 2013, he plays 250 sessions. 125 of them are winning sessions totaling $125,000 and the other 125 are losing sessions where he loses $125,000. His reportable income is now $325,000. Under the current law, he could deduct the $125,000 and pay tax on just his $200k in wages. Under the new law, however, a portion of these losses may be disallowed due to the itemized deduction phaseout. Maybe he can only deduct $75,000. Now, he has to pay income tax on an additional $50,000 of income, even though he was a break-even player.

I think this will have the largest effect on large poker tournaments where players not only have large wins that would normally be offset by buy-ins to other tournaments, but also cannot avoid reporting completely because they are issued W-2Gs for wins in excess of $5,000. Let's hope this last-minute legislation included an exception to the phaseout for gambling losses.
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Old 01-01-2013, 05:56 PM   #2
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Re: Fiscal cliff deal may make poker impossible game for recreational players

Relevant quotes from the other thread:
Quote:
Originally Posted by LetsGambool View Post
I think the fiscal cliff deal just hurt amateur mid stakes and higher players real bad given the limitations on deductions imposed. Might turn mid stakes and higher games into pro only shows.
Quote:
Originally Posted by repulse View Post
Which limitations are you referring to? I'm aware of the 3.8% Obamacare surtax on investment (not poker) income for individuals with gross income above ~250k (triggered by amateur poker phantom income) but that's all I knew about for 2013 changes...what changed with deductions? Thanks and sorry for the small derail.
Quote:
Originally Posted by PokerXanadu View Post
Limits on itemized deductions will kick in for AGI of $250K+.
Quote:
Originally Posted by repulse View Post
Right, and I've been trying to find details on the new rules with no luck, but existing federal limits and restrictions on deductions exempt gambling losses (to the extent of gambling winnings), right? Has anyone seen specific cause for concern that gambling losses would be included here?

Edit: though amateur poker players losing their non-poker deductions is fairly terrible too

Quote:
Originally Posted by PokerXanadu View Post
Quote:
Originally Posted by PokerXanadu View Post
Here is the text of the bill regarding phaseout of itemized deductions and personal exemptions (amending The Economic Growth and Tax Relief Reconciliation Act of 2001):

(2) PHASEOUT OF PERSONAL EXEMPTIONS AND ITEMIZED DEDUCTIONS-
(A) OVERALL LIMITATION ON ITEMIZED DEDUCTIONS- Section 68 is amended--
(i) by striking subsection (b) and inserting the following:
`(b) Applicable Amount-
`(1) IN GENERAL- For purposes of this section, the term `applicable amount' means--
`(A) $300,000 in the case of a joint return or a surviving spouse (as defined in section 2(a)),
`(B) $275,000 in the case of a head of household (as defined in section 2(b)),
`(C) $250,000 in the case of an individual who is not married and who is not a surviving spouse or head of household, and
`(D) 1/2 the amount applicable under subparagraph (A) (after adjustment, if any, under paragraph (2)) in the case of a married individual filing a separate return.
For purposes of this paragraph, marital status shall be determined under section 7703.
`(2) INFLATION ADJUSTMENT- In the case of any taxable year beginning in calendar years after 2013, each of the dollar amounts under subparagraphs (A), (B), and (C) of paragraph (1) shall be shall be increased by an amount equal to--
`(A) such dollar amount, multiplied by
`(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, except that section 1(f)(3)(B) shall be applied by substituting `2012' for `1992'.
If any amount after adjustment under the preceding sentence is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.', and
(ii) by striking subsections (f) and (g).
(B) PHASEOUT OF DEDUCTIONS FOR PERSONAL EXEMPTIONS-
(i) IN GENERAL- Paragraph (3) of section 151(d) is amended--
(I) by striking `the threshold amount' in subparagraphs (A) and (B) and inserting `the applicable amount in effect under section 68(b)',
(II) by striking subparagraph (C) and redesignating subparagraph (D) as subparagraph (C), and
(III) by striking subparagraphs (E) and (F).
(ii) CONFORMING AMENDMENTS- Paragraph (4) of section 151(d) is amended--
(I) by striking subparagraph (B),
(II) by redesignating clauses (i) and (ii) of subparagraph (A) as subparagraphs (A) and (B), respectively, and by indenting such subparagraphs (as so redesignated) accordingly, and
(III) by striking all that precedes `in a calendar year after 1989,' and inserting the following:
`(4) INFLATION ADJUSTMENT- In the case of any taxable year beginning'.
Quote:
Originally Posted by LetsGambool View Post
Amateurs have to report gross wins and losses by sessions. That can get into six figures quick if they multitable mid stakes games. This limits their ability to deduct the losses. So a losing player with 500k of wins and 600k of losses or w/e might now have a nice tax bill to boot as they can't deduct losing sessions. Can't see a lot of weak amateurs continuing to play under those rules.

Today most players simply ignore the tax law. It will be a problem for players on regulated sites once full compliance with tax laws are enforced.
Quote:
Originally Posted by PokerXanadu View Post
Amateur players are required to report all their gross poker session winnings as gambling winnings under Misc. Income on their IRS Form 1040. Total gross session losses are taken as an Itemized Deduction on Schedule A. (See the US Taxes sticky in this forum for more details.) Professional players instead report winnings and losses on a Schedule C, and the net figure is carried over as Business Profit onto the Form 1040.

So, for amateur players, their Adjusted Gross Income figure includes their total winning sessions and their losing sessions are taken as a deduction later on the 1040. This sets up a situation where mid- and higher- stakes player can easily exceed the $250K threshold where itemized deductions are limited, and therefore may not be able to take some or all of their losing sessions as deductions.

For instance, if an amateur player plays $50/100 NLHE every weekend, and averages eight sessions per month with variation of average $10K wins/losses, the player could have $265K in winning sessions and $250K in losing sessions for the year. Without a deduction limit, the player reports $265K gambling income and takes an itemized deduction for $250K gambling losses. With the deduction limit, he may not be able to take the full (or any) itemized deduction for losing sessions, thereby artificially inflating his net gambling profit and thereby increasing the income taxes he pays on his poker winnings, conceivably even beyond the actual amount of his net profit. It could also easily lead to a situation where a player has a net loss from play for the year, but still owes significant income tax on artificial profit due to the limits on their itemized deductions. This problem is magnified for online players, who tend to have much higher gross figures due to more sessions of play.

Quote:
Originally Posted by LastLife View Post
Laymans

Win a million today
Drop a million tomorrow
Still owe the IRS money on the 3rd day for 750k in wins.
Quote:
Originally Posted by tangled View Post
Is this an opportunity in disguise?

Will this also negatively effect casino/Vegas high rollers? If so, perhaps we can get a change in the tax code where amateurs can net also. (?)

And yes, this deserves its own thread.
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Old 01-01-2013, 05:57 PM   #3
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Re: Fiscal cliff deal may make poker impossible game for recreational players

Here is the part of the Internal Revenue Code (section 68) that the above language replaces:

http://www.taxalmanac.org/index.php/...zed_deductions

Quote:
(b) Applicable amount
(1) In general
For purposes of this section, the term ''applicable amount''
means $100,000 ($50,000 in the case of a separate return by a
married individual within the meaning of section 7703).
(2) Inflation adjustments
In the case of any taxable year beginning in a calendar year
after 1991, each dollar amount contained in paragraph (1) shall
be increased by an amount equal to -
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year begins,
by substituting ''calendar year 1990'' for ''calendar year
1992'' in subparagraph (B) thereof.
The following succeeding subsection of Section 86 seems to remain unmodified:
(emphases mine)

Quote:
(c) Exception for certain itemized deductions
For purposes of this section, the term ''itemized deductions''
does not include -
(1) the deduction under section 213 (relating to medical, etc.
expenses),
(2) any deduction for investment interest (as defined in
section 163(d)), and
(3) the deduction under section 165(a) for casualty or theft
losses described in paragraph (2) or (3) of section 165(c) or for
losses described in section 165(d).
Here is section 165(d):
Quote:
(d) Wagering losses
Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions.
Therefore it would appear to me (a layman) that gambling losses, as deductions, would not be limited or capped under this new rule.

Looking forward to any confirmations or second opinions.
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Old 01-01-2013, 06:29 PM   #4
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Re: Fiscal cliff deal may make poker impossible game for recreational players

That would be nice.

Need the Russ Fox bat phone, he's great on this stuff.
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Old 01-01-2013, 07:13 PM   #5
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Re: Fiscal cliff deal may make poker impossible game for recreational players

Quote:
Originally Posted by LetsGambool View Post
That would be nice.

Need the Russ Fox bat phone, he's great on this stuff.
I was thinking the same thing, but even RF says he is not a tax attorney, so even more would be helpful. Not only do we need the bat phone fired up, we may need Sweet Polly Purbred to belt out a song.
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Old 01-01-2013, 08:40 PM   #6
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Re: Fiscal cliff deal may make poker impossible game for recreational players

Russ Fox batsignal has been answered:

Quote:
Russell Fox
‏@russcfox
@QuantPoker Can't post on 2+2 today but proposed leg allows for full dedn of losses to amt of winnings so fears on this misplaced.
https://twitter.com/russcfox/status/...937&nid=27+236
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Old 01-01-2013, 10:16 PM   #7
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Re: Fiscal cliff deal may make poker impossible game for recreational players

Isn't this the same issue that most recreational players already face with the AMT?

Theoretically:
1. Right now my family almost hits the AMT.
2. I play $50K in SNGs (buyins), win $5K net.
3. 50K upfront goes on my adjusted gross income (AGI) pushing me above the AMT limit, killing my ability to deduct losses.
4. I pay more tax (~35% on 50K) than my winnings are worth, plus can't take standard deductions on house, child etc that I would normally get costing me even more.

If this is wrong I would really like to know because my accountant told me this is the case.

zero
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Old 01-01-2013, 10:58 PM   #8
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Re: Fiscal cliff deal may make poker impossible game for recreational players

Good stuff Russ, thanks
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Old 01-02-2013, 03:13 AM   #9
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Re: Fiscal cliff deal may make poker impossible game for recreational players

Quote:
Originally Posted by zerosum79 View Post
Isn't this the same issue that most recreational players already face with the AMT?

Theoretically:
1. Right now my family almost hits the AMT.
2. I play $50K in SNGs (buyins), win $5K net.
3. 50K upfront goes on my adjusted gross income (AGI) pushing me above the AMT limit, killing my ability to deduct losses.
4. I pay more tax (~35% on 50K) than my winnings are worth, plus can't take standard deductions on house, child etc that I would normally get costing me even more.

If this is wrong I would really like to know because my accountant told me this is the case.

zero
Gambling losses are fully deductible under the AMT. Thus, gambling should not cause you to pay more under the AMT.

-- Russ Fox
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Old 01-02-2013, 01:11 PM   #10
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Re: Fiscal cliff deal may make poker impossible game for recreational players

So cliffs on the fiscal cliff is nothing to fear?
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Old 01-02-2013, 01:46 PM   #11
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Re: Fiscal cliff deal may make poker impossible game for recreational players

^ +1...?
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Old 01-02-2013, 05:31 PM   #12
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Re: Fiscal cliff deal may make poker impossible game for recreational players

The point the op was making was that some itemized deductions will be limited for "high earners." That's definitely true, and this will impact gamblers for their non-gambling itemized deductions.

Consider a hypothetical amateur gambler who makes $250,000 from his day job, and also has $250,000 of gambling winnings and $200,000 of gambling losses. The gambling winnings will push him into the realm where itemized deductions are limited. He will get all his gambling losses ($200,000) as an itemized deduction, but other itemized deductions (i.e. mortgage interest, state income tax, property tax, etc.) will be 'phased out.'

Note that this only relates to federal income tax. Residents of the wrong states (some states do not allow gambling losses as an itemized deduction) have issues with their state income tax.

-- Russ Fox
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Old 01-02-2013, 05:43 PM   #13
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Re: Fiscal cliff deal may make poker impossible game for recreational players

Quote:
Originally Posted by Russ Fox View Post
The point the op was making was that some itemized deductions will be limited for "high earners." That's definitely true, and this will impact gamblers for their non-gambling itemized deductions.

Consider a hypothetical amateur gambler who makes $250,000 from his day job, and also has $250,000 of gambling winnings and $200,000 of gambling losses. The gambling winnings will push him into the realm where itemized deductions are limited. He will get all his gambling losses ($200,000) as an itemized deduction, but other itemized deductions (i.e. mortgage interest, state income tax, property tax, etc.) will be 'phased out.'

Note that this only relates to federal income tax. Residents of the wrong states (some states do not allow gambling losses as an itemized deduction) have issues with their state income tax.

-- Russ Fox
Then it would be correct to say that any non-professional player whose Adjusted Gross Income gets kicked over the new thresholds ($250K Single, $275K Head of Household, $300K Married filing jointly, $150K Married filing separately) by the total of their winning poker sessions (gambling winnings) will pay more in income taxes due to phaseout of their personal exemptions and of their itemized deductions other than their total losing poker sessions (gambling losses) and certain other deductions (section 213 medical expense deductions, investment interest deduction and casualty and loss deductions), n'est pas?

Could you post the formula for the phaseouts?

Also, how will this interact with the AMT, which can already cause phaseouts of deductions for players?

Last edited by PokerXanadu; 01-02-2013 at 05:52 PM.
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Old 01-02-2013, 05:50 PM   #14
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Re: Fiscal cliff deal may make poker impossible game for recreational players

Yeah, looks like it, and that seems like a potentially significant change depending on how fast the phaseouts are.

I'd be curious to see the schedule of the phaseouts if anybody stumbles upon it. It's something I want to incorporate into my poker tax planning resources alongside all of the other existing negative tax effects for amateur players.
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Old 01-02-2013, 07:11 PM   #15
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Re: Fiscal cliff deal may make poker impossible game for recreational players

Quote:
Phaseout of itemized deductions and personal exemptions

The personal exemptions and itemized deductions phaseout is reinstated at a higher threshold of $250,000 for single taxpayers, $275,000 for heads of household, and $300,000 for married taxpayers filing jointly.


The phaseout for itemized deductions reduces total itemized deductions by 3% of excess income over the above threshold amounts.


The personal exemptions phaseout reduces personal exemptions by 2% of the total exemptions for each $2,500 of excess income over the above threshold amounts.
here ya go
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Old 01-02-2013, 08:09 PM   #16
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Re: Fiscal cliff deal may make poker impossible game for recreational players

Thanks. I suppose that's not too bad... it's effectively a .03 * t surtax (where t is one's marginal tax rate) on gross poker winnings above the threshold including your other income, up to a maximum of D * t (where D are one's non-gambling deductions). So something on the order of 1% of gross for winnings above the threshold. Definitely significant for some types of players, but probably not life-changing.
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Old 01-02-2013, 08:42 PM   #17
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Re: Fiscal cliff deal may make poker impossible game for recreational players

Quote:
Originally Posted by repulse View Post
Thanks. I suppose that's not too bad... it's effectively a .03 * t surtax (where t is one's marginal tax rate) on gross poker winnings above the threshold including your other income, up to a maximum of D * t (where D are one's non-gambling deductions). So something on the order of 1% of gross for winnings above the threshold. Definitely significant for some types of players, but probably not life-changing.
A bit closer to 2% of gross for the first chunk, since you haven't factored in the phaseout of the personal exemptions.
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Old 01-02-2013, 08:54 PM   #18
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Re: Fiscal cliff deal may make poker impossible game for recreational players

Right, thanks. I think this is the first time those are being impacted by high poker AGI, at least on a broad scale.
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Old 01-02-2013, 10:31 PM   #19
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Re: Fiscal cliff deal may make poker impossible game for recreational players

http://www.bloodhorse.com/horse-raci...ing-deductions
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Old 01-03-2013, 01:01 AM   #20
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Re: Fiscal cliff deal may make poker impossible game for recreational players

In the game of life, the government is the ****ing rake.
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Old 01-03-2013, 05:45 AM   #21
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Re: Fiscal cliff deal may make poker impossible game for recreational players

Quote:
Originally Posted by Bet Twice View Post
Quote:
While the outcome of these latest negotiations can be viewed as a victory for horseplayers, the issue of comprehensive tax reform is expected to be taken up later this year. The NTRA will continue to work closely on this issue and others affecting horseracing and breeding."
Maybe the PPA could approach the NTRA to tack on tax reform for poker players as a related issue.
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Old 01-03-2013, 11:27 AM   #22
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Re: Fiscal cliff deal may make poker impossible game for recreational players

Interesting.

Almost all negative poker tax effects stem from the requirement for amateurs to report gross wins before deducting losses, and this would likely be the extent of attainable tax reform (year-to-year carryovers would be nice though). Really, most of the arguments as to why amateur poker players should be able to simply report net winnings, equivalent to treating an entire year as one session, apply just as well to all other sorts of amateur gamblers. The gambler who wins $100 and loses $100 at the track or at his favorite game of chance on alternating days for the entire year never had $18,200 of true, practical income, just as the similar poker player hasn't.

It has always seemed pretty clear that the horse gambling interests have much more political influence than poker interests. I agree that the PPA should be reaching out to the NTRA.

edit: Also worth noting that a hypothetical widespread distinction of poker as a game of skill doesn't solve the tax issue either, as most games of skill disallow deductions of losses as well. Unless poker is treated completely distinctly from both gambling and existing games of skill, proper poker tax reform has to happen along the gambling axis. Might as well work with other gambling interests.
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Old 01-03-2013, 12:59 PM   #23
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Re: Fiscal cliff deal may make poker impossible game for recreational players

Quote:
Originally Posted by repulse View Post
Russ Fox batsignal has been answered:



https://twitter.com/russcfox/status/...937&nid=27+236
I wish i needed a US accountant, how could you not hire one with a batphone?
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Old 01-05-2013, 11:57 AM   #24
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Re: Fiscal cliff deal may make poker impossible game for recreational players

FWIW the max Pease limitation is 80% of itemized deductions.

The rule is roughly (AGI -AGI Limit) * 3% for the limitation, however, the limitation can max out at 80% of itemized deductions.

So for example, if you have other ordinary income (wages) of 300,000 for the year and 150,000 of gambling, your AGI will be 450,000

Assume the following itemized deductions

Mtg Interest - 30,000
RE Taxes - 10,000
State taxes - 36,000
Charity - 1,500
Totals - 77,500

Gambling loss 100,000

In this case, the Maximum Pease limitation would be 20% of the 77,500 or 15,500.

Assuming the taxpayer is single, the income level is 250,000 so the base for the reduction is 450,000 (AGI) - 250,000 (level) for 200,000 of base at 3% for a limitation of 6,000.

At the 39.6% bracket, this limitation is costing you $2,376 in additional tax. Of course, this example does not take the AMT into account with the SALT and RE taxes, but was just an example.

Note: I am not your CPA and this cannot be used as written tax advice to avoid penalties.
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Old 01-05-2013, 01:02 PM   #25
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Re: Fiscal cliff deal may make poker impossible game for recreational players

^Well, at least the simple computations make it easy to figure out.
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