BarneyFife said:
So.....if you're a low-roller, it only makes sense to bet in Nevada....it's cash, and not a lot of it. There is no paper trail and no fears even if you get audited. But if you play offshore you will need to file even if you lose, unless you're sure you will never be audited.
Wow, I can't imagine filing for a year in which I lost or broke even....higher AGI for goofing around on the internet.....no thanks. And if you win as a low-roller, you don't win that much and you still get the higher AGI. No thanks again.
If you're a high-roller, Nevada is still the best place because of the fact that you will get audited and therefore should file for sure. If you are a high-roller on the internet you are subject to getting in trouble (not with the IRS, but goofballs elsewhere in our gov't) for illegal gambling on the internet.
So....betting on the internet makes zero sense unless: a) You never take a payout, therefore there isn't any chance the IRS would know about it even if there is an audit. So what good is it to play. b) You pray you never get audited. c) The enjoyment of playing is worth the higher AGI and possible trouble for gambling on the internet.
Am I seeing this right?
I agree with pretty much everything you just said, Barney.
If you report your sportsbetting income correctly (by adding your total winnings to your yearly income and then later deducting your total losses on another form) it seems you may have a nasty tax consequence.
If you are a nickel and dime bettor who bets multiple times per week 52 weeks per year, it is very easy to have hudreds of thousands of dollars in winnings. Of course you'll also has hundreds of thousands of dollars in losses. These losses, when combined with the winnings, result in a net yearly win that is likely four or five figures (for example, a popular NFL poster here at the Rx did exactly this -- he posted on this board that his total action for last year was over $500,000!).
Note: So as to not drag that poster into this discussion without his interest, I'll refer to a hypothetical player of his type, Mr. X.
So that means, if he correctly filled out his tax return, he added some six-figure amount to his yearly income (this would be about between $200,000 and $250,000). Now, while he is allowed to deduct the other approximately $250,000 of losses from his yearly income (on another tax form), look what happened: he just bumped himself into at least the next highest marginalized tax rate (assuming he was not already getting jacked at the maximum rate of 33%).
Further, he also now disqualifies for all sorts of tax credits allowed for working-class and middle-class income because those credits and breaks are progressively disallowed as AGI increases.
Was it worth it? That depends if the amount of after-tax dollars he get to keep are greater than the higher marginalized tax rate amounts (thousands of dollars) combined with the losses of tax credits (thousands of dollars). WIthout a more detailed picture of his total tax situation it's hard to tell. It's safe say it most likely it was worth it because he probably ended up walking away with five-figures after taxes.
But what about a smaller bettor? What about a guy who is betting $50 or $100 per game? Instead of dealing with five and six figure numbers, we are now talking about three and four figures. A bettor who follows Mr. X's picks for $50 to $100 per game isn't going to be in the same final position after it is all said and done as Mr. X is because instead of clearing five-figures after taxes he will clear only four figures.
Now will those four figures be worth the extra taxes and possible loss of credits and benefits? Again, hard to say withouit a more comlplete profile, but it is safe to say that he will stand a much less likeliness of his gambling activity being worth it than his counterpart who walks away with five-figures.
