10. How to analyze possible state tax liability based on
type of game pl
Posted by: "lkn4fpvp" lkn4fpvp@yahoo.com
lkn4fpvp
Date: Sat Oct 2, 2010 9:42 pm ((PDT))For example:
Gambler A plays dollar video poker, playing $5000 per
session, 2 sessions per each day of gambling, for a total of
$1,000,000 coin-in for the calendar year, resulting in a
total of 200 gambling sessions in the calendar
year.Gambler B plays dollar video poker, but takes more breaks,
playing $2500 per session, 4 sessions per each day of
gambling, for the same total of $1,000,000 coin-in for the
calendar year, resulting in a total of 400 gambling sessions
in the calendar year for gambler B.Both Gambler A and Gambler B both play the same game, with
the same volatility, and the same expected return: 100%
Pick'em Poker. (Just to make it simple, assume it is 100%).My questions:
1) Is there a way to calculate the expected state taxable
income, based upon the type of game played, and amount of
coin-in put through;
2)Does it make a difference as to how many sessions are
played when making this calculation?
If you pay your state taxes honestly and they don't allow losing sessions to be deducted against winning sessions (that's the case in many states), I'd guess there is no practical way you can have an after-tax advantage at any casino game where the player edge is no more than 1-2%, unless there is so little variance that you almost always win. Even if you only report W2G winnings, the state tax on them (unless you don't get them) at most levels and most games will wipe out your advantage, unless you just play quarters (not a very time-effective way to make 7*) or otherwise keep the W2Gs at a minimum -- but if you're going for 7*, you're not likely going to be avoiding W2Gs -- and you've indicated you're paying taxes on all session wins anyway.
Although I can't do the calculations, you can figure out what your expected session experience is based on session coin-in, and expected return on your coin-in. The greater the variance of the game you choose, the more likely you are to have larger winning sessions (translate: taxable) and larger losing sessions (translate: lost money, but can't offset the win) and the more significant they are.
As for session length, the shorter the sessions, the greater the variance per session, so you will have a higher percentage of losing sessions that you can't "use" and winning sessions that will be taxed -- so counting your sessions in longer blocks is better.
This is most obvious if taken to extremes; if every $100 you put in made a session, you'd have lots of winning sessions to report with lots of losing sessions that can't offset them; you could pay lots of taxes even if you lost money for the year. If you play your entire year's play in a single session, if you make anything at all, there is no loss to offset your profit, and you pay tax only on the year-end net win, which would be the session win for your only session.
Anything in between is going to work out in the direction of whichever extreme you are closest to; again, the longer sessions are better in terms of minimizing tax exposure.
Really, though, the bottom line is that I don't believe you can beat high stakes video poker after taxes (even if you play marathon sessions) long-term under practical real-life circumstances if you pay state taxes honestly in a state that doesn't allow losing sessions to offset winning sessions (as is the case in many states) -- probably not even if you factor in the additional return in "comps" and don't report their value (which I don't think you have to do).
I suppose you might eliminate the state tax "problem" due to not allowing deductions of losses against winnings, if you played at a high enough level to make 7* in one sitting, and the closer you get to that, the closer you are to eliminating the problem.
Or of course, you can cheat on your taxes; I'm sure many gamblers do so either intentionally or out of lack of understanding of how the tax laws work, and only a small percentage are caught -- but those that are caught pay back taxes, interest, probably penalties, and if they think they can prove you knew better, possible criminal prosecution. Even if you survive an audit and you didn't cheat, they aren't fun, and don't always come out the way they "should".
--BG
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