vpFREE2 Forums

taxable wins

#1

hello to all!!
this is my first post since joining a few months ago, and enjoying
reading the daily postings. I have played VP for about 4 years, but
only have gotten serious about optimal play in the past 2.
     The tax implications of a "taxable win" (e.g. over $1200) do
have a significant effect on overall return in 2 different ways:
     1) For those that itemize on the Feds return, losses are offset
against wins, which can make the net amount zero. However, the
losses are deducted AFTER determining adjusted gross income, and
losses taken off in the itemized section. If ones' adjusted gross is
high enough, then a reduction of itemized deduction AND personal
exemption amounts takes effect. Final taxes owed is therefore raised.
     2) For myself living in Illinois, the state tax rate is 3%, and
gambling losses ARE NOT deductible against wins (bummer!!!!!!!). So
that also has an effect.
     It sometimes makes sense to play a lower jackpot (under 1200)
rather than chase a bonus jackpot that yields a higher EV, once these
tax considerations take effect.
     Moving to Nevada is also an option! Maybe when I retire?

                                                papapete

#2

pmalench wrote:

If ones' adjusted gross is
high enough, then a reduction of itemized deduction AND personal
exemption amounts takes effect. Final taxes owed is therefore raised.

You've hit on the "qualification" to which I referred but chose not to
discuss since it's unlikely that someone in this tax circumstance
would pose the question (they've been through the mill sufficiently to
know the answer). To account for this it's necessary to calculate the
effective marginal tax rate which takes this factor into account.

For myself living in Illinois, the state tax rate is 3%, and
gambling losses ARE NOT deductible against wins (bummer!!!!!!!). So
that also has an effect.
     It sometimes makes sense to play a lower jackpot (under 1200)
rather than chase a bonus jackpot that yields a higher EV, once these
tax considerations take effect.

Non deductability of losses for state tax calculation tends to be a
relatively negligible hit to the ER of a game (say, relative to the
cost of errors for most players) given the low rates generally
involved. In the example you cite, 3% taxation of a jackpot that
contributes 2% of the game return will reduce overall game return by
only .06%. Federal taxes usually are the overwhelmingly greater factor.

- Harry

- Harry