What do pro's do about taxes?

[Rick Ransom]

Just curious... I'm new to the board, but I have known some professional handicappers and am on the verge of being one myself. How do pro's handle the tax aspect of the game? According to the law, you must itemize all gambling losses in order to be able to deduct them from your wins. But, of course, this is grossly unfair. I wonder if anyone reports anything that is not a "signer" because of this unusual interperetation of the law. I never actually asked any of my pro friends (during the 80's), but I suspect that they just ignored the whole thing. What do you think?

[Larry Hamilton]

Just because we dont like and dont trust them, doesnt mean they are stupid. The day is coming, with computers everywhere, when they will be able to say "Rick, how do you have a house on Park Avenue without income?" AT that point serious tap dancing won't work.

Just declare it, pay up and vote for anyone who wants to lower the taxes.

[Whitehos]

I used to pick up tickets off the floor each time I got a signer. They never asked me to show them the bad tickets. Its been so long since I hit a good one I don't even care anymore. Ladbroke has a good way of sticking you at the end of the year. Best way is not to win. Try hard to lose every bet and then at the end of the year you can give this piece of paper to your accountant as I did and go on about your business. For some reason I never hear from those guys on the islands,but I just keep sending them money.

[Rick Ransom]

I understand what you're saying but my question is: What do people really do now? Maybe some of those self-proclaimed winners out there can tell me what they really do. I've never seen anyone who wins report anything they were'nt required to and I've never seen anyone get caught. If you really win, tell me what you really do!

[Larry Hamilton]

Unless you watched over their shoulder, you dont know what they told the IRS. Similarly, if you weren't there when the ticket was cashed, you dont know if they won or not. Finally, we are talking about the 80's. Computers (Big Brother) were not everywhere. The truth is, you dont even know if you were talking to a pro. How could you? What is a pro? (We had this conversation once before.)

As an addendum, think about the question you are asking. You want to know who has cheated the IRS and is willing in a public forum to admiting it. If someone answers this question you gotta wonder if he is betting with his mind or someone elses!

[Rick Ransom]

You seem to be talking about telephone or internet betting accounts. But, what about betting at an OTB in person? How can anyone know what you really bet or won? Your point is valid, however, because for convenience, most of us bet through a phone account or on the internet. Assuming we do, how vulnerable are we to the tax man if we win money, say on a US phone account?

[Rick Ransom]

Larry, I'm not saying I'm going to cheat the IRS. I'm just wondering what other people have done. I'm reasonably sure that all of the people that I have known that I think have actually beaten the horses have actually done so. I have used some of their methods and they still win! Not many plays per week, but profitable. I'm just wondering what the pro's do these days. I don't need to cheat anyone. I'm pretty well set for life!

[Whitehos]

According to your last post you used to be a cheater but no longer have to. I on the other hand do not have your kind of money and will do anything to make a buck. Will you please post your SS# . I understand the IRS pays a bounty on people like you.

[Rick Ransom]

Sorry you misunderstood. I've never been a cheater and will never be one. I'm just asking a question because I'm curious. Sorry if you misinterpreted me. I
didn't mean to say that I would cheat anyone, just wondering what my old friends might do. I wouldn't do the same things. I have too much to lose.

[MikeH]

Rick -

I'm a CPA although I'm more involved with corporate financial matters and corporate taxes than with individual stuff.

Last year, while at the Gamblers' Bookstore in Las Vegas, I bought a book: "The Tax Guide for Gamblers." ($30). It's written by 2 E.A.'s and it made a lot of sense. I would get this book if you are serious. The only thing that it doesn't talk about is "account wagering" with Winticket, Philly Phone Bet, etc., because it wasn't widely available when this book was last updated. For the professional gambler, account wagering should simplify things, since you have someone else tracking all your winnings and losses.

BTW, some E.A.'s may be better equipped to handle professional gamblers than CPA's (IMHO).

If you have any specific questions, I'll be glad to try and answer them if I can.

[Dave Schwartz]

Rick,

I think that the silence on this subject will be deafening.

Let me just say that I learned my lesson about taxes. Twice.

[Dick Schmidt]

I did make my living at the races for several years, and I always approached taxes in the same way I approached wagering. Analyze the risk, analyze the reward and act in accordance with your analysis. Reward? I save about 30% of my income. Risk? I get to share a cell with my new "husband" Bubba. I looked at the risk, considered the reward and paid the taxes.

Dick

[Rick Ransom]

Thanks for the advice from everyone. I've actually paid taxes on more winnings than I've really had because it just wasn't worth the trouble of getting audited. As I understand the tax code, if you have a phone account and have $10,000 in gross winnings and $11.000 in losses, you get taxed on the $10,000 anyway unless you itemize deductions. That obviously doesn't seem right. I'm positive that there are a lot of people out there who fall into this category but probably don't ever get into any trouble because it is never reported by the account wagering company. I'm willing to pay my fair share of actual profits, but I certainly wouldn't want to pay taxes on a losing year!

[MikeH]

Rick -

Instead of itemizing, you can declare yourself in the business of professional gambling and report it on a Schedule C. This means that you can deduct losses and other expenses without itemizing.

It also means that you pay 15% Self-employment tax (Social Security tax on the self-employed) on your NET profit.

There are other issues as well, and I would not file a Schedule C without some professional advice, because, if you do it one year, you will probably be stuck with filing a Schedule C for several years in a row.

The book that I recommended dicusses the case law that supports this way of thinking.

[Rick Ransom]

Thanks Mike. The 15% would probably be OK if the net income was very small but probably not if it was a more substantial amount (what we all hope for). Several years ago I had an $1100 Pick 3 (signer) which I paid taxes on and lost about $100 on everything else the rest of the year. Since I took the standard deduction that year I wasn't able to deduct the $100. Not really fair, but no big deal. However, if you have a phone betting account they will (or can) give you a statement at the end of the year showing Gross Winnings (before losses are deducted). If I recall correctly, that is exactly the same description as what the IRS says you must report income on. So, technically, virtually everyone who has a phone betting account has unreported income. This paper trail seems to be a time bomb waiting to explode if the IRS wants to get nasty. I'd like to think that they would only look at the net gain or loss but everything I've read seems to suggest otherwise (for an individual, not a business). Another thing: how the heck would anyone be able calculate estimated taxes when the quarterly income on something like horse racing is so variable. I've had years where the first six months (more than 1000 races) showed a profit and the last six months showed a loss.

[smf]

Rick,

In addition to the excellent advice of Mike H, you may want to consult with a tax atty that has knowledge in "gambling" and its tax law quirks. It will be well worth the fee, trust me.

I bought a book named HOW TO KEEP MORE OF WHAT YOU WIN by Walter L Lewis. Was a big help, but sounds like Mike H's suggested read may be even better.

Mike H was also correct about using Schedule C. You will have tax breaks/ write offs you didn't have before when you had other income, so there's no reason not to pay all taxes due now that you have this advantage of write offs (business expenses).

[ceejay]

Originally posted by Rick Ransom
...The 15% would probably be OK if the net income was very small but probably not if it was a more substantial amount (what we all hope for).

I'm no accountant or EA, but I think that the full self-employment tax only applies to the first $80,000 or so of income. After that, only the medicare portion applies (~3% I think). Of course, there's income tax as well.

[Rick Ransom]

smf,

You may be correct that a business is the best way to go, but I wonder what the IRS view is of horse racing past performances, etc. as business expenses. Actually, my expenses don't amount to that much anyway because I use my own computer program and type in my own data from printed downloaded past performances.

Another problem is that in order to call it a business you have to show a profit in, I think, 3 of 5 years. If you started out calling it a business and couldn't meet that requirement later it might be a problem.


ceejay,

I'm not optimistic enough to ever think I could make $80,000 a year doing this. It looks like maybe more like $20,000 to $40,000 is possible and then only after accumulating a pretty large bankroll. I think this is why a lot of people who were able to do it aren't doing it anymore. There usually is more money to be made doing something else if you are capable of doing this. I know if I were running a business I would love to have any of you guys working for me because you all seem to have good analytical skills. I'm a pretty small bettor right now, but thats because I'm conservative and I prefer to risk won money rather than money earned.
Anyway, my point is that you really have to love doing this, otherwise it probably isn't worth the effort.

[Dick Schmidt]

When I was a full time player, I regularly wrote off the cost of a Racing Form every day, along with parking and admission to the track, computers and software. My accountant was skeptical at first, but the IRS never blinked. Maybe I was just lucky, but I was never audited in the 11 years I reported significant income (over 80%) from racing.

I was also told by an IRS auditor that I met socially that the IRS considers winning horse players to be very rare and not really worth perusing. They already know about all the big hits (sign ups) and don't seem to believe that anyone "grinds it out" to any significant degree. They can collect much more money with less effort chasing others. As he put it, they "Go hunting where the ducks are."

[MikeH]

Rick -

1) According to the book that I mentioned, each "win" or "loss" is based on a "gambling session." Thus, if you sit down to a game of poker, you must report any net profit resulting from your hour or two of play. A "Session" for the races is defined as an individual race. So you would net all win, place, show, exacta, etc. bets to determine whether you have a taxable gain.

Ah, but where do the Pick 3's go? Already we have controversy!

Apparently one of the US Court of Appeals has sided with this argument. (This is not to say that a good tax lawyer might find differently, but appeals are expensive - the 2 tax lawyers that I have used were $375 - $400 per hour several years ago.)

2) As far as estimated payments go, you are allowed to avoid a penalty if you make quarterly payments based on a "forecast" of your annual income, based on what you have made so far. So if you made little in the early part of the year, then hit some nice scores later, you could avoid penalty. The form for doing this is not an easy form: the one time I used it I had a Tax CPA do it for me.

If I can be foregiven for tilting this discussion a little bit to the north...I've been betting thru my Ladbrokes phone account and find myself in the unusual (for me!) position of having had the US Gov't put @ $1500 of my earnings into the tax collection abyss.

Does anyone know how I get that back at the end of the year?

Here in Canada, winnings are treated as "found money". I found it a bit disconcerting to find that my $1400 Pik-3 actually put only a high-3-figure amount into my jeans.

Feedback would be appreciated

Mikekk

[smf]

Mike kk,

This may be of help. Got it from Mike H's previous entry.


http://www.rbstaxes.com/

smf:

Thanks a bunch...that's exactly what I have to know

Mikekk

[Rick Ransom]

MikeH,

Thanks for the info about "sessions". I knew a poker player (who was also a part-time accountant) in Vegas and always wondered what he did. A "session" being defined as a race would still seem to create a problem with Gross Winnings being reportable, but maybe I don't understand something here. This seems to be nitpicking, I know, but I was thinking of somebody with a phone account being audited and bringing in a statement showing a large amount in Gross Winnings and losing the Standard Deduction as a result.

Dick,

I think your comment about the IRS not pursuing the few winners is true. One of the guys I knew made all of his income from horses and I don't think he even had a checking account because he was always carrying around a huge wad of $100 bills. That would make me pretty nervous, but that was his style and it probably helped hide his lifestyle. Again, thats not what I would do, but the reason I started this thread was that I've seen so many other people take that approach. I'm sure you have known more winning players than I have, so what do you think the level of compliance is among others in the profession? Also, what do you think the average pro is making from the races alone, middle income or megabucks? I remember the guy in Vegas griping about only making $11,000 one year but I think he usually made about 2-3 times that amount. He was usually a $200 bettor but later on he made some much larger bets through a bookie in Chicago. Vegas race books (non-parimutual at the time) couldn't handle any action bigger than that.

Originally posted by Rick Ransom:

>>
You seem to be talking about telephone or internet betting accounts. But, what about betting at an OTB in person? How can anyone know what you really bet or won? Your point is valid, however, because for convenience, most of us bet through a phone account or on the internet. Assuming we do, how vulnerable are we to the tax man if we win money, say on a US phone account?
>>

Phone or interactive internet accounts leave electronic paper trails. This should tell you how vulnerable any account holder is!

Boxcar

[Tom]

Here in Canada, winnings are treated as "found money". I found it a bit disconcerting to find that my $1400 Pik-3 actually put only a high-3-figure amount into my jeans.

Feedback would be appreciated

It is too bad they don't have a spray that we could use on these government officials like we do with roaches.
Although I think I could live with the roaches if I could only have one can of spray.
cheer up-the rest of your money is going to good use-probably paid for Hill and Bill to fly to Rochester Friday.

Om a serious note, I would keep detailed records of all my bets and losses, including off course, all of my MIND bets. Reality is not as important as workable records that achieve thier purpose, if you get my drift.
And yes, you will be able to sleep at night-probably really well. or you could use off-shore accounts if you trust any-I have no problem keeping the money out of this country-this is what NAFTA is all about and what Genral Motors and Ford are all about. As soon as the good ole USA starts treating us horeplayers fairly and actually doing something to earn the money, fine, but until then, they can go pound salt. It's your money-get it any way you can!
Good Luck,
Tom

[Rick Ransom]

Boxcar,

That was my point, exactly. I don't want to lose a $7200 standard deduction just so I can write off losses against winnings. I suppose I could go out and create a lot of itemized deductions, but I prefer to minimize my debt. Autotote (Connecticut OTB) pulled the plug on phone betting here in Arizona anyway, so I guess I don't need to worry about it.

Originally posted by Tom

>>
Om a serious note, I would keep detailed records of all my bets and losses, including off course, all of my MIND bets. Reality is not as important as workable records that achieve thier purpose, if you get my drift.
>>

LOL! I like your choice of words, i.e. "workable records". Gotta remember that one. Some other phrases that have been used in this regard is "double entry bookkeeping", "cooking the books", "creative bookkeeping",
"bloodhound bait", etc.

Boxcar

[Rick Ransom]

Boxcar,

I think you should keep track of both real bets and mind bets because when I look back at my records the mind bets always do a little better than the real bets. Three reasons for this:

1. Once in a while you make a mistake and don't bet a
horse you should have and it wins (ouch).

2. Once in a while you make a mistake and bet a horse
you shouldn't have and it loses (ouch aqain).

3. Once in a while there is a late scratch and your 2nd
selection would have been a play but you couldn't
get down any money on it (ouch again). This case
just happened to me a couple of weeks ago at
Aqueduct. I was busy at the time and don't know
how late the scratch was and whether I could have
bet it or not if I had been watching, but I lost a
$30.80 winner as a result. My database will show
the winner, but I really didn't have it!

These mistakes shouldn't happen very often but during the course of a year at least one of them is bound to happen. Maybe I'm superstitious but it always seems to turn out for the worse.

[Tom]

Just following the examples of other good citizens-the government, big business, HMO's, etc.
If everyone paid their taxes, the system would work.
So long a the big guys and the ones that can afford it don't, the burden shifts to us working stiff. I say, if everyone doesn't pay, then nobody should pay.
Bottom line, it is my money-go to Hell Uncle Sam!

Tom

[Rick Ransom]

Yeah, talk to some people who work for tips sometime. I knew a guy who made $70,000 a year parking cars. How much of his income did he report? Not much! I was working as a programmer at the time with all my wages reportable and he made me feel like I was kind of stupid or something. I've worked in a casino in Nevada and their feelings were the same. They made a tip agreement with the IRS which was maybe 1/3 of what they really made and everyone was happy. I think the rule of thumb for waitresses is that they have to report about 6% of sales in tips. In reality, in most places they make 15-20%.

Guys working in construction typically get paid cash too so they won't have to pay any taxes. One thing I'm glad of though: Even though I had to report all of the income I ever made, I have a lot of Social Security earnings. So, those guys may have made out better when they were young, but I'll make out better when I'm old. There is some justice in the world!

[Rick Ransom]

I've noticed that there are few people who don't want to answer my questions. Let me explain that I'm not disrespecting you in any way, and I'm not saying you didn't do what you say you did. I'm just trying to find out what is true in today's world. I can tell you about a lot of stuff that worked in the past, but I don't think it works now. So what! If you did it when nobody else was doing it, and you're a genius in my opinion!

Sorry, this post was meant for the "Money Management" thread but I don't know how to get it over there.