Wagering In Canada for profit vs the US

[Canadian]

I was just wondering. Does the tax issue in the US make it harder to eek out a profit in the US as oppose to wagering in Canada? I'm not sure how it works, but if you hit a big ticket in the US, don't you have to pay a certain percentage in taxes? If so, wouldn't that effectively raise the take out rate even higher?

[2low]

We have a very bad tax structure for recreation gambling.

We're supposed to report ALL wins, regardless of size. Big ones get withheld at source, but we're supposed to report all wins of any size.

We then report all losses as an itemized deduction. No netting against wins. We can deduct losses to the extent of the winners we report.

Fine for those who itemize, but people taking the standard deduction or those who's itemized deductions phase out are pretty screwed.

[traynor]

I was just wondering. Does the tax issue in the US make it harder to eek out a profit in the US as oppose to wagering in Canada? I'm not sure how it works, but if you hit a big ticket in the US, don't you have to pay a certain percentage in taxes? If so, wouldn't that effectively raise the take out rate even higher?

The take-out rate and taxes are essentially unrelated. The take-out is applied like a tax--a percentage of every bet made is withdrawn from the pool by the track before the remainder is distributed. The higher the rate of take-out, the lower the mutuel return. That is the reason for some professionals "bet shopping" for tracks and wagers with lower take-outs, while avoiding those with higher take-outs.

Conversely, taxes are paid on winnings, with the underlying theory being that any "income" should be taxed, and all winnings are income. The percentage withheld for large winning tickets (usually 300-1 or higher) is not a direct tax--it is the IRS "holding" a portion of the winnings to assure they are paid their share at tax time. It is treated--in filing--just like any other taxes withheld. The key point is that if you keep careful records to offset large wins with appropriate losses, it is no more onerous than paying taxes on other types of income.

Most complaints come from occasional bettors who make a windfall on a big Pick 4 or Pick 6, then try to "offset" the wins by collecting shoeboxes of losing tickets, often with heelmarks (because they picked them up from the floor at the track). IRS frowns on such practices.

Upside is that so many people wager online now that keeping records is almost automatic--you get a printout from your betting venue that indicates how much went in, and how much you took out. That difference is what you are taxed on, rather than the individual wins.
Good Luck! :)

[Zman179]

The take-out rate and taxes are essentially unrelated.

Not necessarily. The problem is that whenever you hit a signer, and your household made $119,975 or more (including gambling winnings,) you'll move into a higher tax bracket even if you claim 100% losses against winnings. Problem is that the allowed amount per dependent will be lowered before you even get a chance to list your itemized deductions. The more dependents you have, the more that signer is going to hurt you. So, in this case, it is a form of a takeout.