a question concerning rebates and taxes

[QuarterRACER]

i've been lucky enough to be on a good run of luck this year. thus my personal handle is way up over what it had been. i mainly use xpress bet . in may i wagered over 60,000 dollars. made a small profit for the month but received a players reward rebate i guess its called in the amount of 1200.00 dollars that they deposited in my accont at the end of month. i was quite happy with that naturally but am wondering if this is taxed income as far as the government goes. am guessing xpress bet isn't reporting it so i don't have to report it either but would appreciate to find how some of you handle this sort of thing. THANKS FOR ANY ADVICE

[sonnyp]

if it shows on the account it's income and you'd better report it. you can take your losses but these are considered income.

i know a guy who did time on a tax charge for this kind of stuff.

[Robert Goren]

The IRS's position is that rebated money is profit, therefore taxable income. Not everybody agree with them, but in the end, theirs is the only opinion that counts.
I will try to explain their logic. Lets say you bet $2 on a horse it wins and pays $12. $10 profit. Now you get a 5% rebate or $0.10. Their position is that you bet only $1.90 therefore had a profit of $10.10. I am not saying that their position is right. It was explained to me by sister-in-law, a retired IRS auditor.

[FenceBored]

The IRS's position is that rebated money is profit, therefore taxable income. Not everybody agree with them, but in the end, theirs is the only opinion that counts.
I will try to explain their logic. Lets say you bet $2 on a horse it wins and pays $12. $10 profit. Now you get a 5% rebate or $0.10. Their position is that you bet only $1.90 therefore had a profit of $10.10. I am not saying that their position is right. It was explained to me by sister-in-law, a retired IRS auditor.

I'm not following, if they were taxing the rebate you'd get dinged for $10.20 in profit.

Let's make the math simpler for me and say the bet was $20 not 2. You got paid both the $120 and the $1 rebate, therefore $120+1 = $121 (or $101 more than you bet). Now, let's say that that they actually "pre-bate" taking $19 from you and telling the host track they got $20. You still get paid $120 which is $101 more than you actually bet.

[Robert Goren]

If you bet $20 and rebated $1 then they consider the bet to be $19 not $20. I am not saying that is right way to look at, but that was the way it was explained to me. A different IRS auditor might explain it differently, but one thing is for sure, they want you to pay taxes on that $1.

[lamboguy]

don't you only pay the tax on what you make. if you play $100k for the year and make $10k plus say a $5k rebate, you are taxed on the sum total of $15k.

[FenceBored]

If you bet $20 and rebated $1 then they consider the bet to be $19 not $20. I am not saying that is right way to look at, but that was the way it was explained to me. A different IRS auditor might explain it differently, but one thing is for sure, they want you to pay taxes on that $1.

If I walk into a store and buy a book that has a $20 price tag (tax included) with a $20 bill and the clerk hands me back $1, how much did I pay for the book?

[Robert Goren]

don't you only pay the tax on what you make. if you play $100k for the year and make $10k plus say a $5k rebate, you are taxed on the sum total of $15k.Their position as explained to me is that in the your example is that you only bet $95K, so you really made $15k. Their point is that if you bet $100K and lost your bet, you would still have $5k in your account therefore you only bet $95k.

[comet52]

Rebates are income. The semantics of what you call it doesn't matter. Deducting it from the bet vs. adding it to the win makes no difference in terms of accounting, you end up with the same net.

[GameTheory]

Shouldn't you just subtract the rebates from the amount bet? It isn't "income" per se -- it should be treated as if that money wasn't bet. Your winnings are your winnings as usual (not winnings + rebates), which for tax purposes is your gross returns (not your profit).

But your losses to be deducted are less because of the rebate -- so the rebate affects your tax return on the part where you deduct your losses -- instead of subtracting $10000 (if that was your bet amount), you subtract ($10000-rebate).

It is just like a refund from a scratch -- it shouldn't count either as income or a loss because it was never at risk. It should just be subtracted out.

You'll come up with the same net either way, but you don't want it to show on the winning side as more money over there can hurt you tax-wise (pushing you into a higher bracket). This is how horse players get royally screwed via the tax system. They can be net losers, even huge losers, but be pushed into a higher tax bracket just by having a lot of churn, and therefore owe more tax on their real income then they otherwise should. (Or they can be winners, but have it all taken away and more by betting too much to win what they won.)

[baconswitchfarm]

I think most guys will tell you to pay on it. With that being said , I know multiple guys who bet seven figures and do this for a living that don't pay a quarter. In fact they get 50k refunds from signers that paid over 5k withholding but never declare rebate. If this happened once I would say they will get caught. They have been going for ten years this way. Guys getting back 50k with no other income and never get auditted while riding in 40k cars. I try to do the right thing and feel like a moron sometimes.

[comet52]

Shouldn't you just subtract the rebates from the amount bet? It isn't "income" per se -- it should be treated as if that money wasn't bet. Your winnings are your winnings as usual (not winnings + rebates), which for tax purposes is your gross returns (not your profit).


IRS doesn't really care about the semantic games. Accounting is what matters. You'd have to deduct the % from your outlays for tax purposes, you end up the same in accounting terms.

Say you bet 100 and lose, then the book pays you back $5 as a rebate. Now you've lost 95 for tax purposes. No different than saying you lost 100 and earned 5, you still have a net -95 for tax purposes. If you gamble enough to have to actually do tax accounting on your cashflow, this is how it will work.

[sonnyp]

look up a guy named mike jelinski. the govt. was after other stuff, but in the end it was rebates and taxes that earned him his vacation.

[GameTheory]

IRS doesn't really care about the semantic games. Accounting is what matters. You'd have to deduct the % from your outlays for tax purposes, you end up the same in accounting terms.

Say you bet 100 and lose, then the book pays you back $5 as a rebate. Now you've lost 95 for tax purposes. No different than saying you lost 100 and earned 5, you still have a net -95 for tax purposes. If you gamble enough to have to actually do tax accounting on your cashflow, this is how it will work.It isn't semantic. With horseracing, you can't just report your net. You report your "winnings" (gross returns) on one form, and your "losses" (the amount you bet) on another form. And it is the amount that is on the first form that counts as income -- yeah, that's right, even before you deduct your losses. And so if you have a $1 million in returns even if you also have $1 million in losses that you get to deduct later, guess what you're still stuck in the tax bracket of a millionaire. So it matters very much if you have to report the rebate as income on the first form rather than just subtracting it from your losses. (Because you want to keep that first number as low as possible.)

[jdhanover]

It isn't semantic. With horseracing, you can't just report your net. You report your "winnings" (gross returns) on one form, and your "losses" (the amount you bet) on another form. And it is the amount that is on the first form that counts as income -- yeah, that's right, even before you deduct your losses. And so if you have a $1 million in returns even if you also have $1 million in losses that you get to deduct later, guess what you're still stuck in the tax bracket of a millionaire. So it matters very much if you have to report the rebate as income on the first form rather than just subtracting it from your losses. (Because you want to keep that first number as low as possible.)

Is this correct? I agree you have to show the income and then the losses, but I think if you have $1 million in returns and $1 million in losses your tax bracket is not affected (since this is net to zero). Seemed to work that way in TurboTax (albeit on a lot less than $1 million :lol:)

[GameTheory]

Is this correct? I agree you have to show the income and then the losses, but I think if you have $1 million in returns and $1 million in losses your tax bracket is not affected (since this is net to zero). Seemed to work that way in TurboTax (albeit on a lot less than $1 million :lol:)If the amount (betting volume) is small enough, you use the standard deduction instead and none of it matters. If the amount is large, it definitely matters. Understand you'll still only be paying tax on the net profit, but your tax *bracket* can change -- meaning you can be pushed to higher tax rate overall (maybe 17% instead of 15% or whatever) so now you're paying more on your regular income from your day job just because you bet a lot.

[lamboguy]

we have a few guys that work or have worked for the IRS, maybe one of them can step in and explain this to us. because this certainly is confusing to most including myself. i would not like to give anyone advice on this matter because i am not an expert at it. i also would never try to lead someone down the wrong path concerning these matters.

[takeout]

High-roller's rebate deal leads to $15M blackjack win
http://www.pittsburghlive.com/x/pittsburghtrib/ae/s_742649.html

[snip]
He said the state's reaction to his winning spree could put a chill on high-roller betting in New Jersey. Johnson said he's being told to pay New Jersey income taxes on his winnings even though he has never lived, owned property or done business there.

"That would be a precedent that might just kill off New Jersey gaming," he said. "I can't imagine any big player going there knowing that if he does hit them big, he might have a tax liability to them even though he's paying taxes in his home state."
[snip]

Comment: Great rebate, fantastic win, but those taxes suck. Isn’t this the same crap they are pulling in Maryland and other states at the tracks?

[Robert Goren]

we have a few guys that work or have worked for the IRS, maybe one of them can step in and explain this to us. because this certainly is confusing to most including myself. i would not like to give anyone advice on this matter because i am not an expert at it. i also would never try to lead someone down the wrong path concerning these matters. You are right. If you make a considerable amount of money from gambling, you need to consult experts on gambling taxes. The IRS has their own logic when it comes to gambling income and it may not the logic that first pops into the head of a Gambier. They have their own ideas on a lot of things such as what are or are not proper records. You can work within their rules, but you need know what their rules are first. When dealing with the IRS,
DON'T ASSUME ANYTHING!!!!!

[comet52]

It isn't semantic. With horseracing, you can't just report your net. You report your "winnings" (gross returns) on one form, and your "losses" (the amount you bet) on another form. And it is the amount that is on the first form that counts as income -- yeah, that's right, even before you deduct your losses. And so if you have a $1 million in returns even if you also have $1 million in losses that you get to deduct later, guess what you're still stuck in the tax bracket of a millionaire. So it matters very much if you have to report the rebate as income on the first form rather than just subtracting it from your losses. (Because you want to keep that first number as low as possible.)

It's semantic in the sense that the IRS wants your "rebates" to be considered "earnings." And they have the last word. It's true that someone churning millions could have a bracket issue, but at some point you hit the highest bracket there is, so how you label your rebate after that doesn't really matter. The IRS will still consider it taxable.

[Track Collector]

Is this correct? I agree you have to show the income and then the losses, but I think if you have $1 million in returns and $1 million in losses your tax bracket is not affected (since this is net to zero). Seemed to work that way in TurboTax (albeit on a lot less than $1 million :lol:)

I don't know how it works with the standard deduction, but if you are itemizing deductions, you get shafted big time (even if you just break even) if you wager large sums of money and do not account for the activity on schedule "C". (I recall there are some interesting articles on the website "ProfessionalGamblerStatus.com".).

As to rebates, they seem to me to be just like cash back on credit cards. They are, basically, discounts off the purchase price. Why should there be a tax on the money the ADW decides NOT to charge you for the opportunity to make a wager thru them? I understand Robert Goren's explanation that your winnings are really the amount you get back minus the real amount wagered (i.e. the 69% to 88% of your wager that actually goes in to the pools), but it seems the IRS has consistently accepted the amount of "wagers" as the amounts entered on the loss lines of various IRS forms. As a case in point, when one has a "signer" and receives $1000 back for the winning ticket, does the IRS not allow them to use $1000 in losing tickets to make a net gain of zero and thus have no tax liability from that transaction? Does the person actually have to show more than $1000 in ticket losses to account for $1000 that actually goes in to the wagering pool? (I know, the tax law says enter losses on line x, but does not define what a "loss" really is. images/UBGX/E1.gif)

Even if a decision were ever reached where rebates are determined to be non-taxable, there is another risk which a player faces in regard to taxation. If a professional player (i.e. one who files activity on schedule "C") has too many pre-rebate losing years, they may lose the ability to use schedule "C", thus facing the shafting that would result from entering winnings and losses on form 1040.

The problem with the IRS and the tax code is that one can never really find out in advance what ruling should be given for a specific situation. Lot's of grey areas which don't get clarified until someone is brave enough to challenge them thru the courts. Even then rulings can be inconsistent. images/UBGX/E18.gif

[classhandicapper]

I think you better report it even though rebates are not reported to the IRS. Ultimately, when you take the money out of the account, there's going to be a record of a cashed check, money wire etc... into your bank account and any large sums will get flagged by the bank.

[davew]

if you bet a million dollars in a year, it is not a hobby but a business that deserves its own schedule C, regardless of your other income sources