Track Collector
12-07-2012, 04:52 PM
This is a topic I have struggled to reach an understanding on. Someone mentioned on another thread that they thought rebates were NOT taxable. I am of the current mindset that they are taxable, or that it might be a gray area where no definitive ruling has been reached because no one has challenged it in tax court. I have started this thread with the hope of generating some meaningful dialog on this topic.
I recognize the sensitivity of this issue, and understand that those whom are involved with rebates, and even more specifically those whose wagering activities put them in the professional/business category, might be uncomfortable sharing info in a public forum. Should that be the case, private messages are an acceptable alternative.
Now on to specifics....
On the side supporting the "rebates are not taxable" position, one could try to make a comparison to the credit card business and their cash back programs. Rebates are discounts in the purchase price, which is not the same as income. I am of the understanding that the IRS does not currently consider cash back as taxable income.
On the side supporting the "rebates are taxable" position, one could say that if you believe this, then your "winnings" are really higher than what we report. Let me explain this using an example from the commercial world. A store purchases a product from their supply chain for $1.00, then sells it to the public for $2.00. Their gross profit would be $2.00 minus $1.00 = $1.00. Now let's say that the store met certain sales goals and in response their supply chain subsequently offered them a rebate check amounting to $0.25 for each product purchased. I would think that their gross profit is now $2.00 minus $0.75 = $1.25. So how do we equate this to the racing world?
Normally, it might be said that we wagered $2.00 to win on a horse that paid $6.00, and thus had a "profit" of $4.00. Now using a track where the win takeout is 20%, only $1.60 of our money actually went into the pool from which winners are paid, so could we not technically say that our winnings were $6.00 - $1.60 = $4.40? Maybe this type of thinking is too bizarre! I guess under this explanation, the $0.40 that did not go into the wagering pool, minus the rebate we received, could then be classified as "expenses". ;)
Although I'm sure how much sense it makes, you could even take the position in the above example except that winnings are $4.00 like the usual way, and you still get to use the portion of the $0.40 takeout that was not rebated to you as expenses.
Of course none of the above is relevant if a person has a year where the winnings plus rebates are still less than the wagers (i.e. has a losing year). Negative wagering results can not be carried over to off-set other income :mad:, and for reporting purposes, they are reported as zero on the tax form.
So, handicappers (or even merchants who encounter product rebates), what do you think?
I recognize the sensitivity of this issue, and understand that those whom are involved with rebates, and even more specifically those whose wagering activities put them in the professional/business category, might be uncomfortable sharing info in a public forum. Should that be the case, private messages are an acceptable alternative.
Now on to specifics....
On the side supporting the "rebates are not taxable" position, one could try to make a comparison to the credit card business and their cash back programs. Rebates are discounts in the purchase price, which is not the same as income. I am of the understanding that the IRS does not currently consider cash back as taxable income.
On the side supporting the "rebates are taxable" position, one could say that if you believe this, then your "winnings" are really higher than what we report. Let me explain this using an example from the commercial world. A store purchases a product from their supply chain for $1.00, then sells it to the public for $2.00. Their gross profit would be $2.00 minus $1.00 = $1.00. Now let's say that the store met certain sales goals and in response their supply chain subsequently offered them a rebate check amounting to $0.25 for each product purchased. I would think that their gross profit is now $2.00 minus $0.75 = $1.25. So how do we equate this to the racing world?
Normally, it might be said that we wagered $2.00 to win on a horse that paid $6.00, and thus had a "profit" of $4.00. Now using a track where the win takeout is 20%, only $1.60 of our money actually went into the pool from which winners are paid, so could we not technically say that our winnings were $6.00 - $1.60 = $4.40? Maybe this type of thinking is too bizarre! I guess under this explanation, the $0.40 that did not go into the wagering pool, minus the rebate we received, could then be classified as "expenses". ;)
Although I'm sure how much sense it makes, you could even take the position in the above example except that winnings are $4.00 like the usual way, and you still get to use the portion of the $0.40 takeout that was not rebated to you as expenses.
Of course none of the above is relevant if a person has a year where the winnings plus rebates are still less than the wagers (i.e. has a losing year). Negative wagering results can not be carried over to off-set other income :mad:, and for reporting purposes, they are reported as zero on the tax form.
So, handicappers (or even merchants who encounter product rebates), what do you think?