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.