Do you enjoy gaming? Many people find it enjoyable and relaxing to go to a casino and spend an afternoon at the pai gow poker or tables. A big problem we see as king4d accountants is that most people don’t understand how the success affect their tax return. Here are a couple of examples.
About 25 years ago a good friend of my very own called me and said her elderly parents had opted to Wendover, NV and won $50, 000 playing a quarter video slot. They lived on their Social Security and had not been required to file a tax return in several years. They wanted to use the money to buy a house, you could do that 25 years ago, but were scared about how much taxes they it is fair to pay. It turned out they could actually pay the tax and buy a house, but because of the added income, they had to pay taxes on their social security income, that they normally would not have had to do.
Another couple I know lived in a town with several casinos. One of their past times would definitely the casino after work. Over the course of a year, they had won $250, 000. However, they had actually spent more than their success. They both had good jobs and only one dependent. When we figured their taxes they were supposed to pay a lot of money. They couldn’t understand why they were supposed to pay so much when they spent more than they won.
It had not been an accounting error; gaming success and expenses are taxed differently than other income and expenses. Let me explain. Your success are included in your adjusted gross income, but what you spend is deducted on a Schedule A. Now, if your adjusted gross income is beyond their budget, the IRS places limits the amount you can deduct on your Schedule A and other places including medical expenses, expenses credits, child tax credits, exemptions and employee business expenses. These discount are limited before your gaming losses are deducted. This means that even if you break even with your gaming success you are going to loose valuable tax discount, which costs even more money.