[Note: I just realized my blog commenters are required to submit an e-mail address. Nonsense. ‘Tis no longer. Now, I simply must approve your comments before they appear. As long as it isn't spam or obviously inappropriate, we're cool.]
- Gambling Losses Tax Deductible Canada Income
- Gambling Losses Tax Deductible Canada 2020
- Gambling Losses Tax Deductible Canada 2019
Recently, I have been preoccupied with state tax issues, and rightfully so. After all, we are anxiously awaiting New Jersey Governor Chris Cristie to sign into law legalized intrastate internet gaming. At that time, I expect us to have a much clearer picture of the law's impact on the online poker community. In the meantime, let's jump back to the federal side.
If the taxpayer is instead considered a recreational gambler, he may still be able to deduct any 'losses on wagering transactions,' excluding any nonwagering or business transactions, as an itemized deduction, assuming itemizing is feasible. Little Rhody, Rhode Island, changed its tax structure for 2012. Rhode Island eliminated itemized deductions (but did increase the standard deduction). Thus, an amateur gambler with $50,000 of gambling winnings and $30,000 of gambling losses will owe tax on his wins and will not get the benefit of his gambling losses.
A quick refresher:
UK Aquatic Imports Forum - Member Profile Profile Page. User: Gambling losses tax deductible canada, gambling losses tax deduction limit, Title: New Member, About: Gambling losses tax deductible canada . 'Recreational' gamblers report gambling winnings on line 21 of the 1040, and report gambling losses, up to the extent of gambling winnings, as itemized deductions on Schedule A of the 1040. I covered the primary tax implications of 'professional' gamblers during my discussions of the self-employment tax and travel and entertainment.
'Professional' gamblers report gambling winnings and gambling losses on Schedule C, Profit or Loss From Business, of the Form 1040. The resulting net winnings amount, if any, is reported on line 12 of the 1040 as business income. 'Recreational' gamblers report gambling winnings on line 21 of the 1040, and report gambling losses, up to the extent of gambling winnings, as itemized deductions on Schedule A of the 1040.
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I covered the primary tax implications of 'professional' gamblers during my discussions of the self-employment tax and travel and entertainment expenses. Let's turn to 'recreational' gamblers.
Suppose you have a full-time job, and play online poker approximately twenty hours a week. When you file your 2010 tax return, it's likely you report as a recreational gambler. As a diligent taxpayer does, you properly document all poker 'sessions.' Your results from 2010:
Total winnings =$42,354.00. Report on line 21 of the 1040 as 'Other Income.'
Total losses = $16,213.00. Report as an itemized deduction on line 28 of Schedule A.
Why are these items listed separately, and not simply netted, like they are for professional gamblers? Several reasons:
1. Itemized Deductions v. Standard Deduction
On line 40 of the 2010 Form 1040, you report either itemized deductions or your standard deduction. In general, your federal income tax will be less if you take the larger of the two. To ascertain your itemized deductions, complete Schedule A. The standard deduction is a predetermined amount based on your filing status.
Suppose the standard deduction is greater than your itemized deductions. In that case, your gambling losses are considered part of your standard deduction, and you essentially lose out on the gambling losses.
2. Adjusted Gross Income
Several tax items are tied to Adjusted Gross Income (AGI), which is listed on line 37 of the 1040. Because recreational gambling winnings are included in AGI, but gambling losses are not, the AGI amount is higher, as compared to when net gambling winnings are included in the AGI (which is the case for professional gamblers).
An inflated AGI can further limit a taxpayer's ability to take other deductions. Medical expenses, an itemized deduction, can be deducted only to the extent they exceed 7.5% of the taxpayer's AGI. For example, if a taxpayer has an AGI of $100,000, medical expenses can be deducted only to the extent they exceed $7,500. Another significant deduction tied to AGI are miscellaneous itemized deductions, which can only be deducted to the extent they exceed 2% of AGI.
3. Alternative Minimum Tax
The Alternative Minimum Tax (AMT), if applicable, requires a taxpayer to pay more in tax than he would otherwise. It was enacted to prevent taxpayers with high incomes to use so many deductions resulting in little or no tax. Indeed, the U.S. Treasury expects more and more taxpayers to be subject to AMT over the next few years.
AMT is imposed on a taxpayer if the 'tentative minimum tax' exceeds the regular tax, and the taxpayer then must file a Form 6251. AMT is based on a different measure of income than regular federal income tax is. This different measure is called 'alternative minimum taxable income,' and includes, among other items, AGI.
In general, the greater a taxpayer's AGI, the greater 'alternative minimum taxable income' is, and accordingly, the greater is likelihood the dreaded AMT bites. All else equal, a taxpayer has a lower AGI if reporting as 'professional' gambler than if reporting as a 'recreational' gambler. Clearly, this result does not work in the favor of the 'recreational' gambler.
Final note: Don't conclude from this discussion that filing as a professional always generates a lower tax bill. Professional gamblers, unlike recreational gamblers, are subject to a 15.3% tax on self-employment income up to $106,800 for the 2010 tax year (note: for the 2011 tax year only, the SE tax is 13.3%). Furthermore, each taxpayer's situation is different; whether you are a considered 'professional' or 'recreational' gambler under the Internal Revenue Code is a facts and circumstances determination.
Rules concerning income tax and gambling vary internationally.
United States[edit]
In the United States, gambling wins are taxable.
The Internal Revenue Code contains a specific provision regulating income-tax deductions of gambling losses. Under Section 165(d) of the Internal Revenue Code, losses from 'wagering transactions' may be deducted to the extent of gains from gambling activities.[1] Essentially, in order to qualify for a deduction of losses from wagering, the taxpayer can only deduct up to the amount of gains he or she accrued from wagering. In Commissioner v. Groetzinger, the Supreme Court Justice Blackmun alludes to Section 165(d) which was a legislative attempt to close the door on suspected abuse of gambling loss deductions.[2]
Wagering Transaction[edit]
The Internal Revenue Service has ruled that a 'wagering transaction' consists of three elements.[3] First, the transaction must involve a prize. Second, the element of chance must be present. Finally, the taxpayer must give some consideration.
Gambling Losses Tax Deductible Canada Income
Section 165(d) and Professional Gamblers[edit]
In Bathalter v. Commissioner, a full-time horse-race gambler had gains of $91,000 and losses of $87,000.[4] The taxpayer deducted the expenses under Section 162.[5] The service argued that Section 165(d) precluded the taxpayer from engaging in gambling as a 'trade or business.'[4] The Tax Court held that the taxpayer's gambling was a business activity and allowed the deductions.[6] In essence, the court held that Section 165(d) only applies when a taxpayer is at a loss instead of a net gain and 'serves to prevent the [taxpayer] from using that loss to offset other income.' [7] However, if the taxpayer has a net gain, as the horse-race gambler did, then the taxpayer may deduct the expenses under Section 162, and Section 165(d) does not apply.[8]
Section 165(d) and Recreational Gamblers[edit]
In addition, in Valenti v. Commissioner, the court reiterated that Section 165(d) applies to professional gamblers as well as recreational gamblers.[9] The court stated, '.. it has been held both by this Court and various courts of appeals that wagering losses cannot be deducted, except to the extent of the taxpayer's gains from wagering activities, and it has been so held even where such activities were conducted as a trade or business as opposed to a hobby.'[10] Therefore, for example, if a recreational gambler visits a casino one Saturday and accumulates $600 of losses and $200 of gains, that recreational gambler may deduct $200 of the wagering losses (because she can only deduct an amount up to the amount of wagering gains she accrued).
United Kingdom[edit]
Gambling Losses Tax Deductible Canada 2020
In the United Kingdom, wins (unless in the course of a trade) are not taxable and losses are not deductible.
Germany[edit]
Gambling Losses Tax Deductible Canada 2019
In Germany, wins are taxable since July 2012 by 5% of the winnings (profit).
Canada[edit]
In Canada gambling income is not generally taxable. If the gambling activity can be considered as a hobby, the income is not taxable.[11][12]
If the gambling is carried out in businesslike behaviour, then the income is taxable and losses deductible. Making approximately $50 million in sports lottery bets and earning a profit of $5 million was not considered businesslike behaviour in Leblanc v. The Queen. However, in the case of Luprypa v. The Queen the gambling income was ruled to be taxable. The case involved a skilled pool player that profited approximately $1000 per week playing staked pool games against bar patrons.[12]
Poker differs from many other forms of gambling as skilled players may increase their chances of winning significantly. In the case Cohen v. The Queen judge ruled that the gambling activities were not conducted in sufficiently businesslike manner and thus the losses were not deductible.[12]
If the taxpayer is instead considered a recreational gambler, he may still be able to deduct any 'losses on wagering transactions,' excluding any nonwagering or business transactions, as an itemized deduction, assuming itemizing is feasible. Little Rhody, Rhode Island, changed its tax structure for 2012. Rhode Island eliminated itemized deductions (but did increase the standard deduction). Thus, an amateur gambler with $50,000 of gambling winnings and $30,000 of gambling losses will owe tax on his wins and will not get the benefit of his gambling losses.
A quick refresher:
UK Aquatic Imports Forum - Member Profile Profile Page. User: Gambling losses tax deductible canada, gambling losses tax deduction limit, Title: New Member, About: Gambling losses tax deductible canada . 'Recreational' gamblers report gambling winnings on line 21 of the 1040, and report gambling losses, up to the extent of gambling winnings, as itemized deductions on Schedule A of the 1040. I covered the primary tax implications of 'professional' gamblers during my discussions of the self-employment tax and travel and entertainment.
'Professional' gamblers report gambling winnings and gambling losses on Schedule C, Profit or Loss From Business, of the Form 1040. The resulting net winnings amount, if any, is reported on line 12 of the 1040 as business income. 'Recreational' gamblers report gambling winnings on line 21 of the 1040, and report gambling losses, up to the extent of gambling winnings, as itemized deductions on Schedule A of the 1040.
Whether you're traveling for business, on vacation or even at home, CasinosAvenue allows you to locate the closest Craps table to your location. A great advantage due to the fact that it is rather difficult to find this kind of game, Craps being not that common in the United States. Craps machine near me location. For these reasons, whenever I encounter a craps rookie lingering near the rail and showing hesitation, I politely suggest that they try a 'Bubble' craps machine first. Officially known as 'Shoot to Win Craps,' these innovative machines manufactured by Aruze Gaming manage to recreate the game to perfection in a personalized play format. Introducing Viejas Craps Bonus Bets! All Small & All Tall. Add more fun and excitement to your gaming experience. Hit All Small: 2,3,4,5,6, or All Tall: 8,9,10,11,12 or select both before the cards read 7 and win! Payouts for small and tall are 34 to 1. All or nothing pays up to 175 to 1. Viejas Craps Bonus Bets—the new way to play! ROLL TO WIN CRAPS™, can be operated with a single dealer and offers chip-free and error-free operation. A live-table gameplay with dynamic interactive graphics and a thrilling side bet that awards a jackpot on a hot shooter's streak. Features the same great gameplay as the original table game of craps, including hop bets and the.
I covered the primary tax implications of 'professional' gamblers during my discussions of the self-employment tax and travel and entertainment expenses. Let's turn to 'recreational' gamblers.
Suppose you have a full-time job, and play online poker approximately twenty hours a week. When you file your 2010 tax return, it's likely you report as a recreational gambler. As a diligent taxpayer does, you properly document all poker 'sessions.' Your results from 2010:
Total winnings =$42,354.00. Report on line 21 of the 1040 as 'Other Income.'
Total losses = $16,213.00. Report as an itemized deduction on line 28 of Schedule A.
Why are these items listed separately, and not simply netted, like they are for professional gamblers? Several reasons:
1. Itemized Deductions v. Standard Deduction
On line 40 of the 2010 Form 1040, you report either itemized deductions or your standard deduction. In general, your federal income tax will be less if you take the larger of the two. To ascertain your itemized deductions, complete Schedule A. The standard deduction is a predetermined amount based on your filing status.
Suppose the standard deduction is greater than your itemized deductions. In that case, your gambling losses are considered part of your standard deduction, and you essentially lose out on the gambling losses.
2. Adjusted Gross Income
Several tax items are tied to Adjusted Gross Income (AGI), which is listed on line 37 of the 1040. Because recreational gambling winnings are included in AGI, but gambling losses are not, the AGI amount is higher, as compared to when net gambling winnings are included in the AGI (which is the case for professional gamblers).
An inflated AGI can further limit a taxpayer's ability to take other deductions. Medical expenses, an itemized deduction, can be deducted only to the extent they exceed 7.5% of the taxpayer's AGI. For example, if a taxpayer has an AGI of $100,000, medical expenses can be deducted only to the extent they exceed $7,500. Another significant deduction tied to AGI are miscellaneous itemized deductions, which can only be deducted to the extent they exceed 2% of AGI.
3. Alternative Minimum Tax
The Alternative Minimum Tax (AMT), if applicable, requires a taxpayer to pay more in tax than he would otherwise. It was enacted to prevent taxpayers with high incomes to use so many deductions resulting in little or no tax. Indeed, the U.S. Treasury expects more and more taxpayers to be subject to AMT over the next few years.
AMT is imposed on a taxpayer if the 'tentative minimum tax' exceeds the regular tax, and the taxpayer then must file a Form 6251. AMT is based on a different measure of income than regular federal income tax is. This different measure is called 'alternative minimum taxable income,' and includes, among other items, AGI.
In general, the greater a taxpayer's AGI, the greater 'alternative minimum taxable income' is, and accordingly, the greater is likelihood the dreaded AMT bites. All else equal, a taxpayer has a lower AGI if reporting as 'professional' gambler than if reporting as a 'recreational' gambler. Clearly, this result does not work in the favor of the 'recreational' gambler.
Final note: Don't conclude from this discussion that filing as a professional always generates a lower tax bill. Professional gamblers, unlike recreational gamblers, are subject to a 15.3% tax on self-employment income up to $106,800 for the 2010 tax year (note: for the 2011 tax year only, the SE tax is 13.3%). Furthermore, each taxpayer's situation is different; whether you are a considered 'professional' or 'recreational' gambler under the Internal Revenue Code is a facts and circumstances determination.
Rules concerning income tax and gambling vary internationally.
United States[edit]
In the United States, gambling wins are taxable.
The Internal Revenue Code contains a specific provision regulating income-tax deductions of gambling losses. Under Section 165(d) of the Internal Revenue Code, losses from 'wagering transactions' may be deducted to the extent of gains from gambling activities.[1] Essentially, in order to qualify for a deduction of losses from wagering, the taxpayer can only deduct up to the amount of gains he or she accrued from wagering. In Commissioner v. Groetzinger, the Supreme Court Justice Blackmun alludes to Section 165(d) which was a legislative attempt to close the door on suspected abuse of gambling loss deductions.[2]
Wagering Transaction[edit]
The Internal Revenue Service has ruled that a 'wagering transaction' consists of three elements.[3] First, the transaction must involve a prize. Second, the element of chance must be present. Finally, the taxpayer must give some consideration.
Gambling Losses Tax Deductible Canada Income
Section 165(d) and Professional Gamblers[edit]
In Bathalter v. Commissioner, a full-time horse-race gambler had gains of $91,000 and losses of $87,000.[4] The taxpayer deducted the expenses under Section 162.[5] The service argued that Section 165(d) precluded the taxpayer from engaging in gambling as a 'trade or business.'[4] The Tax Court held that the taxpayer's gambling was a business activity and allowed the deductions.[6] In essence, the court held that Section 165(d) only applies when a taxpayer is at a loss instead of a net gain and 'serves to prevent the [taxpayer] from using that loss to offset other income.' [7] However, if the taxpayer has a net gain, as the horse-race gambler did, then the taxpayer may deduct the expenses under Section 162, and Section 165(d) does not apply.[8]
Section 165(d) and Recreational Gamblers[edit]
In addition, in Valenti v. Commissioner, the court reiterated that Section 165(d) applies to professional gamblers as well as recreational gamblers.[9] The court stated, '.. it has been held both by this Court and various courts of appeals that wagering losses cannot be deducted, except to the extent of the taxpayer's gains from wagering activities, and it has been so held even where such activities were conducted as a trade or business as opposed to a hobby.'[10] Therefore, for example, if a recreational gambler visits a casino one Saturday and accumulates $600 of losses and $200 of gains, that recreational gambler may deduct $200 of the wagering losses (because she can only deduct an amount up to the amount of wagering gains she accrued).
United Kingdom[edit]
Gambling Losses Tax Deductible Canada 2020
In the United Kingdom, wins (unless in the course of a trade) are not taxable and losses are not deductible.
Germany[edit]
Gambling Losses Tax Deductible Canada 2019
In Germany, wins are taxable since July 2012 by 5% of the winnings (profit).
Canada[edit]
In Canada gambling income is not generally taxable. If the gambling activity can be considered as a hobby, the income is not taxable.[11][12]
If the gambling is carried out in businesslike behaviour, then the income is taxable and losses deductible. Making approximately $50 million in sports lottery bets and earning a profit of $5 million was not considered businesslike behaviour in Leblanc v. The Queen. However, in the case of Luprypa v. The Queen the gambling income was ruled to be taxable. The case involved a skilled pool player that profited approximately $1000 per week playing staked pool games against bar patrons.[12]
Poker differs from many other forms of gambling as skilled players may increase their chances of winning significantly. In the case Cohen v. The Queen judge ruled that the gambling activities were not conducted in sufficiently businesslike manner and thus the losses were not deductible.[12]
See also[edit]
References[edit]
- ^IRC Section 165(d).
- ^480 U.S. 23, 32 (1987).
- ^Technical Advice Memorandum 200417004.
- ^ abT.C. Memo 1987-530.
- ^IRC Section 162.
- ^Id.
- ^Id.
- ^Id.
- ^T.C. Memo 1994-483.
- ^Id.
- ^Bonusfinder Canada. 'Do I need to pay taxes on my casino winnings?'. www.bonus.ca. Retrieved 24 February 2020.
- ^ abcRotfleisch, David. 'Taxation Of Gambling And Poker Winnings – A Toronto Tax Lawyer Guide'. mondaq.com. Retrieved 24 February 2020.
