Some Mathematical Insight

This may not mean much to you if you are not into math, but I did a linear regression on my counting sessions. It is the only way to calculate your actual hourly win and standard deviation. I used the number of hours played as the independent variable and the session win as the dependent variable.

This should lead to the following result: the intercept should equal zero, the slope should equal my hourly win, and the standard error of the slope should be my hourly standard deviation.

I was a little surprised when the intercept was $364 and the slope was -$71. This means that the instant I walk into the casino I immediately win $364 and then lose $71 every hour I stay there.

Now, I don't have many data points and the r squared is only .005, but it did give me some insight into my playing habits.

If a session starts out very well, I tend to cut it short, either because of heat or fear of drawing attention. If a session starts off bad, I tend to continue playing trying to recoup my losses. This leads to short winning sessions and long losing or break even sessions.

After thinking about this, I guess I am content with this behaviour though it would be seen as degenerate behaviour in a typical gambler. Drawing out losing sessions lets the pit think I am a compulsive gambler who just can't quit when he is losing. It also offers tax benefits by evening out losing sessions which are not deductible from AGI.

I haven't decided how I feel about cutting winning sessions short. I have had my share of pit attention when I sit down and immediately hit a hot shoe. I cannot imagine that continuing to win in such a situation would go unnoticed. Though it is frustrating to think I have to leave just because I am winning.

I guess I am just doomed to have a negative slope.

Reading your post the first time, it started to sound like a Patterson quote .. winning tables (sessions) win and losing tables (sessions) lose.

Maybe he is right! :)

Seriously, an interesting insight but I wonder if you had stuck with those losing sessions another fifteen minutes would they have turned around. And conversely, the winning sessions the same.

Whatever you deduce from this; at $300 an hour (is that right?) -I'd just keep on playing.

rather than just your net win for the year on your taxes?

Doesn't that make the game -EV?

I am not a CPA, a lawyer, nor a tax expert. The following represent my personal opinions. Use at your own risk.

Your are supposed to report your wins under Miscellaneous Income, which gets included in your Adjusted Gross Income (bottom line of the 1040's first page). This number triggers various limits (alternative minimum tax for instance, earned income credits, etc.).

If you deduct, your gambling losses go on Schedule A, and is subtracted from your income before calculating taxes. You can't deduct more gambling losses than you report on gambling wins. If you have insufficient deductions to justify filing Schedule A, you are screwed. Also, you might not be able to report gambling losses as deductions on your state's return.

You might say, why don't you just report your net as income? Well, because that's not the way they want you to do it. In particular, if you get a 1099-G (I think that's the form) and report a gambling income less than that amount, you are inviting an audit.

Alternatively, you can file Schedule C to report you gambling wins and losses. You might have to justify your gambling as a business. If you can, you can also deduct travel and lodging expenses. On the negative side, you have to pay self-employment tax (15% or so) if your net is greater $400. This can be reduced if the combination or your day job earnings and gambling earning exceed the Social Security maximum.

"I am not a CPA, a lawyer, nor a tax expert." -PR

But you did pretty good!

"In particular, if you get a 1099-G (I think that's the form) and report a gambling income less than that amount, you are inviting an audit." -PR

Probably not an audit (they are pretty busy with other stuff) but you can sure count on a notice that corrects the assumed error, calculates a proposed amout due from you, then asks you to send that in or tell them why you should not.

Then, depending on your answer, they might invite you over for that chat. :)

You are referring here to the 'Miscellaneous Income' approach I assume. Depending on the reporting method, it is harder to track if you use Schedule C -which most won't qualify for.

Nice job.

Unlike Panama Rick I am a CPA. I do follow the tax laws to the letter, including filing state income tax returns in every state I have gambling winnings (except NV which has no state income tax). Yes taxes hurt your EV, but they are the law, and tax fraud is a felony. Last year I couldn't file Schedule C because I took counting up just for fun. This year, I do qualify to file my net winnings under Schedule C because I am seriously treating it as a seperate for-profit business.

By the way Panama Rick has the tax stuff down pretty good.

like you're supposed to you (i.e, total session wins on 1040 and loss offset on Schedule A) could get screwed in several ways

1. You may have to pay the Alternative Minimum Tax which disallows many deductions

2. Some states do not have itemized deductions in which case you have to pay full state tax on your session wins. Last year I had $350,000 in gross session wins at blackjack and almost $700,000 in W2-G's. Obviously I file Schedule C, but if I didn't I'd be seriously screwed. Especially because my home state does not allow any offset for gambling losses.

That being the case, IRC 165 just gets murkier. Slot cards count every winning pull as a "session" while online poker players , who may be online for 24 hours but only play for 8 hours (2 hours on and maybe 6 hours later on) count the whole 24 as a "session". They do not count the results of each played hand as a session, as they do count the result of each slot pull. This is inconsistent treatment. The changes and implications this creates can only be resolved by IRS clarification. The Act that created IRC 165 is still legally in effect but is not even published anymore. Publication 529 does not cover all that that Act said.

I speak up to inform people. Based on all the BS I've received recently I hesitate to even bother to say much more.

Were those from VP and slot's? Is there any case where you get one for BJ, except for a big tournament win? I know they track transactions >$10k.

You get 1099's for tournaments.

Scooter,

Your post got me to thinking, so I fired up my Excel worksheet and made a plot of Session Results vs. Hours Played similar to the one you described for my results.

For the last six months (roughly 200 sessions), I got an intercept of -$42.50, a slope of +$52.07/hour played, and an R^2 of 0.0382, or in other words a correlation coeffiecient of R = 0.195.

Thus, I lose $42.50 the moment I sit down (gotta darn that darn pocket!), but after just one hour of play I'm up $10, and my winnings then just keep growing by $52 per hour.

Why do I play so many short sessions? ;-)

For the benefit of the IRS, I'll present my definition of a session:

A "session" begins the moment I begin playing a particular type of BJ game at a given casino, and ends the moment I either leave that casino or move to a different type of BJ game at the same casino.

Thus, if I enter Casino X and begin playing a 6D shoe, then later wong out and enter another 6D shoe at the same casino, that's all part of one session, since it all occurs in the same casino at the same type of BJ game. However, if I wong out and move to Casino Y, or wong out and then begin playing DD at Casino X, that ends my original session and starts a new session.

If the IRS decides to adopt the soon-to-be-patented Dog Hand Session Definition, then I expect to see a healthy "thank you" refund on my taxes! ;-)

Dog Hand

P.S. If the IRS decides to "buy" my definition of a session, I'll begin working on my definition of a trip.

If you have read (I know big player has) the Scott/Chein book, does it attempt to define a beginning and ending to a BJ win/loss or a 'blackjack session?'

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It is easy to define gambling wins and losses at the track -you hold a ticket for each.

As to blackjack it is a little more difficult. I have not seen a Revenue Service defintion of how to divide BJ wins/losses.

The IRS is big on bookkeeping and consistency.

If you keep detailed records of wins and losses, consistently year to year (meaning you don't change methods to best suit yourself arbitrarily), I imagine your local pals at the IRS will rely on your record keeping as long as it appears to be contemporaneous, consistent, and reasonable.

[and of course it will help if you can tie it to the wad of cash you are holding in that safe in your closet!]

If you keep detailed records of wins and losses, consistently year to year (meaning you don't change methods to best suit yourself arbitrarily), I imagine your local pals at the IRS will rely on your record keeping as long as it appears to be contemporaneous, consistent, and reasonable.

They almost HAVE to rely on your records. Because those are the most accurate records out there. I prefer that they not trust me and call up every casino in the country and ask for a win/loss on me.

I'm not a tax guy, but it is my understanding that the IRS has to adhere to the standard practices of a profession in saying how good your records are. The Scott/Chien book has very rigid standards for a session, but I know of no one that actually applies those records in practice. The actual standard practices of a gambler in keeping records is very low.

If I lived in a PITA state (like Lousiana or Wisconsin or Indiana), I would worry more about the state tax agency than the IRS. For example, it is actually against the law to be a professional gambler in Indiana. (I assume when they wrote the law, they were thinking about people who accepted bets rather than placed them.)

Math Boy

in the Tax Code or in any Court decision. After reading the no longer published Act that created this (and it is still in force) it gets even more unreasonable. The government has created an unfair mess as it leads to inconsistent and sometimes arbitrary treatment. They have an obligation to correct this so that people know exactly what to do.

What matters is that there is no established, consistent standard...in the Tax Code or in any Court decision. After reading the no longer published Act that created this (and it is still in force) it gets even more unreasonable. The government has created an unfair mess as it leads to inconsistent and sometimes arbitrary treatment. They have an obligation to correct this so that people know exactly what to do.

If they change it, chances are they will change it to be a collosal PITA for players. I would rather have a looser standard even if it is unestablished and inconsistent.

Math Boy

They have an obligation to clarify this, but you can count on this one being cleared up by the courts long before the legislature or the IRS address it. It is just too obscure an issue for them to waste time on. But there is one thing for sure. I do not want to be the case that decides this issue. It is much cheaper to just use a conservative definition and pay the taxes than to fight a no-win court battle with the IRS.

The IRS does not have to go by what the court says (unless its the Supreme Court) as there are many different districts around the country who often make contradictory decisions. The only court they must abide by is the Supreme Court, who do not like to take tax cases, maybe one a year. They certainly would not address something minor like gambling losses.

Congress needs to change IRC 165 into something sensible followed up by T.Regs that further address the specifics.

As for the other person prefering inconsistency, he may find out the hard way that that only leads to more problems. We need a specifically defined law and not be subject to constant arbitrary interpretation and re-intrepretation. He would not like the original requirements, which is still in effect, as it is arbitrary and often not fully adhered to. It is even more onerous and equally vague.

Unless you are claiming BJ as a business then why would you even bother claiming anything. Even if you won a million dollars throughout the year then all you have are CTR's generated on you and thats only if you cash in 10,001 in a gaming day. There is no way to prove one way or the other that you didn't lose that money, only that the cash transaction took place. So sell your chips to people or turn in a couple thousand at a time throught the casino to different cashiers. Most casinos have multiple booths that wouldn't concern themselves with a thousand or two. Cash transactions over 3000 go on a MTR (multiple Transaction Report). So if you can get by without getting on any of these lists then there is no paperwork on you, and no paperwork means the IRS has no record of what you did and no reason to even bring it up. If for some reason they do bring up the subject of gambling profits, you say "I have none, I lose most of the time." There is nothing they can do about it if there is no paperwork and it is up to them to prove otherwise.

This discussion is about those that do try to abide by the law while paying the least income tax possible.

The law says gambling winnings are taxable income. The law treats players differently if your a professional or if you are not. Period. You may not like it (I don't like it!) but it is the law.

If you want to discuss ways of circumventing the law, your post is just the tip of the iceberg -but that is not what this string is all about.