[taxabletalk] Russ: We Get Questions on Gambling Income

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Posted by Russ:
We Get Questions on Gambling Income
http://www.taxabletalk.com/posts/1223849932.shtml


   Over the past few weeks we received a couple of questions. Here they
   are with answers.
   Timing of Online Gambling Income
   Question--What if you are gambling on an online site over the course
   of a year and you win some money, however you don't make a withdrawal
   from the account that year? Say you save up what you win for two years
   then withdrawal some do you have to report it the year you win or when
   you actually withdraw it ad have in your hand?
   The year your income is earned is the year that it is taxable. If an
   individual has online gambling income earned in 2008 but doesn't make
   a withdrawal in 2008 he still has 2008 income that must be reported on
   his 2008 tax returns.
   Ohio and Gambling Losses
   Question--I'm a resident of Ohio. I think it's ridiculous that even
   though I've been a net loser in gambling this year I must pay state
   income tax on my "wins." How can this be constitutional?
   In several states, mostly in the Midwest, the state income tax is
   based on gross income (Federal Adjusted Gross Income with a few
   changes); no itemized deductions are allowed. Under the US Tax Code
   gambling income is considered Other Income included in Federal AGI;
   gambling losses are an itemized deduction allowed up to the amount of
   wins on Schedule A.
   The situation you describe--being taxed on phantom gambling income--is
   quite possible. [1]There is a Wisconsin case (Wisconsin also doesn't
   allow gambling loss deductions) which explains the philosophy. [2]As I
   quoted in March 2007:

     "Effective January 1, 2000, gambling losses were no longer offset
     against gambling winnings under the Wisconsin tax code because,
     effective on that date, Wisconsin no longer permitted as a
     deduction from Wisconsin taxable income â[m]iscellaneous itemized
     deductions under the Internal Revenue Code,â see Wis. Stat. §
     71.07(5)(a)7 (2003â04), one of which, the Department contends and
     Dettwiler does not dispute, was the deduction for âwagering
     losses,â under section 165(d) of the Internal Revenue Code...His
     contention that he should nevertheless be permitted to subtract
     from his Wisconsin taxable income the offset permitted by section
     165(d) of the Internal Revenue Code is not only circular and
     without merit, but is wholly contrary to the legislatureâs decision
     to eliminate such offsets effective January 1, 2000.
     "The Tax Appeals Commission decision is perfectly logical,
     appropriate, and correct. Accordingly, we affirm."

   It's actually worse in Ohio. This will not only impact your Ohio
   income tax but your city income tax. Ohio is truly not a good location
   to be an amateur gambler. I suggest you contact your state legislators
   and request that the law be changed.

References

   1. http://www.wisbar.org/res/capp/2007/2006AP001660.htm
   2. http://www.taxabletalk.com/posts/1175192883.shtml