Mr. Virtue and Taxes
12 May 2003
By Mark Pilarski
Dear Mark, This week Newsweek reported that
former Education Secretary William Bennett lost
eight million dollars over a decade in Las Vegas
and Atlantic City. Even with those huge losses,
would Mr. Bennett have any tax liability on his
winnings? Dave T.
Oh, yeah. Under the current scrutiny of his
$8,000,000 pocket-change play, his p.d. (post
disclosure) political life may well depend on
Mr. Bennett's proper honoring of that liability,
by virtue of, ALL casino wins are taxable.
In a statement released Monday, Bennett said,
"It is true that I have gambled large sums of
money. I have also complied with all laws on
reporting wins and losses." Assuming that the
dropped eight million is a net loss, i.e. losses
minus winnings, which by law must all be
declared as income, he's in the clear with the
IRS, though maybe not elsewhere.
He also stated, "When I win, I usually give at
least a chunk of it away (to charity). I report
everything to the IRS." You don't see what I
walk away with," Bennett says. "They (the
casinos) don't want you to see it." How's that
again? Seems like when you're in a hole, you
should stop digging. Now, I could have a field
day with those statements, but I will grudgingly
confine my efforts to your question's underlying
issue: Taxes on his "unknown" winnings.
If he did his virtuous duty, the former
Education Secretary (an obvious truant from
Gambling 101, and only very modestly qualified
as a lecturer on morality) offset his gambling
losses by the amount of his winnings on Schedule
A as an Other Miscellaneous Deduction, but only
to the extent of his gambling wins, not income
from his highfalutin' rhetoric on the Stygian
depths to which we moral lepers have sunk, nor
on the royalties on his Bookie of Virtues.
Okay, I took a shot. But you note, Dave, that I
forbore to home in on this plump target of
opportunity, offering just a little
light-hearted humor instead. Painful decision,
I'll admit.
Gambling winnings are reported on tax form 1040
on the Other Income Line. Reportable gambling
winnings can come from lotteries, bingo,
raffles, horse and dog racing, mud-wrestling,
and all casino games, including those $500 slot
machines where Mr. Bennett hangs his halo.
A loss-claimant, like Mr. Bennett, must
substantiate his loss claims with a flawlessly
documented, descriptive gambling diary. That is
done by keeping on hand all wagering tickets,
canceled checks, bank withdrawal statements made
at the casino, and credit receipts as necessary
proof.
Also, gambling losses can be used only to
counterbalance gambling winnings during that
same tax period. They cannot be carried forward
or back to any other tax year.
Dear Mark, While playing a friendly game of
Hold'em with friends, a player called out his
hand as a flush instead of the straight flush it
was. I had a full house, enough to beat a flush,
but not a straight flush. My friend believed he
still gets the pot even if he miscalled his
hand. I don't. Who's right? Alex C.
At a kitchen-table game, the enforceable
statutes on such matters should be Hoyle; but
let's face it, we've all sat in on games where
the rules are based on whose house we're in, or
who bought the beer. As for casino Hold'em
games, the iron rule is that "cards speak." Your
poker hand is what it is, regardless of how you
call or miscall it.
When the cards go face up, the dealer will call
the hands and award the pot to the player who
actually has the best hand, even if, like your
friend, the player were to miscall it.
Gambling quote of the week: "Things such as air
quality, noise levels, sound patterns, colors,
graphics, and aromas were identified as having
dramatic influences on player behavior." - Jerry
L. Patterson, Casino Gambling
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