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gambling winnings?

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fullmore

Guest
my father-in-law recently won over 1 million dollars in an indian casino and he opted for the lump sum cash instead of annual payments. He got appx. 45% of the original jackpot and still has to pay taxes on it. Of the $500,000 the taxes are estimated at 38%, leaving him a paltry quarter of his initial jackpot.
Upon consulted his tax person, he asked if he could gift $10,000 to each of his children and not pay taxes on that amount. He and I had read of this credit of up to $10,000 per year per person, and were shocked when the tax person said gambling winnings can't be gifted this way without taxation. Does anyone know why this is? And if there are any loopholes to this? Any info would be appreciated. BTW we are both in california, in case laws differ for each state.

thanks
 


D

David J. Miller

Guest
Because it would be a loophole to paying tax on the winnings. Loopholes are not intended to be a part of any law. Since people, including those that write law, are not perfect, loopholes exist.

Do you have any records to show the amount of money spent this year on gambling before hitting the jackpot. Money spent can be deducted against the total earnings.
 
W

wowie

Guest
Better act fast as the year is ending quickly. I am not an attorney and not a CPA. Your FIL might look into a charitable trust. The IRS does not like these a whole lot because they are perfectly legal, but they are a LOT of work to maintain. They are great for people who are rather loaded and getting on in years because the money avoids (mostly) the estate tax penalty. Another option that he might have is some sort of IRA contribution that would MINIMALLY offset the taxable income. . .there are age and income requirements for those.

I would highly reccommend that he go to a CPA. . they are VERY creative about avoiding taxes, lawyers only usually know the LEGAL aspects of what you can and cannot do.

He CAN claim gambling losses only equal to or less than his gambling winnings. There is a gift of $10,000 per person per year that is not taxable to either party, but I do not know the specifics of it. . .ask a CPA.

BTW, I have been to those boats and I didn't win 1MIL!!

If you are close to Dayton, OH my father is a very creative CPA. His name is Bill Winkler and his number is (937)847-7811. . .just incase you are interested:) He will work with out of state also. Regardless of whether you call my dad, I think that a private practice CPA would give you the best advice. . .not a franchise CPA, someone who has a small business practice.

Sorry such a long reply.
Valerie
 
L

loku

Guest
Gambling winnings and gifts

I am not disagreeing with the other answers, merely clarifying a point. The $10,000 exclusion is an exclusion from gift tax. It has nothing to do with income tax. All it means is that you can give a gift of $10,000 ($20,000 if you are married and your wife joins in the gift) without having to pay gift tax.

As soon as your father won the money, he became liable for income tax on it. Your tax planning possiblities do not inlcude somehow making that amount non-taxabe. However, as it was pointed out to you, you can make charitable contributions and get a deduction.

It seems like a good idea in his case to consult a CPA for tax planning fast.

 

crager34

Member
Here is my take

Chapter 35, Section 4401 of the IRS code deals with Taxes on Wagering. It states "Each person who is engaged in the business of accepting wagers shall be liable for and pashall pay the tax under this subchapter on all wagers placed with him." Person "A" placed a bet with business "B". Business "B" is liable for the tax. You opted for a lump sum, which business "B" got "paid" on. State authorized wagers are imposed 0.25 percent of the amount of such wager. The amount of the wager is ...'all charges incident to the placing of such wager shall be included..." So what does all this mean? Lets say you placed a $100 bet to get a million. That $100 is the wager, of which 0.25% or $25 is the tax that business "B" is liable for. You win!!!! The pot is one million dollars of which business "B" is liable for $25. Hopfully, business "B" has acquired enough money from all the money wagered, so he can give it to you. Again you opted for a lump sum....You got approx $500,000....where did the rest of the money go? Business "B" got "paid".

Now to the other point...what is left, you say you are liable to pay Income Tax on. What the IRS tries to do is turn this into Compensation or Wages. At the time of you winning this, did you work for them? If not, the how are you liable to pay any Income Tax on those winnings (not earnings). Some might say it is a prize or an award, therefore included under Gross Income, but think again. On the Price is Right, you play a game..you invest nothing but time, you win a car...a prize..you owe a tax. You put forth X amount for the chance to receive X amount...you win..how do you owe?

I am open minded enough to know I may be wrong about this. So, I ask this... If this person has to pay taxes on their winnings, how are the winnings converted to fall under the definition of Gross Income, in order to be taxed as such?
 
L

loku

Guest
Gross Income

Gross income is all income not excluded from the tax. There is no exclusion for gambling winnings, and the cases and rulings have consistently held such winnings taxable. The only disputes in the area are on what losses can be deducted from winnings.
 

crager34

Member
The question still stands.

How are gambling winnings converter to Income?

You state cases and rulings....now I am sure there are some, but look at this.

U.S. Supreme Court in Flint v. Stone Tracy Co., 220 US 107, defined excises as "...taxes laid upon the manufacture, sale, or consumption of commoditios within the country, upon licenses to pursue certain occupations, and upon corporate privileges."

Are saying that the Income Tax laid upon gambling winnings are indirect?
 

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