What is tax liability for tax free bonds sold within one year in India? No Website Creek Nation Casino – Holdenville 135 Slot Machines 211 E.oklahoma, taxpayer, gambling, loophole, answer, tax, winning, winnings, income, taxable, gaming, nonresident In states where marijuana is legal, however, tax revenues can be significant. Such income is generally taxed at a flat rate of 30%. Nonresident aliens often cannot deduct gambling losses. However, there is a tax treaty between the United States and Canada that generally allows Canadian citizens to deduct their gambling losses, up to the amount of their gambling winnings. Reporting Gambling Winnings and Losses.

1. Oklahoma Tax Rate On Gambling Winnings Real Money
2. Oklahoma Tax Rate On Gambling Winnings 2019
3. Oklahoma Tax Rate On Casino Winnings
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5. Oklahoma Tax Rate On Gambling Winnings Winning

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If you win a sweepstakes or contest prize, you will owe income taxes to Uncle Sam and perhaps your state. Prizes are considered taxable income regardless of whether the prize is in the form of cash, trips or merchandise. If you win a prize valued over $600, the sweepstakes or contest sponsor must report the value to you and the Internal Revenue Service on a Form 1099-MISC. You’re still supposed to report and pay tax on prizes under $600.

The personal income tax rate in Oklahoma is a progressive tax that's based on the amount of income you earn. The state's tax rates are as follows:.5% for the first $1,000 for individuals or $2,000 if married and filing together. Oklahoma Salary Tax Calculator for the Tax Year 2020/21 You are able to use our Oklahoma State Tax Calculator in to calculate your total tax costs in the tax year 2020/21. Our calculator has recently been updated in order to include both the latest Federal Tax Rates, along with the latest State Tax Rates. Oklahoma State Tax On Gambling Winnings Rules Casino Winnings Are Not Tax-Free. 6 Aug 2015 Paul will be issued a 1099-Misc or W2-G with $50,000 shown as the gambling winnings and $15,000 of tax withholding.Amex Biz Cent, JPMC Palladium, SPG/Hyatt Plat, Marriott Silver, Hertz PC, Avis Chairmans Circle Posts: Taxation of Poker Winnings in Canada.

Addition to Income

Prizes and awards will increase your tax bill, but the question of how much depends on the value of the winnings and the amount of your other income. Prizes are taxed as ordinary income. That means you add the prize value to the income you received from your job and other sources during the year. Sometimes, a sponsor will include a cash award to help cover taxes on the prize, but the cash also is taxable income to the winner. The prize value will increase your federal adjusted gross income, which likely will increase your net taxable income after you take your exemptions and deductions. The prize win could push you into a higher tax bracket. Your federal adjusted gross income is the starting point for most state income tax returns so the value of the sweepstakes prize within your federal AGI could increase your state taxable income.

State Taxes

You will have to pay state income tax on your winnings in 39 states. If you live in one of the 11 states that don’t tax sweepstakes prizes, you may be spared state income taxes. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming have no state income taxes. Additionally, California, Delaware, New Hampshire and Pennsylvania don’t tax winnings on sweepstakes or other gambling. But if you live in a non-taxable state and win a sweepstakes based in a taxable state, you may have to file a tax return with the taxable state where the sweepstakes is based. If you are unsure about whether you will owe state tax on your big win, ask your state's tax collection agency.

Tax Withholding

If the sweepstakes prize is worth more than $5,000, the sponsor must withhold 25 percent of the prize value for federal taxes and may have to withhold state taxes as well. But if the prize is a car or other expensive merchandise, you may be required to give the sponsor the cash to pay the federal tax withholding before the sponsor will release the non-cash prize to you. For instance, if you won a $25,000 car, you may have to give the sponsor $6,250 for the federal tax withholding before the sponsor will give you the car. You may also have to pay state withholding up front. The sweepstakes sponsor could choose to pay the federal tax withholding, but if it does, the sponsor’s withholding rate is one-third of the prize’s fair market value.

Valuing Prizes

If your prize is a non-cash award such as a trip or a car, you will owe tax on the fair market value of the prize. There is no uniform method for determining fair market value. Neither the U.S. tax code nor U.S. Tax Court rulings have specified the proper way to set the fair market value of a non-cash prize. The sweepstakes or contest promoter will report what it considers to be fair market value. That figure may be different from the “approximate retail value” the sponsor cited in sweepstakes advertising. But the sponsor’s fair market value figure may be subject to dispute. For example, parties could dispute whether the fair market value of an automobile is the manufacturer’s suggested retail price or the discounted price the sweepstakes sponsor paid to buy the car.

Exempt Prizes

You can avoid all taxes on a prize if you refuse to accept it. A prize may not be taxable if it meets certain legal tests. To be tax-exempt, the prize must be in recognition of personal achievement in religious, scientific, literary, artistic, charitable, educational or civic affairs. You cannot have nominated yourself for the prize or submitted your own work for review. You can’t be required to perform services as a condition for receiving the prize. You cannot claim the prize for yourself but instead must assign the prize to charity. If you assign away the prize, you don’t get a charitable donation deduction. All these tests must be met to avoid tax on the prize.

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The ability to deduct expenses was curtailed by last year’s tax overhaul.

Professional gamblers' decadelong streak of being able to deduct a net loss from gambling as a trade or business was ended this year by P.L. 115-97, known as the Tax Cuts and Jobs Act of 2017 (TCJA). Although a relatively minor facet of the wide-ranging tax reform package, the TCJA's amendment to Sec. 165 overturning a 2011 Tax Court decision and 2008 IRS memo is momentous for taxpayers who claim to be engaged in the trade or business of gambling by virtue of their participation at card tables, racetracks, or other wagering venues, real or virtual.

CHANGING FORTUNES

While all taxpayers are required to report gambling winnings in gross income, what related deductions they can claim and in what way depends on whether their gambling rises to the level of a trade or business. A gambler not in the trade or business of gambling (a 'casual gambler') can deduct wagering losses as a deduction not subject to the 2%-of-adjusted-gross-income threshold (i.e., not among miscellaneous itemized deductions the TCJA suspended for tax years 2018 through 2025) on Schedule A, Itemized Deductions, but only to the extent of the winnings. On the other hand, a gambler engaged in the trade or business of gambling ('professional gambler') can net gambling winnings against losses and business expenses on Schedule C, Profit or Loss From Business.

Before amendment by the TCJA, Sec. 165(d) stated only, 'Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions.' For many years before 2008, the IRS interpreted 'losses from wagering transactions' to include professional gamblers' business expenses, so that they were deductible, along with wagering losses, only to the extent of gambling winnings. Consequently, professional gamblers were not allowed to generate a net operating loss (NOL) from gambling activities. The Tax Court in Offutt, 16 T.C. 1214 (1951), sustained the IRS's perspective and followed this ruling in subsequent cases.

But the Tax Court did not do so consistently, as discussed below. Meanwhile, the Supreme Court in Sullivan, 356 U.S. 27 (1958), allowed business deductions of an illegal gambling enterprise (generally denied previously on public policy grounds). Then, in Groetzinger, 480 U.S. 23 (1987), the Supreme Court distinguished between Sec. 165(d) wagering losses and Sec. 162(a) business expenses of a taxpayer in the trade or business of gambling.

In 2008, the IRS in Chief Counsel Advice Memorandum AM 2008-013 concluded that the IRS should no longer follow Offutt. The Tax Court in Mayo, 136 T.C. 81 (2011), then likewise abandoned its Offutt holding, allowing a professional gambler to deduct business expenses in excess of net gambling winnings (while maintaining that direct wagering losses could still be deducted only to the extent of wagering gains under Sec. 165(d)). Therefore, professional gamblers were able to generate an NOL from gambling activities — until the TCJA amended Sec. 165(d). (For more on Mayo and factors by which courts determine whether gambling is a trade or business, see 'Better Odds for Pro Gamblers' Business Deductions,' JofA, April 2012.)

TAX REFORM RESETS THE RULES

The TCJA, however, put an end to professional gamblers' ability to deduct nonwagering business expenses in excess of net wagering income. It amended Sec. 165(d) by inserting the following sentence after the original one:

For purposes of the preceding sentence, in the case of taxable years beginning after December 31, 2017, and before January 1, 2026, the term 'losses from wagering transactions' includes any deduction otherwise allowable under this chapter incurred in carrying on any wagering transaction.

The House of Representatives described this provision in its committee report (H.R. Rep't No. 115-409, 115th Cong., 1st Sess. 167 (Nov. 13, 2017)):

The provision is intended to clarify that the limitation on losses from wagering transactions applies not only to the actual costs of wagers incurred by an individual, but to other expenses incurred by the individual in connection with the conduct of that individual's gambling activity. The provision clarifies, for instance, an individual's otherwise deductible expenses in traveling to or from a casino are subject to the limitation under section 165(d). [footnote omitted]

The report further noted that the provision was intended to reverse Mayo (id., fn. 135). Consequently, the deduction of professional gamblers' nonwagering business expenses is limited by Sec. 165(d) under the new law. The following example and the chart, 'Before and After the TCJA,' illustrate the amendment's effects.

Before and after the TCJA

Example

Assume that G had the following expenses related to his gambling activities in both tax years 2017 and 2018:

Gambling winnings: $10,000

Losing wagers: $12,000

Transportation: $3,000

Meals and entertainment: $1,500

Legal and professional services: $1,000

Lodging: $2,500

Subscriptions and books: $900

Telephone and online charges: $600

Depending on whether G is a professional or casual gambler, either of two tax treatments could result for each year. If G is a casual gambler, the amendment of Sec. 165(d) has no effect on him. He should report his gambling income of $10,000 on Form 1040, U.S. Individual Income Tax Return, and $10,000 of his wagering losses on Schedule A in both 2017 and 2018. If G is a professional gambler, he could claim an NOL of $9,500 from gambling activities in 2017, as shown in the chart. However, under the amended Sec. 165(d), G may deduct his wagering losses and nonwagering gambling-related business expenses only to the extent of his gambling winnings, for a net zero income from gambling activities in 2018.

GAINS FROM WAGERING TRANSACTIONS

Amended Sec. 165(d) changes the definition of 'losses from wagering transactions' but not the meaning of 'gains from wagering transactions,' which may not always be clear. Courts generally have held that 'gains from wagering transactions' within the meaning of Sec. 165(d) must be the actual product of wagers entered by the taxpayer.

Gross income does not include the return of capital (Doyle v.Mitchell Bros. Co., 247 U.S. 179 (1918)). A gambler thus would be entitled to exclude the cost of a winning ticket from its associated gross winnings. Nevertheless, such recovery of capital could not include the cost of tickets that did not win (Hochman, T.C. Memo. 1986-24). In the past, courts have considered various items as gains from wagering transactions. The annual payments lottery winners receive are treated as their gambling winnings in the year the payments are received (Rusnak, T.C. Memo. 1987-249). However, an excess gambling gain in one year cannot be offset by an excess gambling loss in another year (Skeeles, 118 Ct. Cl. 362 (1951)).

The Fifth Circuit in Humphrey,162 F.2d 853 (5th Cir. 1947), held that wagering transactions include all gambling activities, regardless of whether they are legal or illegal, or whether they are business or personal. As long as the losses derive from wagering transactions, they could be used to offset gains from any such transaction.

It is not necessary for the wagering gains to be related in any way to the losses (Scott-Nickels Bus Co., T.C. Memo. 1956-120). For example, the taxpayer in Presley, T.C. Memo. 1979-339, an owner of an illegal casino, was allowed to use the losses from his other personal gambling activities to offset his gains from the casino (see also Jennings, 110 F.2d 945 (5th Cir. 1940), and Joseph, 43 B.T.A. 273 (1941)).

Gamblers could use gambling losses to offset the value of complimentary goods and services ('comps') they receive from a casino. Comps constitute gains from wagering transactions because the relation between the comps and the gambler's wagering is 'close, direct, evident, and strong' (Libutti, T.C. Memo. 1996-108).

INCOME THAT IS NOT GAINS FROM WAGERING TRANSACTIONS

In addition, courts have considered the following income sources to not be gains from wagering transactions:

Tokes

Traditionally, casino dealers receive 'tokes' from patrons who play at their tables, in the form of bets the patron places for the dealer's benefit. Tokes are considered compensation for the recipient's services and, thus, should be treated as ordinary income rather than either wagering gains or gifts (Bevers, 26 T.C. 1218 (1956); Allen, 976 F.2d 975 (5th Cir. 1992); Olk, 536 F.2d 876 (9th Cir. 1976); and Williams, T.C. Memo. 1980-494).

Take-offs

A take-off is the fee that the house charges card players to play poker at the casino. Because take-offs serve as seat rental charges, those the house receives are not gains from wagering transactions and cannot be used to offset the house's losses from such transactions (Nitzberg, 580 F.2d 357 (9th Cir. 1978)). Similarly, the taxpayer in Boyd, 762 F.2d 1369 (9th Cir. 1985), ran the poker room in a casino that awarded him a portion of the take-off collected in the card room. The contractual share of take-offs the taxpayer received was not his gains from wagering transactions and could not be offset by his losses from those transactions.

Theft income from stolen betting tickets

The taxpayer in Collins, T.C. Memo. 1992-478, aff'd,3 F.3d 625 (2d Cir. 1993), worked as a ticket seller at an off-track betting station. Without making any payment, he placed several personal bets that had a fair market value of $80,280 and resulted in winnings of $42,175 (for a net loss of $38,105). He returned the entire winnings to his employer and turned himself in at the end of the day. The Tax Court ruled that the taxpayer should recognize net theft income of $38,105. Further, the court held that the theft income from the stolen tickets was ordinary income and not gain from a wagering transaction. Therefore, the taxpayer could not use his losses from wagering transactions to offset his theft income.

LOSSES FROM WAGERING TRANSACTIONS

Professional gamblers can deduct business expenses against their gains from wagering transactions (again, subject now to limitation under the TCJA) even if illegal gambling activities are involved. For example, in Harbin, T.C. Memo. 1958-190, the owner and operator of an illegal lottery business was allowed to deduct gambling losses, business expenses, and the federal excise tax on gambling against his income from the gambling operations. When the losses from wagering transactions exceed the gains, the excess losses cannot be carried back to previous years (Estate of Todisco, T.C. Memo. 1983-247). Casual gamblers cannot claim a gambling loss deduction for nonwagering expenses, such as transportation, meals, and lodging (Whitten, T.C. Memo. 1995-508).

Courts have considered the following items losses from wagering transactions, such that their deduction is limited to wagering gains:

Unsold tickets

The taxpayer in Miller, 792 F.2d 392 (3d Cir. 1986), was a lottery dealer in the Virgin Islands, where the lottery distribution system did not allow dealers to return unsold tickets. The Third Circuit noted that the taxpayer retained the tickets and continued to buy more tickets than he could sell, indicating that he was betting that one or more of the unsold tickets would be drawn. Therefore, the cost of these unsold tickets should be treated as gambling losses rather than ordinary business expenses, the court held.

Losses by shills

Typically, casinos engage persons referred to as 'shills' to whom they agree to provide a certain sum of money or chips to play. The casino will absorb any loss, but gains are split between the shill and the casino. The Tax Court in Nitzberg, T.C. Memo. 1975-228, held that when shills' losses were greater than their winnings, the net loss was deductible as the casino's ordinary and necessary business expense under Sec. 162. However, on appeal, the Ninth Circuit (Nitzberg, 580 F.2d 357 (9th Cir. 1978)) reversed the ruling, noting that shills acted on the casino's behalf when placing bets and, therefore, the casino's losses were losses from wagering transactions.

State tax assessment

A state income tax assessment on gambling income of an individual in the trade or business of gambling is tied directly to a taxpayer's gambling activities and, hence, is subject to the limitation of Sec. 165(d) (Estate of Todisco, 757 F.2d 1 (1st Cir. 1985)).

Buy-in and rake

Tournament poker players are required to pay the tournament organizer a 'buy-in,' or entrance fee. The casino retains a portion of this amount as an administrative fee, and the remainder goes directly into the prize fund 'pot' that will be paid out to the tournament's winners. The Tax Court in Tschetschot, T.C. Memo. 2007-38, considered tournament poker a wagering activity and treated poker players' loss of the buy-in as losses from wagering transactions. However, the IRS in Hom, T.C. Memo. 2013-163, conceded that poker entry fees and rake fees (charged per hand to play poker online) were business expenses of a professional gambler. While the Tschetschot and Hom cases are inconsistent, this inconsistency is irrelevant under amended Sec. 165(d). Regardless of the nature of buy-in and rake fees, both are subject to the Sec. 165(d) limitation under the TCJA.

Takeout

In horse-race betting, 'takeout' refers to the share of the entire betting pool that the event manager (the track) is specified to receive. The track uses the takeout to pay its expenses, such as purse money for the horse owners, taxes, license fees, and other state-mandated amounts, and keeps any remaining amount as its profit. As a professional gambler, the taxpayer in Lakhani, 142 T.C. 151 (2014), aff'd, Nos. 14-72576, 14-72577 (9th Cir. 5/10/18), argued that his pro rata share of the takeout the track remitted to the state and local tax authorities constituted his business expense and was not a loss from wagering transactions. The Tax Court noted that the taxes, license fees, and other expenses discharged from the takeout were expenses imposed upon the track, not the bettors. Therefore, the taxpayer was not allowed to deduct his share of the takeout.

POTENTIAL ISSUES

Taxpayers should be aware of the following potential issues, some of which may require more clarification by either courts or the IRS:

Treatment of 'fee to play'

The courts treat the 'fee to play' inconsistently, as it may be referred to as take-off, buy-in, or rake. The Ninth Circuit in Boyd held that take-offs the casino received or awarded to a contract player were not gains from wagering transactions. The Tax Court in Mayo implied that take-offs gamblers paid were nonwagering business expenses. On the other hand, the Tax Court in Tschetschot considered poker players' losses of the buy-in as losses from wagering transactions, while in Hom, rake was treated as a business expense.

This inconsistency raises two issues. First, there is no statute or theory to support the different tax treatments of the entry fees based simply on whether the taxpayer is the recipient or the payer. Second, for professional gamblers, the inconsistency between the Tschetschot and Hom cases does not matter under Sec. 165(d) as amended by the TCJA. For casual gamblers, however, this inconsistency has created chaos. Naturally, casual gamblers prefer to follow the Tschetschot case and treat their fees to play as losses from wagering transactions, as they are not allowed to deduct any gambling-related nonwagering expense.

Treatment of tokes

Are tokes that dealers receive considered the giver's winnings and losses? The courts have held that tokes are not dealers' gains from wagering transactions, as noted above. However, there is no precedential ruling with respect to the giver's treatment of the toke. As a toke belongs to the giver until the bet is won (Bevers, 26 T.C. at 1219), theoretically, the loss or winning of the toke should be considered the giver's gambling loss or winning.

Reportable gambling winnings

In Regs. Sec. 1.6041-10, the definition of 'reportable gambling winnings' for information-reporting purposes depends on the type of game. In bingo and slot machines, the amount of the reportable gambling winnings includes the amount wagered. Conversely, it is reduced by the amount wagered for keno. Taxpayers should be aware of this difference when they receive Form W-2G, Certain Gambling Winnings.

AN END TO NOLs

Before the TCJA, under the Tax Court's holding in Mayo, professional gamblers were allowed to fully deduct their nonwagering business expenses beyond wagering gains. By amending Sec. 165(d) in the TCJA, Congress reversed Mayo, allowing professional gamblers to deduct their wagering losses and nonwagering business expenses only to the extent of their gambling winnings, and no longer allowing them to generate an NOL from their gambling activities. Although, under the TCJA, the amendment to Sec. 165(d) is scheduled to expire at the end of 2025 along with most of its other provisions affecting individual taxpayers, Congress may extend it further. In the meantime, professional gamblers' winning streak apparently has come to an end.

About the authors

Wei-Chih Chiang, CPA, DBA; Yingxu Kuang, DBA; and Xiaobo Dong, Ph.D., are all associate professors of accounting in the School of Business Administration, University of Houston—Victoria at Katy, Texas.

Oklahoma Tax Rate On Gambling Winnings Real Money

To comment on this article or to suggest an idea for another article, contact Paul Bonner, a JofA senior editor, at Paul.Bonner@aicpa-cima.com or 919-402-4434.

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