Legal Gambling in the U.S. Part II

 

Legal Gambling in the United States – Part II

Continued from part I

Legal Gambling and Taxes

In addition to betting or gambling legally one needs to be aware of the onerous laws regarding taxes. It’s quite complicated and I’m no tax expert, but the gist of it is that if you make over a limit that the IRS imposes, you have to pay taxes on it, and not only that, usually some taxes will be taken out even before you receive your winning bet.

It can get even worse. Let’s use California as an example because I live here and have gone through this mess before. Say you win $5000 at a casino in California. First they generally take out Federal taxes before you get your winnings (there may be exceptions). Then when you file your federal taxes you have to declare your winnings. The tax the casino took out before you got your money, assuming they did take out taxes, may or may not be enough because your taxes are figures on all your income and deductions, not just your gambling winnings.

So it’s possible you still may owe taxes. Worse than that, suppose you had been to the casino and lost $9430 during the year before you won the $5000. Now is a big gotcha. You can only deduct up to your winnings, $5000 in this example and not the total amount you lost. So you lost money you cannot deduct and had to pay taxes on the money you won.

Here’s another example that could be far worse. You like to go to the track and bet on the horses. You had lots of losses then a big win and won $12992 on a trifecta. The same situation of paying Uncle Sam some tax money applies as detailed previously. But here’s where the big gotcha comes in.

Tax time rolls around and you must declare your winnings. But wait, what about your losses? You need to show or have proof of your losses. You don’t have any because like almost all other casual horseracing bettors, you tossed your losing tickets in the garbage or in the air, let alone did not tally up your losses and wins over the year. So because you don’t have real proof, no diary of all your exact bets over the entire year, your taxes because of that big win will be a lot higher than if you had all the documentation the IRS wants to see.

Imagine all the extra tax money Uncle Sam collects because of their onerous requirements of keeping records of all your wins and losses even as a casual horse or dog racing player. At least in the casino you can join their club and use the player’s card and that keeps track of your winnings and losses. You can get a printout to show the IRS when/if they question you.

What if you do something illegal and make a big bundle of money doing it? Well you still have a partner, Uncle Sam, even though it may have been illegal; your big Uncle has his hand out waiting for his share. That big payoff could have been from legal gambling, illegal gambling, or any other dubious source.

Gambling and the Laws

Gambling and the law have a long history in the USA and it is not pretty (in my opinion). In 1979, while still a student at Harvard Law School, Professor I. Nelson Rose developed the theory of the Third Wave of Legal Gambling. Examining the dates when laws had been enacted in the past, he concluded that legal gambling had twice before swept the nation. He correctly predicted that state lotteries, casinos and other forms of gambling would once again be made legal in the United States. According to the theory, legal gambling will continue to spread, until it is once again outlawed.

The Third Wave of Legal Gambling theory inspired both entrepreneurs and governments to expand legal gaming, in part because it showed how much money could be made by the initial operators. “Suppose Prohibition of alcohol had just been repealed. The hypothetical owner of the first and only liquor store in a state would make a fantastic return on investment.”

The Third Wave of Legal Gambling theory explains why the states differ so much in their approaches to gaming. Professor Rose showed the legal problems created by prohibitions in state constitutions dating from the 19th century on lotteries. For example, in 1990, the Mississippi Supreme Court discussed Professor Rose’s Third Wave of Legal Gambling theory in oral argument, concluding that that state’s ancient constitutional ban on “lotteries” did not prevent the Mississippi Legislature from legalizing charity bingo. The next year the Legislature authorized casinos, making Mississippi the third leading casino state, after Nevada and New Jersey.

 

“The majority of casino players leave to much to chance when playing in a casino. To put it bluntly, they don’t have a clue as to how to play.”

~ Henry Tamburin, gambling author

 

“”If you ain’t just a little scared when you enter a casino, you are either very rich or you haven’t studied the games enough.”

~ VP Pappy

Professor Rose’s expert testimony led to the introduction of Texas hold ‘em and Pai Gow Poker into California card rooms in the 1980s. His work with tribes and suppliers on the Indian Gaming Regulatory Act and in testifying on what is legal on Indian land helped lead to the creation of the modern tribal bingo hall and casino.

Professor Rose writes his internationally syndicated column, “Gambling and the Law.” Gambling and the Law columns appear in approximately 100 magazines, newspapers and journals, including Casino Enterprise Management, Poker Player, iGaming Business, Casino City Times, American Casino Guide and Gaming Law Review & Economics, plus many other publications.

Gambling and Luck

There are a large variety of games available for play to gamble on in casinos. This article will not go into them. But just take a look at the expensive and luxurious casinos in Las Vegas, Atlantic City, Macau and Monaco, plus some of the Indian casinos. Guess where the money comes from to fund their continuing operations? From your losing’s! So in most, almost all cases, your good luck is needed to overcome the inevitable losses. Not going into specifics, if one is to come out a winner over the long run, they have to have an extraordinary amount of good luck on their side to overcome the mathematical odds against the player in casino games.

Now here is a bold statement and I just might get a lot of flak for saying it, but to my knowledge all the games in casinos have odds against the player. That is, the odds for all games in casinos are in favor of the casino. Systems or otherwise, it will take a lot of luck, good luck, to overcome that. Yes anyone can win any gambling game in casinos, but to consistently come out a winner over time usually takes a lot of skill. But without luck in your favor you will almost surely lose money.