Taxable Talk

Question 1.

"Good afternoon Russ,

"I am a regular [poker] player online and I was wondering the policy in the state of California? Is there a certain amount and above that needs to be reported on your taxes? Since the money comes in overseas is there even a policy?"

The US Tax Code is quite explicit about gambling income: it's taxable. And whatever the source--US or foreign--all income is taxable unless Congress explicitly exempts it.

California taxes start with the Adjusted Gross Income from your US tax return. The only gambling income exempted on a California tax return is California lottery winnings.

Either report it or you are committing tax evasion.

Question 2.

"Hello, sir:

I AM 73 YEARS OLD AND WON A $1700.00 $1.00 TRIFECTA. I RECEIVED A W2-G FORM from Churchill Downs Racetrack but i don't know what or where to go with it.

The Form shows that no money has been withdrawn yet from the Winings. i understand that the Law states that in horseracing, a person owes taxes if the winnings are 300 times the wager. Therefore, if I played a $1.00 Trifectsa( I bet $36.00) i am liable. Right?

If so, my friend, what do I do now? I pay NO TAXES currently. The only money taken out of my check is a $93 amount for Medicare.

Can you please tell me how to proceed? I DO appreciate your help."

First, you owe tax on all gambling winnings whether or not you receive a W-2G. Your gambling winnings go on line 21 of Form 1040 (other income). You can deduct losses up to the amount of your winnings as an itemized deduction on Schedule A.

It sounds like your only other income is Social Security. Assuming that the $1700 is your only gambling winnings of 2008, you almost certainly won't have to pay income tax on your winnings--your Social Security won't be taxed and with just $1700 of income you won't owe any income tax. However, if you have other significant gambling winnings your Social Security could be taxed.

Question 3.

"I reside in New York City, and am planning on moving to Thailand at year-end and will be a professional gambler. I understand that if I'm out of the US for 330 days out of 365 I'm eligible for the Earned Income Exclusion."

So far so good....

"My question is how can I avoid New York taxes? How can New York tax me when I'm going to be a resident of Bangkok?"

At this point, cue Murray Head and One Night in Bangkok. Now that we have the appropriate theme in the background, here's the answer: Because they can.

Seriously, every US citizen is considered a resident of a US state or territory. You have a domicile (residency) in that state. Until you establish a domicile in another US state or territory you are considered a resident of whatever state you currently reside in. The toughest states in enforcing this are New York and California; both routinely conduct residency audits.

You may wish to consider first establishing residency in a state with no income tax, such as Texas, Florida, or Nevada, before moving to Thailand. You would need to sever your ties with New York and establish ties with your new state. You should stay in your new state for several months so that you truly become a resident of your new state.

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Just a reminder: This opinion is limited to the one or more Federal tax issues addressed in the opinion. Additional issues may exist that could affect the Federal tax treatment of the transaction or matter that is the subject of this opinion and the opinion does not consider or provide a conclusion with respect to any additional issues. With respect to any significant Federal tax issues outside the limited scope of this opinion, the article was not written, and cannot be used by the taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.

Proposition 13, the initiative that limited property tax increases, is blamed by liberals as one of the root causes of California's current budget problems. It's not.

The San Diego Union ran an editorial detailing what has happened to property tax revenues to the state since the passage of Proposition 13:

From fiscal 1980-81 – the year Proposition 13 took effect – through 2005-06, property tax revenue skyrocketed from $6.4 billion to $38.3 billion. That is an increase of more than 500 percent. So much for talk that the measure turned off the property tax spigot.

Remember this when our legislature complains that they don't have enough money, or that they need to increase taxes to balance the budget. They don't. They need to cut spending, and eliminate programs that California neither needs nor should have. The time for smoke and mirror has past; it's time to cut politically expedient and popular programs.

If you've ever driven from Southern California to Las Vegas, the first exit on Interstate-15 when you cross into Nevada is for Primm, site of three casinos. These casinos used to be owned by the Primm family but were sold to MGM (now MGM/Mirage) in 1998. (I believe that the Primm Casinos were later divested to Herbst Gaming.)

The family patriarch, Gary Primm, bought a yacht, the Prima Donna. It's a big yacht, 145 feet in length. The yacht is registered in the Cayman Islands and, according to Alexander Druft, attorney for Mr. Primm, was normally docked in Baja California.

The Orange County, California assessor believes that the yacht was docked part of the time during 2002 and 2006 in nearby Newport Beach, and Mr. Primm thus owes the county nearly $380,000 in property taxes (for 2003 and 2007, the years following the dockings). Mr. Primm has appealed the assessor's office ruling; he previously won an appeal regarding 2006 (based on 2005 dockings).

So is this "harassment" as claimed by Mr. Druft or is Webster Guillory, Orange County Assessor, correct when he states, "If he owns a big boat, even if he lives in Nevada, he's not docking it there." Well, I know Mr. Guillory is correct in that an ocean-going vessel isn't docked in Nevada. Still, given the precarious nature of California's finances it's not surprising that the assessor is looking under every rock (or at every dock) to find anything worth taxing.

News Story: Orange County Register