From Russ Fox, EA, of Clayton Financial and Tax of Las Vegas, NV. All of the items below are for information only and are not meant as tax advice. Please consult your own tax advisor to see how each item impacts your own situation.
Yes, the tax deadline for the IRS (and federal estimated payments for the first two quarters) is July 15th. However, not all states conformed to this–especially for estimated payments. The following states all have first quarter estimated payments for individuals that are due tomorrow, April 15th:
Arkansas
District of Columbia
Hawaii (due April 20th)
Illinois
Iowa (due April 30th)
Kentucky
Michigan
Minnesota
New Hampshire
New Jersey
North Carolina
Oregon
So if you need to make estimated payments for 2020 for one of these states, do so. If you are mailing your payment, use certified mail (but not return receipt requested–there’s a possiblity no one is there to pick up the mail).
It’s been a while since I’ve listed out the bad states for gamblers. Here’s an updated list. Make sure you read the notes because while all of these states have tax systems that are problematic for gamblers, some impact amateurs while others impact professionals. Note that I do not cover the laws that impact gambling here (such as Washington State’s law that makes online gambling a Class C felony).
Connecticut [1]
Hawaii [2]
Illinois [1]
Indiana [1]
Massachusetts [1]
Michigan [1]
Minnesota [3]
Mississippi [4]
New York [5]
Ohio [6]
Washington [7]
West Virginia [1]
Wisconsin [1]
NOTES:
1. CT, IL, IN, MA, MI, WV, and WI do not allow gambling losses as an itemized deduction. These states’ income taxes are written so that taxpayers pay based (generally) on their federal Adjusted Gross Income (AGI). AGI includes gambling winnings but does not include gambling losses. Thus, a taxpayer who has (say) $100,000 of gambling winnings and $100,000 of gambling losses will owe state income tax on the phantom gambling winnings. (Michigan does exempt the first $300 of gambling winnings from state income tax.)
2. Hawaii has an excise tax (the General Excise and Use Tax) that’s thought of as a sales tax. It is, but it is also a tax on various professions. A professional gambler is subject to this 4% tax (an amateur gambler is not).
3. Minnesota’s state Alternative Minimum Tax (AMT) negatively impacts amateur gamblers. Because of the design of the Minnesota AMT, amateur gamblers with significant losses effectively cannot deduct those losses.
4. Mississippi only allows Mississippi gambling losses as an itemized deduction.
5. New York has a limitation on itemized deductions. If your AGI is over $500,000, you lose 50% of your itemized deductions (including gambling losses). You begin to lose itemized deductions at an AGI of $100,000.
6. Ohio currently does not allow gambling losses as an itemized deduction. However, effective January 1, 2013, gambling losses will be allowed as a deduction on state income tax returns. Unfortunately, those gambling losses will not be deductible on city or school district income tax returns, so Ohio will remain a bad state for amateur gamblers.
7. Washington state has no state income tax. However, the state does have a Business & Occupations Tax (B&O Tax). The B&O Tax has not been applied toward professional gamblers, but my reading of the law says that it could be at any time.
What state has the highest individual income tax rate in the United States? No, it’s not California. Sorry, New York isn’t the place either. Oregon just misses out on the top spot.
It’s Hawaii.
And Hawaii is adding to the high taxation of high income individuals in the Aloha State. Forbes is reporting that Hawaii is limiting itemized deductions to $25,000 for individuals who earn over $100,000 ($50,000 for married residents who earn over $200,000). This limitation will be in effect from 2011 through 2015.
It may be time for some individuals to bid aloha to the Aloha State.
Plenty. Joe Kristan has been covering the Iowa film credit scandal; see, for example, this update from last week. Let’s just say when there’s a lot of money involved, there’s the urge by some to stick their hands in the cookie jar. Perhaps this won’t happen in Hawaii, but instead of making Hawaii a better place for filmmakers, why not lower the tax rates for everyone so that Hawaii encourages all industries to locate their. A far simpler solution than targeted tax breaks, but its also one that usually can’t lead to corruption.
Aloha means a lot of different things. Per Wikipedia (and a conversation with a friend who was born in Hawaii) it means affection, love, peace, compassion, mercy, hello, and goodbye. I’ll focus on the latter two tonight.
There is no legal gambling in Hawaii; it’s one of two states with none, not even a lottery (the other, not surprisingly, is Utah). As you may remember, back in 2009 the state legislature passed a law that ended (for a short period) the ability to deduct gambling losses on state tax returns. That law was later reversed. Hawaii went on and then off my bad states for gamblers.
It’s back on the list, but only for professional gamblers.
Hawaii does not have a sales tax; instead, we have the general excise tax, which is assessed on all business activities. The tax rate is .15% for Insurance Commission, .50% for Wholesaling, Manufacturing, Producing, Wholesale Services, and Use Tax on Imports For Resale, and 4% for all others.
And it does apply to a professional gambler.
Hawaii is not a low tax state to begin with, so adding an extra 4% makes matters worse. Yes, it’s deductible on income tax returns for a professional, but when one considers the tax and the extra paperwork, maybe no tax Alaska sounds better in the end.
Here’s a complete list of the bad states for gamblers:
Connecticut*
Hawaii#
Illinois*
Indiana*
Massachusetts*
Michigan*
Minnesota#
Mississippi***
New Hampshire&
New York@
Ohio**
West Virginia*
Wisconsin*
Explanations:
* Gambling losses cannot be deducted as an itemized deduction on the state’s tax return.
** Ohio currently doesn’t allow gambling losses as an itemized deduction. Effective 1/1/2013, gambling losses will be allowed as an itemized deduction. Note that this change will likely not impact city and school district tax returns in Ohio.
***Mississippi only allows MS gambling losses as an itemized deduction for gambling losses
# Hawaii now does allow gambling losses as a deduction. However, Hawaii has an excise tax that impacts professional gamblers — 4% on gross receipts.
@ New York has a limitation on itemized deductions; if your AGI is over $500,000, you lose 50% of your itemized deductions. You begin to lose itemized deductions at an AGI of $100,000.
# Minnesota has a state AMT that impacts amateur gamblers, effectively eliminating the gambling loss deduction for amateurs.
& New Hampshire has a 10% tax on gambling. While it is currently not being widely enforced, it could be at any time. A literal reading of the law would make it applicable to all gambling.
Let’s just say that gamblers aren’t treated well by many states. It’s enough to want to escape, so here’s the best theme song from any television show ever:
The repeal is retroactive for 2009. Anyone who did not take the deduction and needs to can file an amended return. Hawaiian state income tax returns are not due until Tuesday, April 20th.
Meanwhile, it’s almost a certainty that California will be joining this list. Barring a miracle in the Legislature (the Democrats and Republicans and Governor Schwarzenegger coming to an agreement in the next few weeks), registered warrants (aka IOUs) will have to be sent out beginning in late March or early April. Controller John Chiang implied this when he said the state was running out of cash. Meanwhile, the Democrats in the legislature continue to pass big ticket programs (e.g. healthcare legislation) so it’s as if they’re living in dreamland.
The Eagles song Hotel California remains a classic rock hit. During my recent vacation I walked through a Hotel California—the California Hotel and Casino in downtown Las Vegas.
The Hawaii Department of Revenue estimated the tax (I’ll call it by its real name rather than an elimination of an itemized deduction) could bring in $300,000 to the Aloha State. It won’t. As I’ve said before, taxes never bring in what they’re projected to because individuals modify their behavior to avoid the tax. There will be a lot fewer Hawaii tax returns filed that show gambling winnings for 2009.
And yes, the law is retroactive to January 1st. State Representative Pono Chong sponsored the legislation; he told the Honolulu Advertiser that the tax is “…a way to bring in additional revenue at a time when the state is ‘undergoing a significant and possibly protracted economic downturn in tandem with the national and global economic and financial crises.'” I guess the idea of cutting state spending is anathema to Hawaiian legislators.
For the California Hotel they may have to change their theme or attract a different customer base. Otherwise the lyrics that the Eagles wrote may become true:
Welcome to the Hotel California
Such a lovely place
Such a lovely face
Plenty of room at the hotel California
Any time of year, you can find it here
Hawaii is a beautiful place. It’s hard for me to think of a more beautiful or relaxing place for a vacation.
Residents of the Aloha State aren’t likely to be gamblers. Hawaii prohibits all forms of gambling. Of course, if a Hawaiian makes a trip to Las Vegas and has some winnings, those are still taxable on their Hawaiian income tax return.
Hawaii’s state legislature is among the most liberal in the country. Today’s liberalism means high taxes and nannyism. Earlier this year Hawaii’s legislature passed an increase in the marginal income tax rate to 11% on individuals earning more than $200,000. That legislation was promptly vetoed by Republican Governor Linda Lingle and just as promptly the veto was overridden by the Hawaiian legislature.
What I hadn’t heard about until today was House Bill 1495. This bill would make gambling losses ineligible for tax deductions. This bill easily passed the state legislature; Governor Lingle has until July 15th to either sign the bill or veto it.
If you’re a Hawaiian resident I urge you to contact the governor’s office and let them know your feelings about this measure. If you’re an amateur gambler and this legislation becomes law, you will face a very taxing situation.
I remember Hawaii Five-O, the long running police show that starred the late Jack Lord. This post looks at four individuals who allegedly created an illegal tax fraud scheme.
The alleged transactions first sent the money to offshore accounts and then moved the money back using, among other methods, sham loans and foreign credit cards. The suit alleges that the individuals got to deduct 100% of the money that was moved but received 80% of it back. That’s a neat (and if proved, illegal) trick.
The accused businesses are Bright Enterprises, a Lihue, Hawaii accounting firm and Hawaii Financial Specialists, Inc.. The DOJ is asking for an injunction to stop the practice and, undoubtedly, a list of clients who used this scheme. Remember, if you get a business deduction for an expense, you’re supposed to have spent 100% of the money, not 20%.
News Story: Honolulu Star-Bulletin
