North Carolina changed its tax law over a year ago. While I have professional gambling clients in North Carolina, I do not currently have amateur gambling clients. It’s likely I won’t be getting many of those, as North Carolina legislators have made the Tar Heel State a bad state for gamblers.
North Carolina eliminated many itemized deductions for the 2014 tax year while increasing the standard deduction. Overall, this simplification is likely a good thing for most residents. Gamblers, though, are severely penalized. There’s no longer a deduction for gambling losses, so an amateur gambler residing in North Carolina who has $100,000 of wins and $100,000 of losses owes tax on the $100,000 of wins.
So here is my current list of bad states for gamblers:
Connecticut [1]
Hawaii [2]
Illinois [1]
Indiana [1]
Kansas [1]
Massachusetts [1]
Michigan [1]
Minnesota [3]
Mississippi [4]
New York [5]
North Carolina [1]
Ohio [1]
Rhode Island [1]
Washington [6]
West Virginia [1]
Wisconsin [1]
NOTES:
1. CT, IL, IN, KS, MA, MI, NC, OH, RI, 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. 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.
