Gambling Income: Query

[treehugger1]

Well as "luck" would have it, I was on a business trip out of town last week and pulled over at one of the many Native American Casinos. I walked through the door and dropped a twenty into a dollar electronic slot machine and won $7500.00. By the time I had them withhold federal and state taxes, and played down a bit more, I walked out of the door with still several grand. I paid up all my creditors. In fact, I used every cent to paydown debt. I don't know whether to laugh or cry!! All this managed to do was put off an eventual BK 13 for another month or two. I've mentioned before that I will be in a 100% payback plan, so paying down some of the principle of my debt doesn't hurt. However, next month I'll be back to more debt than income. My question is:
"Are gambling winnings considered income?" I will now need to claim $3800.00 in net gambling winnings on my taxes this year. I would hope the trustee doesn't believe gambling is a source of future income. I do gamble on occasion when I'm on the road and always with my own money (I don't use credit cards if I gamble, hence no gambling debt). I'm thinking I may have just fouled something up. I know I shouldn't be gambling, but does that fact that I got very "lucky" once or twice going to dramatically impact my filing? Perhaps, I should put off the filing for a few more months. Thoughts? Laugh or cry?

[Pinktiger]

Yes - gambling winnings are income.

[lrprn]

I'm thinking I may have just fouled something up. I know I shouldn't be gambling, but does that fact that I got very "lucky" once or twice going to dramatically impact my filing? Perhaps, I should put off the filing for a few more months. Thoughts? Laugh or cry?

Yes, gambling winnings do count as income, so if you file bk within the next six months, you've artificially raised your income beyond your normal income level. Sounds like you may not be able to wait six more months....not to your advantage.

You mentioned paying creditors with the money. Paying secured creditors to catch up on home mortgages, car payments, etc. before filing makes sense. However, did you pay back non-secured creditors as well?

If you did pay one of your non-secured creditors more than $600 and you file within 90 days, then you've opened the door to a preferential payments charge from trustee. The trustee could demand the money back from those creditors.

Also, if you did pay non-secured creditors knowing you were likely to file soon, then that money would have been far better used to prepare for 3-5 long years of living under Ch 13 with very little disposable income. Car repairs, better health insurance, clothes for the family, replace appliances on their last legs....the list goes on and on.

Am not trying to be judgmental, TH....just trying understand if you did pay non-secured creditors, why you decided to do that. Am hoping I'm wrong here, that you didn't pay non-secured creditors, and these last few paragraphs aren't necessary. My fingers are crossed!

[aa06a47]

Yes, it will be considered income, but keep track of your losses as well to offset your sudden windfall. It is a really tough one, especially if your 100% payback. Technically, your payment may go up some but you would get done sooner. My trustee asked if I had any winnings in the previous 6 months and I said yes, but they were more than offset by the losses, and she just said, OK, I don't have an issue with that.

Technically, your not "allowed", in Missouri, to gamble while in a chapter 13. Not sure how they could ever find out, but I'm sure big brother has his ways. Good luck.

[treehugger1]

Thanks for the responses. I guess it won't make any difference in the future if I'm in a 100% payback. It does, however, buy some potential time for another month or two; get a reliable vehicle, fix the heads on a vehicle and sell it, etc. In terms of the payments toward unsecured, I did pay some. I think you need to understand that I would be on a 100% payback plan for five years, so any payment to unsecured simply lowers the total amount I'll have to payback over the plan. I can also muddle along for a few more months, if necessary.

[CATCHMEIFYOUCAN]

Gambler Here Too

Hi Treehugger, maybe we have spoken before? I wouldn't worry too much about you windfall .. I was going to file in september, but i had to wait for my paychecks to come in so I could pay the lawyer .. before ya knew it I hit a jackpot for $2000 (just enough to pay the lawyer!) so i was able to file in july .. i listed everything from gambling wins to gambling losses on my Bk13 .. AGAIN just a week before my 341 meeting i hit a jackpot for $5000 and a couple more for a total of $10,000 .. well since the trustee already had a picture of my financial status no need to brag ! at the 341 he never mentioned anything about gambling (shrewww), but it did concern me that he wanted a copy of all my tax files for the upcoming 5 years ! yeah, that got me a little worried, but things changed and i refiled for chapter 7 .. another 341 meeting has come and gone and no question about my gambling .. i even hit for another $10,000 since than .. ive kept the money out of my accounts and just use someone elses .. im not worried because im still "down," for the year .. so to me, its not extra income .. if you are a gambler and can write it off DO SO .. get those win loss statements from the casinos .. save all your cash withdrawal receipts .. bank statements .. etc

GOOD LUCK, Catchmeifyoucan

[Jman30]

i even hit for another $10,000 since than .. ive kept the money out of my accounts and just use someone elses .. im not worried because im still "down," for the year .. so to me, its not extra income ..

Not trying to nit pick here, but just because you don't consider it extra income does not mean it is not. The law says it is extra income and must be filed on your tax returns as such. Putting it into someone else's account for your benefit is technically called Money Laundering. You are moving money through a account that is not yours for your benefit with the sole purpose of avoiding taxes. It dosen't matter if you are down or not - even if you don't pay taxes on it because you are down you still have to report it as income.

Now don't me wrong, I am not being judgemental. I guess if you feel ok doing it, then go ahead. But I work for an auditing group within my company and you wouldn't believe the number of people the IRS catch doing this. Especially with the new Patriot Act laws and such....you probably have really low odds of being audited by the IRS, they have bigger fish to fry. But if you ever were audited and they figured out the gambling winnings and where they were going....the penalties are ALOT steeper than they were before 2001.

Oh yeah....and can you give me your secrets for winning on the gambling thing?? LOL According your post you've won around $30,000 in the last year!!!! Maybe I should be gambing! LOL

[CATCHMEIFYOUCAN]

Jman30

Not trying to nit pick here, but just because you don't consider it extra income does not mean it is not. The law says it is extra income and must be filed on your tax returns as such. Putting it into someone else's account for your benefit is technically called Money Laundering. You are moving money through a account that is not yours for your benefit with the sole purpose of avoiding taxes. It dosen't matter if you are down or not - even if you don't pay taxes on it because you are down you still have to report it as income.
Think you misinterpret me, I do claim the money I've won (especially since I get WG's on it!) and they track wins/losses everytime I use the players card, so I get a statement from the casinos every year.

Now don't me wrong, I am not being judgemental.
You aiiight !

I guess if you feel ok doing it, then go ahead. But I work for an auditing group within my company and you wouldn't believe the number of people the IRS catch doing this. Especially with the new Patriot Act laws and such....you probably have really low odds of being audited by the IRS, they have bigger fish to fry. But if you ever were audited and they figured out the gambling winnings and where they were going....the penalties are ALOT steeper than they were before 2001.
Much goes back to the casino !

Oh yeah....and can you give me your secrets for winning on the gambling thing?? LOL According your post you've won around $30,000 in the last year!!!! Maybe I should be gambing! LOL
Heh, heh .. I don't stay on one machine, when I hit for a good matching symbol I get off, most like to play it all back thinking they'll hit for all the symbols. When you get to the casino, walk around and look at the types of machines that seem to be paying out. I've always noticed that the same types games seem to hit more-so than others one day and than it could be another type another day. In the end ITS LUCK !

GOOD LUCK, CATCHMEIFYOUCAN

I don't win all the time, I've had my butt kicked plenty of times!

[treehugger1]

Getting a bit off topic here, I suppose. However, if you really feel the drive to gamble, then you should gamble a lot. The machines are programmed to "hit" from the top down (i.e. Jackpot) and percent payout. Generally, the chipsets are programmed to pay out between 80% - 98%. In most states there is a minimum acceptable payout, but many Native American Casinos are not subject to state laws. The problem is that a high percentage payout can be accounted for by the very rare $2500 - $5000 jackpots paid out on nickle to dollar machines. A rule of thumb one might keep in mind is "don't keep playing a machine that ain't paying." And, bet the largest bet you can. Rather than reduce your bet on a slot machine, reduce the number of lines played. I think the high payout percentage is what draws hard-core gamblers and eventually creates a problem. Hardcore gamblers play a lot and therefore they generally hit many jackpots in the course of several months. But, the cumulative effect of giving up an "expected" $.03 - $.25 on the dollar for every bet is what catches up with folks and can eventually ruin their financial life. You cannot predict when that jackpot will occur. By the way, the above is only my "professional opinion," (I make a living teaching undergraduate and graduate students probability and some of these students do go on to work for some of the game manufacturers. The random number generators, developed in the digital game software, are guarded trade secrets). Since you have to play against the randomness and only have the payout percentage (some of these can be found (google search) for the various digital slot machines on the market). Bottom line, unless you are prepared to play a lot and lose a lot for the occasional big "hit," I would not encourage anyone to gamble.

[CATCHMEIFYOUCAN]

Well Said

WELL SAID, I'm very sorry to give the wrong impression to anyone here.

Catchmeifyoucan

[Spartan]

Getting a bit off topic here, I suppose. However, if you really feel the drive to gamble, then you should gamble a lot. The machines are programmed to "hit" from the top down (i.e. Jackpot) and percent payout. Generally, the chipsets are programmed to pay out between 80% - 98%. In most states there is a minimum acceptable payout, but many Native American Casinos are not subject to state laws. The problem is that a high percentage payout can be accounted for by the very rare $2500 - $5000 jackpots paid out on nickle to dollar machines. A rule of thumb one might keep in mind is "don't keep playing a machine that ain't paying." And, bet the largest bet you can. Rather than reduce your bet on a slot machine, reduce the number of lines played. I think the high payout percentage is what draws hard-core gamblers and eventually creates a problem. Hardcore gamblers play a lot and therefore they generally hit many jackpots in the course of several months. But, the cumulative effect of giving up an "expected" $.03 - $.25 on the dollar for every bet is what catches up with folks and can eventually ruin their financial life. You cannot predict when that jackpot will occur. By the way, the above is only my "professional opinion," (I make a living teaching undergraduate and graduate students probability and some of these students do go on to work for some of the game manufacturers. The random number generators, developed in the digital game software, are guarded trade secrets). Since you have to play against the randomness and only have the payout percentage (some of these can be found (google search) for the various digital slot machines on the market). Bottom line, unless you are prepared to play a lot and lose a lot for the occasional big "hit," I would not encourage anyone to gamble.

In someway, this is similar to the position sizing issues in trading, except that you are playing against randomness here. In trading, there is an element of randomness, but there is also an element of skills that you can employ to maximize the odds.

I wonder how 'random' is the random numbers generated by the random number generating algorithm.. This is just a passing curiosity. Zero interest in gambling. If I am going to take risk, I want to take calculated risk, and NOT random chances. Unless I am just throwing a few bucks for fun on a social outing.

[CindyLou]

i notice you that are "putting off filing chp 13"....I was thinking that the longer you put it off, the longer you pay interest on these debts. Won't your interest be reduced or eliminated once you file???

[treehugger1]

I'll be on a 100% plan with about $150K of unsecured debt. My payments will be in the range of $2500 - $2800 for FIVE years. I'm going to take care that I have 1) have a car that will survive 2) see if my overtime decreases and can put me in a much lower % payback plan if I file, and 3) paydown some principle, if possible. I'm also negotiating some 0% financing on some of my unsecured credit card debt for 12 months. The bigger financial institutions seem to be quite willing to shut off interest for a year and take smaller payments. Bk is the last thing I want to do. I did have a couple of local accounts go into collection overseen by out-of-state colelction agencies, but I'm finding it is easier for me to deal with collection agencies than I would have thought. This is especially true when I live in the middle of rural nowhere USA and they would have to hire a local attorney to take me to court and sue for a judgement.

For me, the bright side of BK 13 is the "walk away after five years" deal. If I have to do this, I will. However, I need to be very sure that I can survive and a trustee will allow all of my expenses. If I can ensure a 100% payback plan to unsecured, then I'm hoping I'd be allowed all "my" expenses. What I've been reading on this board and others is that one does not need to RUSH into a 13. I intend to take care of my needs, consider all other options, and file when I have exhausted all other methods. in the meantime, paynig down some debt won't work against me, other than paying interest.