Taxable Talk

As I’ve said in the past, there are several states where being an amateur gambler is not a great thing. Wisconsin is one of those states. Yet another amateur gambler found that out the hard way.

Carol Kubsch reported $473,075 of gambling winnings and losses as an amateur, and discovered that on her Wisconsin tax return that led to $30,000 of taxes on phantom income. So she amended her returns, and tried to be considered a professional. As Taxdood reported, that didn’t work out well: “Unfortunately, a taxpayer can’t simply categorize oneself the type of gambler that produces the lesser tax bill. The professional versus amateur gambler status is a facts and circumstances determination.”

She might have gotten away with this if she hadn’t filed amended returns. Every amended return is looked at by a human.

Taxdood has more.

I grew up in Chicago, and I remember vacationing at Wisconsin Dells as a child. Now Wisconsin, like many states, sports Indian casinos. Gamblers who patronize such casinos are in for a rude surprise when they complete their tax returns.

Wisconsin is one of 10 states that does not allow gamblers to deduct losses on their state tax returns. Daniel Dettwiler had gambling winnings of $99,252.60 which he duly reported on his 2002 federal tax return. He also deducted as a miscellaneous itemized deduction his gambling losses of $41,637.00 on his federal tax return. He did the same thing on his Wisconsin tax return even though Wisconsin doesn’t allow that deduction.

His case went before the Wisconsin Tax Appeals Commission, where he lost. He then appealed to a state court and lost. On Tuesday the First District Wisconsin Court of Appeals ruled on his appeal.

The Court noted,

“Effective January 1, 2000, gambling losses were no longer offset against gambling winnings under the Wisconsin tax code because, effective on that date, Wisconsin no longer permitted as a deduction from Wisconsin taxable income “[m]iscellaneous itemized deductions under the Internal Revenue Code,” see Wis. Stat. § 71.07(5)(a)7 (2003–04), one of which, the Department contends and Dettwiler does not dispute, was the deduction for “wagering losses,” under section 165(d) of the Internal Revenue Code…His contention that he should nevertheless be permitted to subtract from his Wisconsin taxable income the offset permitted by section 165(d) of the Internal Revenue Code is not only circular and without merit, but is wholly contrary to the legislature’s decision to eliminate such offsets effective January 1, 2000.

“The Tax Appeals Commission decision is perfectly logical, appropriate, and correct. Accordingly, we affirm.”

Had Mr. Dettwiler been a professional gambler, he wouldn’t have had a problem; his losses would have been deducted on Schedule C, and his net income would have been reported on his federal (and Wisconsin) tax returns. Of course, he would have been liable for the self-employment tax.

So if you’re going to gamble, you may want to avoid Wisconsin. For the record, here are the other states where gambling is much more of a gamble:

• Connecticut
• Illinois
• Indiana
• Massachusetts
• Michigan (first $300 exempt)
• Minnesota (because of its AMT)
• Mississippi
• Ohio
• West Virginia
• Wisconsin

Case: Dettwiler v. Wisconsin Department of Revenue