But in my case the first 9 years you do not get to deduct. But you are right it is the only sane way.
If you found the gold on your property, you’ve always owned it. Thus, you’re taking $10,000 in assets out of the ground and converting it to $10,000 in cash. There’s no income there at all. Not sure the IRS would look at it that way, however.
I won $1,000 in the lottery one year. Oddly, when filing taxes, I claimed a $1,000 gambling loss that same year.
Funny how that worked out.
Is it really the only sane way?
What would be so hard about keeping a running total of income, expenses, and taxes paid? Every year, you add your income on to your previous income, add your (deductible) expenses, add your expenses paid, then figure out the total tax you should have paid over n years and pay the difference between what you have paid.
Sure, there’d be differences, but I’m not convinced that it’s completely insane. Why is an arbitrary cutoff at a given date more sensible?
First time on. Simple question: a friend and I each make $1000 this week at our jobs. He decides that he would like to try daytrading, deposits $500 in an online account, makes a few uninformed trades and cashes out $1000 ahead at the end of the day. I take $500 and go to the casino, as i have decided that i want to play blackjack, and i walk away $1000 ahead at the end of the day. Do we have different tax liability? If so, why? We both took money we earned and gambled with it. Neither of us did “more” to earn it; nor did either of us provided some greater societal benefit through are gambling.
In the United States federal income tax, short term capital gains (gains on assets held one year or less) are taxed at the same rate as ordinary income (that includes gambling winnings). There are some differences in how losses are handled, however.
Uhh, I believe the plethora of “Gus the Groundhog” commercials promoting the various Pennsylvania State Lotteries may serve as a counterexample of that.
The real reason that they tax this is because they can.
Why can they? It’s not as if there are a bunch of potential future lottery winners out there making big campaign donations and lobbying Congress to reduce their potential future tax burden. Follow the money, or lack thereof.
And who is going to vote to support a change in rules? Most ordinary people aspire to win the lottery but also are jealous of the people who do win. It’s not exactly a sympathetic group: “Look at the poor Smiths, they had to pay $25 million in taxes and now are ONLY left with a meager $45 million to get by on!”
You can only offset gambling losses, or expenses, to the extent of winnings if you itemize deductions on Schedule A. You cannot offset, or net, the gambling expenses and place a net winnings figure on 1040 line 19 other income.
Just emigrate to New Zealand. Lottery winnings aren’t counted as income and we have no real capital gains tax at all. However you do pay 15% Goods and Services Tax when you buy the lottery ticket (and pretty much anything else for that matter).