Changes to the tax withholding rules a boon to gamblers

Veteran handicapper Bob Ike was more nervous than usual. He was whispering. He was huddling with TVG analyst Kurt Hoover. He was standing. He was moving.

It was the last race of the day on the last day of Santa Anita’s fall meeting last year. Ike and Hoover had singled a 12-1 shot named Ward n Jerry on their $480 pick-six ticket. It was the only ticket that was still alive on a mandatory payout day. They were going to win something but they wanted the whole thing.

Ike finally settled down and sat for a moment in his front-row seat in the Santa Anita pressbox. He rolled his chair back near a dusty shelf where a few large black garbage bags stuffed with losing tickets had their permanent residency.

Before long he was standing. Ward n Jerry was fourth at the half-mile pole, moved up to third at the mile and by the top of the stretch was in front by a head.

Ike was yelling, jumping, clicking his fingers, now screaming. Most in the press box were watching Ike and not the race. Ward n Jerry won by an easy 2 ½ lengths.

Hoover came down to the front row and the pair hugged while jumping up and down. They knew that when they cashed, they would walk out with $101,661 of their ticket worth $135,548.

If that happens at the end of this meet, things will be different. And in a very good way.

The Treasury Department and Internal Revenue Service announced that they are changing their rules when it comes to when you have to declare your gambling winnings and what taxes are taken out on the spot.

Here’s the explanation. Taxes are taken out at the track, OTBs or ADW if the payout is 300-1 or greater. You would go to a special IRS window, fill out some forms, confirm your social security number and get your payoff reduced by 25%. So, a $1 winning ticket worth $300 or more would be what’s called a “signer.”

Previously the odds were calculated off the one winning ticket, regardless of how much you bet on the race. Now, and this is huge for gamblers, it’s your total bet on that wager in the race that is used for the calculation. So, Ike and Hoover would not have taxes taken out at that time since the threshold on their bet was $144,000.

“I think it’s a real big deal,” said Ike, who is a partner and vice president in horsebills.com. “By eliminating the withholding, you have more money in circulation. It helps the churn. It helps the tracks, it helps the horsemen. The owners will be running for bigger purses.”

Some independent sources have estimated it could mean as much as $1 billion more bet each year.

“We think it will make a difference, but we haven’t quantified it,” said Alex Waldrop, president and chief operating officer of the National Thoroughbred Racing Assn. “It should translate into significantly reduced withholding. We know bettors will have more money in their pockets. We don’t know how much more they will wager, but we know it will be substantial.”

The path to get to this point was a long one. The NTRA and other industry groups started seeking a legislative solution more than 10 years ago. It got nowhere.

Then a couple years ago, someone came up with a much easier strategy. They sought a simple amendment to the internal revenue code that redefined the amount of the wager from a single winning ticket to the amount the bettor put into the wagering pool. Bingo.

Now, if you think tax dollars are being lost, you’re wrong. On your income tax you are supposed to report all gambling winnings, but that rarely happens. Most bettors report only the gambling winnings that they have to sign for. Then there is a box to deduct your gambling losses, not to exceed your winnings.

And this is where the big black trash bags full of losing tickets come in. They are proof of gambling losses should you ever be audited.

Ike keeps meticulous records of programs, betting logs and spread sheets.

“You have to show what you won or lost in any particular day,” he said.

Through the posting of gambling losses on your income taxes, some bettors get a huge portion of their withholding back at the end of the year. But that money remains out of circulation for all that time when it could be back in the mutuel handle.

All the euphoria over this rule change was muted when President Trump announced parts of his next tax overhaul. In it, several itemized deductions, including gambling losses, would be eliminated.

“We’ll go to the mat over this one,” Waldrop said. “If you are going to include gambling winnings in income, it would be entirely unfair to not allow gambling losses. If they have income they have a right to offset the losses.”

The tax plan will undergo a lot of change if and when it is legislation. So, for right now it’s wait and see.

The only really losers in this withholding change are what are called the “10%-ers.”

These are folks around the track who will sign for your ticket at the IRS window for a fee of 10% and then never report anything.

“They are the only ones who really get hurt,” Ike said. “It’s one of those illegal things that everyone winks at.”

john.cherwa@latimes.com

@jcherwa