On the one hand, reducing the expected "pay" of the royal to an after-tax value makes sense when deciding strategy, (and after-tip if you count that as part of your win/loss, although the decision as to whether to tip or not, and how much, is actually independent of the game, although the decision would not, of course, even come up if you weren't getting a hand pay).
On the other hand, if you're reporting all gambling income and losses, regardless of W2Gs (as the tax law requires, although I realize that gamblers mostly ignore that law unless W2Gs force them to confront it), then the tax consideration is out of the picture, since you'll pay the same tax on (for example) a $4,000 royal as you would on $4,000 worth of flushes.
But then on the other hand (please ignore that I'm out of hands), even if you pay all taxes as required by law, if you report by sessions, you're more likely to have a winning session, and a more substantial one, with the royal than with a bunch of flushes, so that going for the royal is more likely to put you in a "pay tax" situation than going for the flush.
And of course, while the long run can definitely run from one year to the next, taxes are determined only on how you did this year, whether you include W2Gs or not. I'm pretty sure, but not 100%, that even filing as a professional gambler, you can't carry one year's losses forward to offset a future year's winnings -- but again, I may be wrong on that one, and regardless, most of us are not filing as professionals -- those who are, are participating in this discussion for the benefit of the rest of us, and probably fully understand the entire big picture when making some small decision such as the one under consideration.
And if you live in one of the many states with a gross income tax, gambling losses are usually not deductible against winnings - but I am pretty sure that no professional gambler would live in such a state - they pretty much could not do both, live in such a state AND maintain a profitable professional gambler's life.
--BG
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Some other things to consider: I assume you're going to tip if you hit a royal? 1% is a typical tip, so now instead of getting 800 bets, you're getting 792 net tip. You mentioned TAXES, if that royal is $1200 or more, you'll be getting a W2G which likely will impact your taxes. How much does that reduce the win from the royal, I don't know, it depends on your taxes, but the hit can be very significant, it can be more than the royal itself. What about that treasured mailer you were getting? Think that won't be affected by your royal win? What else is affected by hitting a royal? Have you considered all the possibilities? Have you considered the Rumsfeld "unknown unknowns"?
But surely you can see that instead of setting the royal to 800 bets in your strategy generator of choice, a reduced value would be more realistic. Once you reduce the value of the royal, that nickel you thought you were giving up may actually be illusionary. Let's say the net-net royal should be more like 400 bets. Now, what kind of strategy do you get with the royal set at 400 instead of 800?
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Posted by: Barry Glazer <b.glazer@att.net>
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