The Hidden Gambling Tax on Retirees brought to you by Prescott Tax and Paralegal.

By Arlene Rheinfelder, Prescott Tax & Paralegal
Enrolled Agent and Certified Legal Document Preparer


You’ve reached your golden years, retired from your job, and now it’s time to relax and enjoy life. Many retirees living in the Prescott area enjoy visiting the casinos and taking their chances with Lady Luck.  Sometimes Lady Luck beams her elusive smile, the slot machine lights start flashing, and the machine makes noises like coins are pouring out.  Prescott Tax and Paralegal brings you the following to think about:

These days, coins don’t actually pour out of the machine, darn it. Casinos must report jackpots to the IRS as gambling winnings on form W2-G, and mail the winner a copy by January 31 of the following year. 

If you have registered with one of the casino clubs, they will often provide you with a Cash In - Cash Out Statement.  Usually these statements show an overall loss for the year, despite the jackpot winnings.  No problem, you can deduct the losses up to the amount of your winnings on your Schedule A as an itemized deduction, but only if you have enough expenses to itemize.

So, where is the hidden tax? Gambling winnings increase income, which then increases the amount of social security which is taxable. Here’s an example for a married couple filing together. Albert & Betty, who are retired, have $28,000 in social security income and an IRA distribution of $20,000. They do not have enough expenses to itemize deductions. Currently, $1000 of their social security benefits are taxable and their combined federal and state tax is $180.

They decide to play the slots, and win a $6000 jackpot.  Now, $4000 of their social security benefits are taxable.  This means their income increased by $10,000: the jackpot plus the increase in taxable social security. Their combined federal and state tax owed increases to $1367. Yikes!  Their overall gambling loss for the year is $3,000 which they cannot deduct because they don’t have enough expenses to itemize deductions.

Compare this to Albert & Betty “gambling” in the stock market.  They buy Snake Oil stock and sell it at a $6000 profit. They also buy Gump Shrimp Co. stock and sell it at a $6000 loss.  The two sales offset each other and there is $0 income to report.  There is no increase to taxable social security, and no increase in the tax owed.

Why doesn’t it work this way with gambling income?  Under the current IRS laws, even though you have a net gambling loss, or $0 total gambling income when you total all your wins and losses, you must report the winnings as income.  You may only deduct losses up to the total amount of winnings, and only if you have enough deductions to itemize.  The net result is a hidden tax increase caused by gambling winnings, particularly for retirees because of the increase in taxable social security.

For those of you who gamble, you can’t win if you don’t play.  But, if you win, you might pay more taxes even if you have a net loss for the year because of this hidden tax.

Have a question? Prescott Tax & Paralegal is ready to help.  Call us at 928-778-3113 or visit us at http://www.PrescottTax.com.

Prescott Tax & Paralegal, the office of Arlene Rheinfelder, AZCLDP is at 141 South McCormick, Suite 206, Prescott, AZ.

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This article is for informational purposes and not intended as legal advice.  If you need legal advice, you should contact an attorney.

Parenting Rights for Unmarried Parents.

By Arlene Rheinfelder, Prescott Tax & Paralegal
Certified Legal Document Preparer and Enrolled Agent

June, a month often chosen for weddings, is just around the corner. For those who choose to skip the formal ceremony, did you know that Arizona does not recognize “common law” marriage? In some states, if a couple has been living together and presenting themselves as a married couple, they are treated as if they were married. In Arizona this is not true.

To be legally married in Arizona, a couple must 1) purchase a marriage license, 2) an authorized person must perform the wedding ceremony, and 3) the signed marriage license must be returned to the court clerk for recording.  If a couple does not complete each step, then they are not legally married under Arizona law. One exception to these requirements are Native American couples who marry according to tribal custom.  Still, establishing the validity of such marriages may require court intervention.

When an unmarried couple with children separates, fathers are often surprised to learn that if there is a dispute over parenting time, or decision making, the father must first establish paternity through the court.  Even though the father may be on the birth certificate, paternity and parenting rights usually must be established by the court.

Now, suppose the unmarried couple separates. To establish which parent will make decisions about the children, and how the children will spend time with each parent, the parents will need to establish paternity though the court and file a parenting plan. If the parents agree, then matters proceed simply. If the parents disagree, the court will usually send the parents to mediation to determine how decisions will be made and establish a plan to share the children.  The court mediators work with the parents to create a plan that will be best for the children.  This agreed upon plan is signed by the parents, and sent to the judge for approval.

Have a question?  Prescott Tax & Paralegal is ready to help.  Call us at 928-778-3313 or visit at http://www.PrescottTax.com.

Prescott Tax & Paralegal, the office of Arlene Rheinfelder, EA AZCLDP is at 141 South McCormick, Suite 206, Prescott, AZ  (928) 778-3113.

This article is for informational purposes and not intended as legal advice.  If you need legal advice, you should contact an attorney.

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What is a Living Trust?

By Arlene Rheinfelder, Prescott Tax & Paralegal
Certified Legal Document Preparer and Enrolled Agent

Think of a Living Trust as a refrigerator.  The “Trustor” is the person who creates the Trust and originally stocks the “refrigerator” by transferring ownership of property to the Trust. The Trust owns the property.

The “Trustee” manages the Trust.  Think of this as “refrigerator privileges” because depending on the terms of the Trust, the Trustee can put items into the fridge, take them out of the fridge, or give them to people named in the Trust.  Often, the Trustor and the Trustee are the same person.

A Trust has one or more “beneficiaries.”  In the refrigerator scenario, the beneficiary may have the right to receive some or all of the stuff (“assets”) in the fridge.  The Trust document states when the beneficiary can receive the assets.  It may be when the Trustor dies, when the beneficiary turns a certain age, or when the beneficiary has specific needs.

Why would a person want a Trust?  The most common reason is to avoid probate and estate taxes.  Assets held by a Trust do not need to pass through probate.  For 2017, you will pay no Federal estate tax on the first $5.49 million of your estate.  Currently, Arizona does not have an estate tax.

Since most of us don’t have $5.49 million in assets, why would we form a Trust? A few other reasons people create a Trust are to provide for a family member who has special needs, to allow a family member, who has debt problems, to become the beneficiary (but not allow creditors to take the assets), and to hold assets for minors. 

A Trust can be quite complex, but that does not mean that it needs to be lengthy.  A top New York estate planning attorney wrote a complex Trust that dealt with assets of greater than $5 million dollars, but the document was only 24 pages long. Longer is not necessarily better, and an excessively lengthy or poorly written document can make Trust administration an expensive nightmare.

Does a Trust take the place of a Will? No.  It can perform many of the same functions, but a Trust is usually combined with a “pour-over” Will.  Going back to the refrigerator example, if you bought groceries on the way home and died before you put them in the fridge, the pour over Will takes the groceries (property) and puts them in the fridge (Trust).  This makes sure that anything that may have been forgotten, or purchased after the Trust was formed, is transferred to the Trust and distributed according to the directions in the Trust.

Have a question? Prescott Tax & Paralegal is ready to help.  Call us at 928-778-3313 or visit us online at http://www.PrescottTax.com.

Prescott Tax & Paralegal, the office of Arlene Rheinfelder, AZCLDP is at 141 South McCormick, Suite 206, Prescott, AZ.

More Information:
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This article is for informational purposes and not intended as legal advice.  If you need legal advice, you should contact an attorney.

The Role of the Document Preparer

The Role of the Document Preparer

By Arlene Rheinfelder, Prescott Tax & Paralegal

Certified Legal Document Preparer and Enrolled Agent

Recently I had a conversation with a local attorney who was surprised at the variety of work a certified legal document preparer can complete without attorney supervision.  Most people refer to document preparers as paralegals.  The certification for a document preparer is under the direction of the Arizona Supreme Court’s Board of Document Preparers. To become certified, a person must pass an examination and meet experience and/or education requirements.  Document preparers also must complete 10 hours of continuing legal education annually.

Certified legal document preparers or CLDPs are prohibited from providing legal advice. That is the role of an attorney. As one judge explained to me, legal advice is similar to a doctor’s advice. The doctor can tell you what you should do to treat a specific illness.  Likewise an attorney can recommend what a person should do in a specific legal situation.  If you want to be told what to do, you should contact an attorney, not a document preparer.

If you already know what you want to do and simply need help preparing the necessary paperwork, a CLDP may be a good choice.  A CLDP can also explain procedure. For example, a person decides to obtain a divorce, but does not know how to prepare the paperwork, how to file it, or how to serve it.  A CLDP can prepare the paperwork, file the paperwork with the court, have the documents served, and explain generally the process of obtaining a divorce.

Likewise a CLDP can prepare evictions, civil suits, probate, guardianships, limited liability company paperwork, real estate deeds, estate planning documents, and any legal document in any legal matter in which the CLDP is competent.

A CLDP can also provide general factual information pertaining to legal rights, procedures, or options available to a person.  Many times people simply need information and education on procedures, including courtroom procedures, and court rules.

What types of things can’t a CLDP do?  CLDPs cannot provide legal advice, opinions or recommendations. They cannot go to court and speak on your behalf, or assist a client in the courtroom.  If you need these types of services, you are better served by an attorney.

Have a question? Prescott Tax & Paralegal is ready to help.  Call us at 928-778-3313 or visit us online at http://www.PrescottTax.com. 

This article is for informational purposes and not intended as legal advice.  If you need legal advice, you should contact an attorney. 

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