Who Pays Taxes on Poker Earnings? (POLL) [Archive]

Python49

08-22-2005, 09:24 PM

lol what if someone makes like 100k over the course of the year in gross earnings but loses 99k and has 1k profit. I've been reading around and it seems as though that person has to pay higher taxes (higher tax bracket) because of that 100k even though they only profited 1k for the year since theres only a certain % they can deduct as losses... if they even deduct. What happens to this type of person? Do they end up paying a large % tax on that 1k they won? What if a person cant even deduct or itemize or whatever it is... do they pay taxes on 100k even though they only made 1k? lmao, this whole thing is a joke. I've talked to two accountants and both gave me apparently horrible advice. Both said "Off the record, my advice is to not file, you're not making enough for them to audit you". Even though i've had transactions that could have been over the 10k threshold where banks report.. but I broke them into smaller cash outs. Now wtf do i do... what happens if i just report my profits only? When I get audited do i still get the same penalties for someoen who didn't report anything at all? Might be easier to just move to europe :/ Oh but wait, i hear USA citizens are still accountable for any income even when in another country, great. This bites. I've got money that I havent been keeping records for and don't know how to report.... I can't be the only person in this situation. It's stressing me out.

AL5AcE

08-22-2005, 09:43 PM

Yea basically I've got the same situation. I've accumulated money that I haven't been keeping track of and I have no idea how to report it. I am with the group of "ignorant" 20 year olds and have just been recently looking this stuff up.

Adding up each session then itemizing the losses sounds like such a bad way to do this. I've also read that this can severely inflate my income and move me up several income brackets.

I will just have to hear what more people have to say. I'd like to report my winnings because I'm not a fan of severe penalties or jail time. I am considering making substantial side money playing poker in addition to my job income and by then I will more or less have to report my winnings.

Luv2DriveTT

08-22-2005, 09:59 PM

I pay taxes on everything online (because it is traceable if it ever gets that far), but nothing on my live play.

TT /images/graemlins/club.gif

BottlesOf

08-22-2005, 10:05 PM

Hope you get audited /images/graemlins/laugh.gif

(Assuming you are a US citizen)

BottlesOf

08-22-2005, 10:06 PM

bad form.

AL5AcE

08-22-2005, 10:13 PM

What about the one guy who got in trouble for not reporting winnings? I'd like to hear your story if possible? I don't know if I'm being nosy or looking for useful information, but i'm just curious.

By the way, wildone's post sounds almost like sarcasm, but i'm sure there are plenty of people with that thinking.

Python49

08-22-2005, 10:39 PM

bump

Jimbo

08-22-2005, 10:46 PM

[ QUOTE ]
lol what if someone makes like 100k over the course of the year in gross earnings but loses 99k and has 1k profit. I've been reading around and it seems as though that person has to pay higher taxes (higher tax bracket) because of that 100k even though they only profited 1k for the year since theres only a certain % they can deduct as losses... if they even deduct. What happens to this type of person? Do they end up paying a large % tax on that 1k they won? What if a person cant even deduct or itemize or whatever it is... do they pay taxes on 100k even though they only made 1k? lmao, this whole thing is a joke. I've talked to two accountants and both gave me apparently horrible advice. Both said "Off the record, my advice is to not file, you're not making enough for them to audit you". Even though i've had transactions that could have been over the 10k threshold where banks report.. but I broke them into smaller cash outs. Now wtf do i do... what happens if i just report my profits only? When I get audited do i still get the same penalties for someoen who didn't report anything at all? Might be easier to just move to europe :/ Oh but wait, i hear USA citizens are still accountable for any income even when in another country, great. This bites. I've got money that I havent been keeping records for and don't know how to report.... I can't be the only person in this situation. It's stressing me out.

[/ QUOTE ]

Here is a good link that helps define a session to satisfy the IRS.

Russ Fox Helps Define a Poker Session (http://www.gambling-law-us.com/Articles-Notes/Gambling-Session.htm)

AcmeSalesRep

08-22-2005, 10:58 PM

The tax code is inherently "unfair" in the way it treats gambling income. But the IRS will not accept this as justification for not filing or for filing incorrectly.

Acme

Thythe

08-22-2005, 11:49 PM

[ QUOTE ]
bad form.

[/ QUOTE ]

Is it really that bad of form? Yes, I pay full taxes on my poker winnings just to preface, but it is unjust. 10 people each earn $100 at their job and pay 30% in taxes. Then they each take the $70 they have left to the poker tables. 5 people go bust and the other 5 make $50 each (with $100 total going to the house). That $250 is taxed another $75 and the house gets taxed $30. Then they pay their dealers who play the same games and get taxed again. The situation is unacceptable.

Who gives the state its power to tax? The people of course. Who can take it back? In fact, it is the right of the people to alter or abolish it.

Some people are just taking this opportunity to tell the government what they think.

Mempho

08-23-2005, 12:38 AM

[ QUOTE ]
Yea basically I've got the same situation. I've accumulated money that I haven't been keeping track of and I have no idea how to report it. I am with the group of "ignorant" 20 year olds and have just been recently looking this stuff up.

Adding up each session then itemizing the losses sounds like such a bad way to do this. I've also read that this can severely inflate my income and move me up several income brackets.

I will just have to hear what more people have to say. I'd like to report my winnings because I'm not a fan of severe penalties or jail time. I am considering making substantial side money playing poker in addition to my job income and by then I will more or less have to report my winnings.

[/ QUOTE ]

OK...so I work for a large accounting firm but I don't do taxes (I'm an auditor). I do, however, know this by heart.

You do get screwed by this. For instance, last year, my Adjusted Gross Income (not taxable income) was inflated by about $40,000. AGI is important because it is the amount that can limit certain itemized (or "below the line" deductions). Common itemized deductions include charitable contributions, medical expenses, sales tax deduction, and the home mortgage interest deduction.

Now, the worst part of all this is not the inflated AGI. It is that you have to lump all of your winning sessions into your total income and take out your losing sessions as an itemized deduction. "Playing" with these numbers is not acceptable and, if it was done extensively, it would probably be questioned.

So, my take from work was about $50K and my total winning sessions totaled about $40K. So, my AGI was $90K. Now, my losing sessions totaled about $30K (so I was showing about a $10K poker/wagering profit).

So, it goes like this:

Wages: 50K
Other Income: 40K

Adjusted Gross Income: 90K

Less: Itemized Deductions

Charitable Contributions: $1500
Sales Tax Deduction: $1000
Gambling Losses: $30K

Taxable Income: $57,500

Notice that I lost my standard deduction. If I had no other itemized deductions, I would, in effect, pay a double tax on the first $4800 (I don't know the exact figure; the amount of whatever your standard deduction is [and this varies according to single, married, dependants, etc.]

Now, I was able to negate some of this with charitable contributions and the sales tax deduction. Every poker player benefits, however, from the sales tax deduction. Your sales tax deduction can be your choice of either your actual sales tax paid or an arbitrary amount that is based on your AGI. Since your AGI is severely inflated, your sales tax deduction will be inflated. This, of course, was not thought about when the sales tax deduction was made law, but we should be glad to have it.

I personally recommend saving all of your receipts to see if your actual sales tax is higher than the amount you get on the table. You can view the table at the IRS web site. It varies by state, so there is no good way to give you that information.

Now, if you have no other job and you can argue that you spend substantially all of your time playing poker, then you can file as a professional regardless of skill level. This standard is the Groetzinger case (you can google this). Groetzinger was a losing horse bettor that argued that he was a professional and he won the case (he still could not deduct more in losses than in winnings, however.

For a professional gambler, the same taxes would look like this:

Business Income $40K
Business Losses $30K
Business Income $10K

One very big problem is this: You would now have to pay the Self-Employment tax (i.e. Social Security, Medicare) which is an additional 12.5% on top of your taxable income. In other words, it may not even be a profitable deal to file professionally in your situation.

Lastly, the standard for criminal tax evasion is 20%. If you underreport your income by 20% or more, the IRS will have you by the gonads and will probably make you a slave.

I encourage you to report your income if you ever plan on making any serious money playing poker. If you encounter an audit, they can go back seven years and there will likely be a lot of questions if your lifestyle ever exceeded your income.

That said, if you played live and locked all of your cash in a safe deposit box, it would be hard to get caught. However, you become very vulnerable when you decide to start spending it.

The line of questioning might go something like this:

Q: So, how did you afford $80,000 car.
A: I won the money playing poker. As you can see, I reported $120,000 in winnings this year.

Q: Ahh, I see. You say you play 30/60? How did you get the money for that? We have no poker earnings for you last year? Is this your first year? Do you have a backer?
A: Uhhhhhh

Q: Sir, could we see....???
A: That's priveleged information.

Q: Not in IRS terms. I think the judge would like to know how you are special and Willie Nelson is not.

For those of you that don't think you can go to prison, you are wrong. I know someone that went to prison for evasion (I think it was 2 years with 6 months served, plus he still had to pay a huge bill).

r3vbr

08-23-2005, 01:18 AM

Move to a country that doesn't charge income tax.

Tip: Hong Kong

08-23-2005, 01:56 AM

great post mempho, very informative, I have to bump it. So if you were a loosing player but you made a good living at a real job could you deduct your loses from taxable income and therefore pay less taxes? It would be a great way to pay less taxes for cronicaly losing players. You could even pay less taxes on your work related income while being a winning player, since you could easily disguise you winning if you play the cards right.

Python49

08-23-2005, 02:23 AM

Mempho, excellent post.

Can you further explain this however:

[ QUOTE ]
Your sales tax deduction can be your choice of either your actual sales tax paid or an arbitrary amount that is based on your AGI. Since your AGI is severely inflated, your sales tax deduction will be inflated. This, of course, was not thought about when the sales tax deduction was made law, but we should be glad to have it.

[/ QUOTE ]
How does an inflated AGI lead to an inflated sales tax. Well first, I guess i'd need to have a full understanding of the relationship of a sales tax to poker. How does sales tax relate to poker... what are you referring to when you say "on the table".. is the sales tax the rake? If not, is there anyway you can deduct based on rake?

Jake (The Snake)

08-23-2005, 02:51 AM

Do you have any recommendations on how to define a session when reporting? How did you do it?

08-23-2005, 03:01 AM

My book keeper has me filing under self employed business owner. I get to write off 1/3 of my mortgage everything I eat, travel, airline, hotels, gas and I get to save .30 for every mile I put on my car and even $4,000 a year I put in my IRA. It all comes down to about 1/3 of what I make online that I save on deductions. Just find a guy who has never had an audit.

Python49

08-23-2005, 03:18 AM

[ QUOTE ]
Just find a guy who has never had an audit

[/ QUOTE ]
find them for what?

tongni

08-23-2005, 03:23 AM

[ QUOTE ]
I've got money that I havent been keeping records for and don't know how to report.... I can't be the only person in this situation. It's stressing me out.

[/ QUOTE ]

This is exactly my problem. My greatest fear is that I file, my reporting causes me to get audited, and then somehow I end up getting screwed over whereas if I hadn't filed at all I wouldn't have gotten in any trouble.

Python49

08-23-2005, 05:28 AM

[ QUOTE ]
--------------------------------------------------------------------------------

Your sales tax deduction can be your choice of either your actual sales tax paid or an arbitrary amount that is based on your AGI. Since your AGI is severely inflated, your sales tax deduction will be inflated. This, of course, was not thought about when the sales tax deduction was made law, but we should be glad to have it.

--------------------------------------------------------------------------------

How does an inflated AGI lead to an inflated sales tax. Well first, I guess i'd need to have a full understanding of the relationship of a sales tax to poker. How does sales tax relate to poker... what are you referring to when you say "on the table".. is the sales tax the rake? If not, is there anyway you can deduct based on rake?

[/ QUOTE ]

jrz1972

08-23-2005, 08:58 AM

[ QUOTE ]
also doesnt filing taxes on gambling just draw a red flag in their system anyway and give them more of a reason to audit you?

[/ QUOTE ]

1. Probably not. People who report gambling winnings are demonstrating honesty by reporting them in the first place.

2. So what if I get audited? It will take me all of 5 minutes to produce whatever records of my winnings the IRS wants. And I have an accountant. Go ahead, audit me. WTF do I care.

BottlesOf

08-23-2005, 09:40 AM

I agree with much of what you wrote, but the "double taxation" you mention occurs in other areas and it is deemed legitimate by our government. Until there's a change, the law is the law, imo.

primetime32

08-23-2005, 10:16 AM

[ QUOTE ]
[ QUOTE ]
The line of questioning might go something like this:

Q: So, how did you afford $80,000 car.
A: I won the money playing poker. As you can see, I reported $120,000 in winnings this year.

Q: Ahh, I see. You say you play 30/60? How did you get the money for that? We have no poker earnings for you last year? Is this your first year? Do you have a backer?
A: Uhhhhhh

Q: Sir, could we see....???
A: That's priveleged information.

Q: Not in IRS terms. I think the judge would like to know how you are special and Willie Nelson is not.

For those of you that don't think you can go to prison, you are wrong. I know someone that went to prison for evasion (I think it was 2 years with 6 months served, plus he still had to pay a huge bill).

[/ QUOTE ]

Anyone dumb enough to spend 80,000 on a car and NOT report the gambling winnings that funded the purchase deserves to get audited and go to jail. not for tax evasion, but for stupidity.

primetime32

08-23-2005, 10:20 AM

[ QUOTE ]
[ QUOTE ]
also doesnt filing taxes on gambling just draw a red flag in their system anyway and give them more of a reason to audit you?

[/ QUOTE ]

1. Probably not. People who report gambling winnings are demonstrating honesty by reporting them in the first place.

[/ QUOTE ]

I presume that you still believe in santa claus.

I can picture an IRS agent going through a persons file and deciding that since this person is reporting his illegal poker earnings that he must be an honest guy.

I think everyone should pay their taxes, i certainly pay my fair share. But don't be ignorant and think that there arent inherent risks when you report gambling winnings.

Mempho

08-23-2005, 10:25 AM

[ QUOTE ]
great post mempho, very informative, I have to bump it. So if you were a loosing player but you made a good living at a real job could you deduct your loses from taxable income and therefore pay less taxes? It would be a great way to pay less taxes for cronicaly losing players. You could even pay less taxes on your work related income while being a winning player, since you could easily disguise you winning if you play the cards right.

[/ QUOTE ]

No, a losing player can only deduct to the extent of his winnings. Now, this is very important since it happens all the time. Let's take the case of a player who quits his job, goes pro, and tries to 8-table the 15/30 on Party. He finds out correctly that the game is tough, real tough. He plays all year and has lost 10% of his $40,000 bankroll, so he has a loss of $4,000 for the year. His $4,000 loss is gone forever, whether he files as a professional or a recreational player. He can't use it to nullify income next year if he makes that $4,000 back or he can't use it as a carryback to get a refund on taxes paid in the prior year.

That is what is the worst part of taxes and gambling. It was much worse when everyone had to play live. Many great players have been unable to overcome bad variance playing live (ala Doyle Brunson last year). This means that they lost the tax benefit of that loss. Businesses, of course, are not treated this way with one exception: the casino business. This has happened to a casino when they accepted heavy action from a whale or group of whales. Certain people in the world are capable of betting enough to wipe out all of the winnings for a given year. This is one reason why there are betting limits.

Mempho

08-23-2005, 10:28 AM

The sales tax deduction gets higher as your AGI goes up. Presumably, this is because most people spend more as they make more. Of course, this is good for us, because we didn't really make that much money. It is simply an overlooked situation or one that they didn't care to try to rectify.

Mempho

08-23-2005, 10:38 AM

The IRS defines a session as a trip to a casino. If you leave the casino, change casinos, etc, you have the end of a session. You can't, however, play at a casino, stay in the casino's hotel, and come back to the floor the next day and start a new session. When you leave the casino floor, you are "exiting" a session.

Now, I can already hear people saying something with regards to online poker. You might ask, "What if I never log out?" No, you can't do this. The IRS will laugh in your face and hand you the bill if you try to make this point. The legal precept regarding taxation is "substance over form." This violates that concept.

I personally define a session as my results at a given casino on a given day. I generally multitable by using Eurobet and another room, for example. I count my results for the day on Eurobet as one session and my results at the other site as a session. So, for tax purposes, I generally have two sessions every time I play online.

This is not perfect, but it is accurate enough to keep you out of hot water. Also, it captures the "substance" of what you are doing very well. Yes, it does happen that I play for a while in the afternoon, leave, and come back and play that evening. The afternoon and evening sessions are technically separate. However, I don't think that doing it my way will cause much, if any, problem if I got audited.

TGoldman

08-23-2005, 10:39 AM

[ QUOTE ]
How does an inflated AGI lead to an inflated sales tax. Well first, I guess i'd need to have a full understanding of the relationship of a sales tax to poker. How does sales tax relate to poker... what are you referring to when you say "on the table".. is the sales tax the rake? If not, is there anyway you can deduct based on rake?

[/ QUOTE ]
He's referring to IRS Pub 600 (http://www.irs.gov/pub/irs-pdf/p600.pdf) that allows you to deduct your state sales tax against your federal income tax liability. At the bottom of the publication, they include a list of tables for your AGI level to estimate your deduction.

Mempho

08-23-2005, 10:41 AM

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
The line of questioning might go something like this:

Q: So, how did you afford $80,000 car.
A: I won the money playing poker. As you can see, I reported $120,000 in winnings this year.

Q: Ahh, I see. You say you play 30/60? How did you get the money for that? We have no poker earnings for you last year? Is this your first year? Do you have a backer?
A: Uhhhhhh

Q: Sir, could we see....???
A: That's priveleged information.

Q: Not in IRS terms. I think the judge would like to know how you are special and Willie Nelson is not.

For those of you that don't think you can go to prison, you are wrong. I know someone that went to prison for evasion (I think it was 2 years with 6 months served, plus he still had to pay a huge bill).

[/ QUOTE ]

Anyone dumb enough to spend 80,000 on a car and NOT report the gambling winnings that funded the purchase deserves to get audited and go to jail. not for tax evasion, but for stupidity.

[/ QUOTE ]

You would be surprised. I know a pro who bought a large house on untaxed poker winnings. Needless to say, it was way more than $80,000.

MrMoo

08-23-2005, 11:15 AM

I go by a session = one day. I wrote a simple script which will run through a session export from Poker Tracker, total wins/losses for each day and print them out.

I posted the script in the software forum about a week ago if you're interested.

Mempho

08-23-2005, 11:17 AM

[ QUOTE ]
[ QUOTE ]
--------------------------------------------------------------------------------

Your sales tax deduction can be your choice of either your actual sales tax paid or an arbitrary amount that is based on your AGI. Since your AGI is severely inflated, your sales tax deduction will be inflated. This, of course, was not thought about when the sales tax deduction was made law, but we should be glad to have it.

--------------------------------------------------------------------------------

How does an inflated AGI lead to an inflated sales tax. Well first, I guess i'd need to have a full understanding of the relationship of a sales tax to poker. How does sales tax relate to poker... what are you referring to when you say "on the table".. is the sales tax the rake? If not, is there anyway you can deduct based on rake?

[/ QUOTE ]

[/ QUOTE ]

The sales tax deduction only relates to poker in this way: First, since you have to deduct out your losses as an itemized deduction, you will lose your standard deduction and be itemizing. The sales tax deduction is an itemized deduction that every itemizer should take. Second, the amount you can take for your sales tax deduction is higher than it should be because you have a higher AGI than you should. This makes the sales tax deduction very important. If you have no other itemized deductions, you want as high an AGI as you can possibly get in order to maximize your sales tax deduction. This is the one situation where not being able to lump can actually help you. I, in fact, saved something like $200 on my federal taxes this year because of this.

Mempho

08-23-2005, 11:20 AM

[ QUOTE ]
I go by a session = one day. I wrote a simple script which will run through a session export from Poker Tracker, total wins/losses for each day and print them out.

I posted the script in the software forum about a week ago if you're interested.

[/ QUOTE ]

I really like this. Here it is...

Script (http://forumserver.twoplustwo.com/showthreaded.php?Cat=&Board=software&Number=315972 5&Forum=f31&Words=&Searchpage=0&Limit=25&Main=3159 725&Search=true&where=bodysub&Name=18291&daterange =1&newerval=2&newertype=w&olderval=&oldertype=&bod yprev=#Post3159725)

MrMoo

08-23-2005, 11:25 AM

I will be paying taxes on most of my winnings.

I rarely play B&M and when I have, I didn't keep track of the necessary info that I needed to report in my taxes. My winnings have been unsubstantial so I won't be reporting them.

I also will not be reporting my ring game play. After finding out I'm a losing player at 5/10 6-max I'm slightly above even for the year. I won't be reporting this because it will increase my gross income a little over $6,000. I justify not reporting ring game play because my net income for all of ring play is only a couple hundred dollars. While it may not be 100% legal, I don't feel my tax bracket should be increased by gambling that I didn't really "win".

I will be reporting all bonuses, rakeback, and tournament play. The amounts are significant enough that even if I wanted to hide it, I would be leaving a trail that would be found in the event I was audited.

I have gone up against the IRS before and lost. I don't look forward to doing it again. Essentially I was naive and used a "crooked" tax agency who wrote off a bunch of stuff that I shouldn't have. "Oh you work in computers, we'll just deduct your home computer and part of your room as work space". I didn't get audited. I got a notice saying that I owed x dollars. I could pay or they would audit me. I paid. They came after me slightly less than 3 years after I filed. Right before the deadline.

Mempho

08-23-2005, 11:33 AM

[ QUOTE ]

I have gone up against the IRS before and lost. I don't look forward to doing it again. Essentially I was naive and used a "crooked" tax agency who wrote off a bunch of stuff that I shouldn't have. "Oh you work in computers, we'll just deduct your home computer and part of your room as work space". I didn't get audited. I got a notice saying that I owed x dollars. I could pay or they would audit me. I paid. They came after me slightly less than 3 years after I filed. Right before the deadline.

[/ QUOTE ]

That will be the story of at least 5 people in this discussion within the next 5 years. You don't think the IRS knows about poker yet? They do and many believe (like the Cardplayer columinists) that they intend to make it a priority.

Mempho

08-23-2005, 11:41 AM

They start on page 60 of this PDF document. 2005 is not on the site yet, but this should help you get a good idea.

1040 Filing Instructions (http://www.irs.gov/pub/irs-pdf/i1040.pdf)

broiler

08-23-2005, 11:44 AM

The problem with the sales tax deduction is that it is taken in place of the state income taxes paid deduction. I am from NY and very few people benefit from the sales tax deduction. If you live in a high income tax state, then the sales tax deduction is worthless for the majority of tax payers. I would estimate that less than 10% of the returns that I prepared could take advantage of the sales tax deduction. My guess is that the percentage is actually less than 5%.

You are right when you say that the boost in AGI causes the table method for the sales tax deduction to increase. I will also agree that for the low/no income tax states that the addition of the sales tax deduction was a great thing.

ISF

08-23-2005, 11:46 AM

[ QUOTE ]
Until there's a change, the law is the law, imo.

[/ QUOTE ]
All of these arguments seem pretty irrelivent. It just comes down to is the Probability of getting cought times the punishment worth more then the money you would save from not paying. For internet as it may be traceable this may be the case for many people. For occational live play one would need an increadible risk aversion level for this to be the case.
If you get utility from paying your taxes fine factor that in, but many dont.

Mempho

08-23-2005, 01:00 PM

[ QUOTE ]
The problem with the sales tax deduction is that it is taken in place of the state income taxes paid deduction. I am from NY and very few people benefit from the sales tax deduction. If you live in a high income tax state, then the sales tax deduction is worthless for the majority of tax payers. I would estimate that less than 10% of the returns that I prepared could take advantage of the sales tax deduction. My guess is that the percentage is actually less than 5%.

You are right when you say that the boost in AGI causes the table method for the sales tax deduction to increase. I will also agree that for the low/no income tax states that the addition of the sales tax deduction was a great thing.

[/ QUOTE ]

You are correct. I live in Tennessee and there is no income tax (thus the benefit for me).

Mempho

08-23-2005, 01:03 PM

[ QUOTE ]
[ QUOTE ]
Until there's a change, the law is the law, imo.

[/ QUOTE ]
All of these arguments seem pretty irrelivent. It just comes down to is the Probability of getting cought times the punishment worth more then the money you would save from not paying. For internet as it may be traceable this may be the case for many people. For occational live play one would need an increadible risk aversion level for this to be the case.
If you get utility from paying your taxes fine factor that in, but many dont.

[/ QUOTE ]

What about honesty? What if you knew that there was a 99.99999% chance that you wouldn't get caught and you just pay for moral/ethical reasons?

That said, I still far exceed the speed limit on our nation's highways.

Piers

08-23-2005, 01:06 PM

Your poll might be meningfull if you made nationality distinctions. I suspect most of the people who don't pay tax are doing so because they don't have to.

Luv2DriveTT

08-23-2005, 01:37 PM

[ QUOTE ]
bad form.

[/ QUOTE ]

not really, this was the advice I was given by my CPA. Essentially if I pay taxes on everything that is reportable. Live cash & carry income for me is less than 10K, hence I don't report it. I see your point and technically your correct, but I'm just living by the IRS guidelines for gambling income. They know this is a big gaping hole in the tax code, if I was depositing my live play winnings then this would of course be a different situation.

TT /images/graemlins/club.gif

JS0085

08-23-2005, 02:53 PM

I have been playing online recreationally for a while now, and reported my meager winnings (several thousands) the past 2 years using the obviously incorrect method of deducting my deposits from my withdrawals. This year has been a much better year and I intend to meet my tax obligations in full. However, I am not much of a record keeper. Aside from keeping records in the future, what can I do about reporting my winnings from earlier this year? Should I estimate winning sessions and losings sessions.

This is a very helpful thread, and I appreciate any comments.

Later

BottlesOf

08-23-2005, 03:17 PM

[ QUOTE ]
I see your point and technically your correct, but I'm just living by the IRS guidelines for gambling income.

[/ QUOTE ]

No you don't. Either you are not living by the IRS guidelines (and I maintain my original reply if this is the case) or I don't understand the guidelines.

Can you explain how your under 10K cash and carry whatever is not taxable income?

BottlesOf

08-23-2005, 03:18 PM

[ QUOTE ]
It just comes down to is the Probability of getting cought times the punishment worth more then the money you would save from not paying.

[/ QUOTE ]

No it doesn't. IMO, this is not a simple EV calculation.

MrMoo

08-23-2005, 03:23 PM

[ QUOTE ]
What about honesty? What if you knew that there was a 99.99999% chance that you wouldn't get caught and you just pay for moral/ethical reasons?

That said, I still far exceed the speed limit on our nation's highways.

[/ QUOTE ]

It's hard for me to be honest when I feel the IRS isn't being "fair". I understand online gambling is fairly new. However, I personally feel it would be the IRS's best interests to make it as easy as possibly to pay taxes on my gambling income. Instead, I'm forced to decide what I "think" is a session, made to vastly increase my gross income even though I my net income hasn't increased, and sent to jail or heavily fined if I get it wrong.

ISF

08-23-2005, 03:52 PM

[ QUOTE ]

No it doesn't. IMO, this is not a simple EV calculation

[/ QUOTE ]
I am ment to imply its a Utility Maixmization(i.e factor in non monetary penalties) , and every decision should be. I really dont understand what there is to disagree with. In my last sentence I allow for the possibility that you get utility from following the tax law correctly/not lying on your tax return many/most dont.

Mempho

08-23-2005, 04:29 PM

[ QUOTE ]
I have been playing online recreationally for a while now, and reported my meager winnings (several thousands) the past 2 years using the obviously incorrect method of deducting my deposits from my withdrawals. This year has been a much better year and I intend to meet my tax obligations in full. However, I am not much of a record keeper. Aside from keeping records in the future, what can I do about reporting my winnings from earlier this year? Should I estimate winning sessions and losings sessions.

This is a very helpful thread, and I appreciate any comments.

Later

[/ QUOTE ]

I wouldn't lose any sleep over this, especially if the amount was small. Now that you're making more, I would make an attempt to rectify the situation and start reporting correctly. If you have pokertracker, you can do that with the script mentioned and linked to above. If you don't (and you have no records), I would invest in StatKing and I would make an attempt to figure it our for this year. If there is no way that you can do that, I would simply report your net. Get a good tax person this year and get that person to help you make the best attempt you can (Hint: go to a good local CPA).

Python49

08-23-2005, 04:31 PM

lol I can see the situation now. The gov't will see that I filed taxes this year and see some huge AGI that never existed before and notice that I don't have a job and am 19 years old. They will then see this huge amount for a deduction and audit my ass so quick I won't even have time to load up pokertracker. But anyway... that chart someone linked me to about being able to deduct state expenses or whatever... even if you are making 90k AGI for the year the deduction for my state was only around 656... unless i'm supposed to haev a different # of exemptions than 1.. i don't even know what exemptions are.

This seems like such a big headache... i feel as though if i start reporting now my % chance to get audited goes up, and if that were to happen at this point i've got money that I havent been keeping records for... wtf do i do about that? Just start filing and get audited? Alot of the money I made when just starting out in poker a long time ago was from a few nice finishes in step 5 mini steps.. a win on an MTT.. and a buncha SNGs... and poker tracker does'nt even track this accurately unless you're importing the tournament HHs which I wasn't doing at the time.

If i were to just report my profits up to this point and then start keeping records from here on out I wonder if that would be fine...

AL5AcE

08-23-2005, 04:58 PM

[ QUOTE ]
lol I can see the situation now. The gov't will see that I filed taxes this year and see some huge AGI that never existed before and notice that I don't have a job and am 19 years old. They will then see this huge amount for a deduction and audit my ass so quick I won't even have time to load up pokertracker. But anyway... that chart someone linked me to about being able to deduct state expenses or whatever... even if you are making 90k AGI for the year the deduction for my state was only around 656... unless i'm supposed to haev a different # of exemptions than 1.. i don't even know what exemptions are.

This seems like such a big headache... i feel as though if i start reporting now my % chance to get audited goes up, and if that were to happen at this point i've got money that I havent been keeping records for... wtf do i do about that? Just start filing and get audited? Alot of the money I made when just starting out in poker a long time ago was from a few nice finishes in step 5 mini steps.. a win on an MTT.. and a buncha SNGs... and poker tracker does'nt even track this accurately unless you're importing the tournament HHs which I wasn't doing at the time.

If i were to just report my profits up to this point and then start keeping records from here on out I wonder if that would be fine...

[/ QUOTE ]

Yea, I have the same questions as Python49.

theblitz

08-23-2005, 05:04 PM

Me too.
I haven't made enough to have to pay yet.

When I do - then I will probably pay since tax on gambling is only 25% in Israel.
Not worth avoiding it for 25%

jetsg4

08-23-2005, 05:08 PM

acquire a business license, and report income quarterly... or keep your money in cash and a part time job so you have reported income and taxes paid

jrz1972

08-23-2005, 05:45 PM

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
also doesnt filing taxes on gambling just draw a red flag in their system anyway and give them more of a reason to audit you?

[/ QUOTE ]

1. Probably not. People who report gambling winnings are demonstrating honesty by reporting them in the first place.

[/ QUOTE ]

I presume that you still believe in santa claus.

I can picture an IRS agent going through a persons file and deciding that since this person is reporting his illegal poker earnings that he must be an honest guy.

I think everyone should pay their taxes, i certainly pay my fair share. But don't be ignorant and think that there arent inherent risks when you report gambling winnings.

[/ QUOTE ]

First of all, you don't know any more about the IRS rules that trigger audits than I do, so drop the tone.

Second, what "risks" are you talking about? Let's say, hypothetically, that I did in fact get audited. Can you explain why I should care? I mentioned before that I am not a deadbeat. I follow the letter of the tax code (or, more accurately, the CPA who does my taxes follows the letter of the tax code). If the IRS audited me for some weird reason, I would have absolutely nothing to worry about.

You're basically arguing that if you follow the law you increase the chances of being punished somehow, which obviously makes no sense.

jrz1972

08-23-2005, 05:47 PM

I should add here that I take all of this kind of personally. I enjoy playing poker, and I vote Libertarian, so I am no great friend of our tax code. But when poker players deliberately commit tax evasion and resort to sophomoric quasi-libertarian arguments to support their position, they make the rest of us look like deadbeats and degenerates. I don't appreciate that at all, and it certainly doesn't help the image of our game.

Mempho

08-23-2005, 05:47 PM

[ QUOTE ]
[ QUOTE ]
lol I can see the situation now. The gov't will see that I filed taxes this year and see some huge AGI that never existed before and notice that I don't have a job and am 19 years old. They will then see this huge amount for a deduction and audit my ass so quick I won't even have time to load up pokertracker. But anyway... that chart someone linked me to about being able to deduct state expenses or whatever... even if you are making 90k AGI for the year the deduction for my state was only around 656... unless i'm supposed to haev a different # of exemptions than 1.. i don't even know what exemptions are.

This seems like such a big headache... i feel as though if i start reporting now my % chance to get audited goes up, and if that were to happen at this point i've got money that I havent been keeping records for... wtf do i do about that? Just start filing and get audited? Alot of the money I made when just starting out in poker a long time ago was from a few nice finishes in step 5 mini steps.. a win on an MTT.. and a buncha SNGs... and poker tracker does'nt even track this accurately unless you're importing the tournament HHs which I wasn't doing at the time.

If i were to just report my profits up to this point and then start keeping records from here on out I wonder if that would be fine...

[/ QUOTE ]

Yea, I have the same questions as Python49.

[/ QUOTE ]

Yes, your chance of being audited will probably go up. Your chance of owing substantial interest and penalties or going to prison as a tax evader /images/graemlins/blush.gif will go down (because you will be telling the truth). There is no way around that. It should come as no surprise that those who are more sucessful in society are more likely to get audited. Do you think they're likely to audit a $6 food service worker? I think they'll pass.

As for records, your record keeping may be easier than you thought if you played online at party or an affiliate. Try logging into "My Account" and going into "View your activity" under the "Other Options" section. You can change the date ranges on the bottom and go back for several months.

Python49

08-23-2005, 05:53 PM

Aside from my other questions i asked in my last post... im curious to know the outcome of said scenario:

20 year old gets into poker online after seeing commercial on tv (said commercial says "Not a gambling site)

Throughout college he makes over 100k on party poker and just ignorantly cashes it out little by little over the course of his poker playing career... nothing over 10k.

He does not change his lifestyle in anyway such as buying fancy cars or living in a nicer place, but just keeps the money in his bank account.

Does this amount of money increase chance of being reported to IRS and being audited?

Ok, let's say he does indeed get audited and says to the IRS "Taxes? I played recreationally and just happened to win... didn't know anything about taxes"

How much is he probably going to be paying of that 100k and what are the chances that he'd even get hassled by the IRS to begin with.

If he WERE to report his taxes legitimately how much of that 100k is he probably losing to taxes.

Python49

08-23-2005, 05:56 PM

I don't think they have that account summary at eurobet, if so... it hasnt been working for me and I can try again. This still would not give me accurate records for money I made at party poker or empire poker.. the account summary for party poker only goes back for a month anyway. Past that and you can't access it.

Wake up CALL

08-23-2005, 06:28 PM

[ QUOTE ]
I will be paying taxes on most of my winnings.

[/ QUOTE ]

Ha! Fat chance of that happening!

[ QUOTE ]
I rarely play B&M and when I have, I didn't keep track of the necessary info that I needed to report in my taxes. My winnings have been unsubstantial so I won't be reporting them.

[/ QUOTE ]

Nice rationalization, let me know if that line works well for you during the audit.

[ QUOTE ]
I also will not be reporting my ring game play. After finding out I'm a losing player at 5/10 6-max I'm slightly above even for the year. I won't be reporting this because it will increase my gross income a little over $6,000. I justify not reporting ring game play because my net income for all of ring play is only a couple hundred dollars.

[/ QUOTE ]

So you feel it is the fault of the IRS because your ring game play sux? Man, now I have heard it all.

[ QUOTE ]
While it may not be 100% legal, I don't feel my tax bracket should be increased by gambling that I didn't really "win".

[/ QUOTE ]

Actually you really did win it, you just weren't skillful enough to hang on to it.

[ QUOTE ]
I will be reporting all bonuses, rakeback, and tournament play. The amounts are significant enough that even if I wanted to hide it, I would be leaving a trail that would be found in the event I was audited.

[/ QUOTE ]

Basically you are saying, "Darn, I'd cheat here too if I wasn't sure I'd be caught." Right?

[ QUOTE ]
I have gone up against the IRS before and lost.

[/ QUOTE ]

There is justice in the world after all.

[ QUOTE ]
I don't look forward to doing it again.

[/ QUOTE ]

Yet you are willing to do it anyway. The definition of insanity: Doing the same thing over and over again and expecting a different result. Or is that the definition of a fish? Perhaps both.

[ QUOTE ]
Essentially I was naive and used a "crooked" tax agency who wrote off a bunch of stuff that I shouldn't have. "Oh you work in computers, we'll just deduct your home computer and part of your room as work space". I didn't get audited. I got a notice saying that I owed x dollars. I could pay or they would audit me. I paid. They came after me slightly less than 3 years after I filed. Right before the deadline.

[/ QUOTE ]

Right, sure it was someone elses' fault. We understand, you really really meant to pay your taxes then but now you feel like it is OK not to do so. GOTCHA!

Please let us know how these feelings work out for you. Perhaps a 1-900-IFEELYOURPAIN hotline will be in your future. If so be sure to keep your massive profits in an offshore account, tax-free you know.

Uncleben327

08-25-2005, 07:16 AM

I would like to inform all of you worry warts out there that 1/3 of all Americans either intentionally or accidently pay there taxes illegally. Also businesses are MUCH more likely to be audited than are citizens. The united States Also has nearly three hundred million people. Although internted gambling may start to piss off uncle sam and they may decide to audit the players who are reporting.{Atleast more frequently than those who aren't} It would be alot easier to catch those who are reporting than go through millions of citizens financial records to find the few thousand individuals who are actually cheating the government out of a measly 50 grand.Because the irs will know that they can slap a fine on you just because of the uncertanty of what is to be defined as a poker session.

jrz1972

08-25-2005, 08:52 AM

[ QUOTE ]
I would like to inform all of you worry warts out there that 1/3 of all Americans either intentionally or accidently pay there taxes illegally. Also businesses are MUCH more likely to be audited than are citizens. The united States Also has nearly three hundred million people. Although internted gambling may start to piss off uncle sam and they may decide to audit the players who are reporting.{Atleast more frequently than those who aren't} It would be alot easier to catch those who are reporting than go through millions of citizens financial records to find the few thousand individuals who are actually cheating the government out of a measly 50 grand.Because the irs will know that they can slap a fine on you just because of the uncertanty of what is to be defined as a poker session.

[/ QUOTE ]

Just keep telling yourself that. Yes, it is definitely safer to deliberately fail to report than to report your winnings honestly. Makes sense to me.

stoxtrader

08-25-2005, 10:29 AM

[ QUOTE ]
[ QUOTE ]
I would like to inform all of you worry warts out there that 1/3 of all Americans either intentionally or accidently pay there taxes illegally. Also businesses are MUCH more likely to be audited than are citizens. The united States Also has nearly three hundred million people. Although internted gambling may start to piss off uncle sam and they may decide to audit the players who are reporting.{Atleast more frequently than those who aren't} It would be alot easier to catch those who are reporting than go through millions of citizens financial records to find the few thousand individuals who are actually cheating the government out of a measly 50 grand.Because the irs will know that they can slap a fine on you just because of the uncertanty of what is to be defined as a poker session.

[/ QUOTE ]

Just keep telling yourself that. Yes, it is definitely safer to deliberately fail to report than to report your winnings honestly. Makes sense to me.

[/ QUOTE ]

i honestly think it is safer, but higher risk. not that i know anything about it or condone doing it.

but it seems logical to me that not reporting at all would make it harder to catch than underreporting. Of course the repurcussions would/should be much more for not reporting at all.

pshabi

08-25-2005, 10:37 AM

Hope you get herpes (if you haven't already). /images/graemlins/laugh.gif

bookie socks

08-25-2005, 01:04 PM

.....none of this will be an issue.

Americans for fair taxation (http://www.fairtax.org)

Mempho

08-25-2005, 02:04 PM

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
I would like to inform all of you worry warts out there that 1/3 of all Americans either intentionally or accidently pay there taxes illegally. Also businesses are MUCH more likely to be audited than are citizens. The united States Also has nearly three hundred million people. Although internted gambling may start to piss off uncle sam and they may decide to audit the players who are reporting.{Atleast more frequently than those who aren't} It would be alot easier to catch those who are reporting than go through millions of citizens financial records to find the few thousand individuals who are actually cheating the government out of a measly 50 grand.Because the irs will know that they can slap a fine on you just because of the uncertanty of what is to be defined as a poker session.

[/ QUOTE ]

Just keep telling yourself that. Yes, it is definitely safer to deliberately fail to report than to report your winnings honestly. Makes sense to me.

[/ QUOTE ]

i honestly think it is safer, but higher risk. not that i know anything about it or condone doing it.

but it seems logical to me that not reporting at all would make it harder to catch than underreporting. Of course the repurcussions would/should be much more for not reporting at all.

[/ QUOTE ]

You are dead on stoxtrader, however, we haven't defined the risk of what. The risk of getting audited probably increases if one reports. The risk of catastrophe (imprisonment, crippling fines and penalties), however, decreases if you report. If one is as successful at poker as many on this forum aspire to be, it is imperative that they report unless they want to risk losing what they've gained.

I think of it like this: You could build a $5M dream home on the coast of Florida. If you didn't have a mortgage for the home, you could choose not to carry hurricane insurance. Even in Florida, the risk of your exact area recieving a catastrophic direct hit are very low since the hurricane usually has a maximum 30 mile wide eyewall. The chance of getting by without a catostrophic hit is very good for the first year. The odds of getting away with it for five years (while still fairly high) are significantly lower. If your chance of a catastrophic hit in a year is 99:1, you would probably still be dumb not to take the insurance even if the insurance is -EV (and it is, of course). Some -EV propositions should be taken in order to reduce the risk of ruin from variance {Remember Doyle's coin flipping analogy}.

So, from an ethical perspective, most people believe in paying taxes (I do even though I view many parts of the IRC as unfair). Even if I had no ethics, however, I would still be paying taxes because a catostrophic hit would be terrible.

In closing, the odds of getting audited for the population overall is about 200:1 in a given year for the ordinary citizen. Extrapolate that out over 20 years and see what the odds are. They are no longer all that great.

08-25-2005, 02:42 PM

I voted nope... like 84.5 percent did.

k_squared

08-25-2005, 02:56 PM

you are very confused. The chart does not say 84% of people don't pay taxes.

34% (135 of the people voting) pay all taxes
12% (50 of the people voting) pay some of their taxes
29% (116 of the people voting) don't pay taxes
21% (84 of the people voting) haven't paid taxes yet but are going to
0% (2 of the people voting) got in trouble for not paying

more people pay taxes than don't. More people intend to at least report something by a margin of 67% to 29% who don't.

-Kevin

Krazy Dan

08-25-2005, 10:04 PM

[ QUOTE ]
.....none of this will be an issue.

Americans for fair taxation (http://www.fairtax.org)

[/ QUOTE ]

Although it accounts for gambling income better than the current system does, it's still an absolute [censored] system. If you need to understand why it's bad, realize that Krazy Dan Independent Contractors, Inc. needs a new car for... um... business purposes and as a business won't have to pay the tax. Same goes for a new computer and all of those groceries are being used by Krazy Dan Independent Contractors, Inc.

It's not even a bill yet, is it?

bookie socks

08-26-2005, 09:23 AM

[ QUOTE ]
.....none of this will be an issue.

Americans for fair taxation (http://www.fairtax.org)

[/ QUOTE ]
You should check out the web site
Americans for fair taxation (http://www.fairtax.org)

[ QUOTE ]
Although it accounts for gambling income

[/ QUOTE ]
The Fairtax does not account for any income. It is not an income tax, it is a consumption tax.

[ QUOTE ]
better than the current system does, it's still an absolute [censored] system.

[/ QUOTE ]
You haven't researched 1 word of the Fairtax and you're condeming it.

[ QUOTE ]
If you need to understand why it's bad, realize that Krazy Dan Independent Contractors, Inc. needs a new car for... um... business purposes and as a business won't have to pay the tax. Same goes for a new computer and all of those groceries are being used by Krazy Dan Independent Contractors, Inc.

[/ QUOTE ]

No corporations pay tax. If you need to understand why.

http://images.amazon.com/images/P/0060875410.01.THUMBZZZ.jpg

Any taxes you think corporations pay are paid from the income of it's customers. And if the taxes increase the corporation increases it's pricing. (unless it's a commercial airline)

[ QUOTE ]
It's not even a bill yet, is it?

[/ QUOTE ]
Yes it is H.R. 25 introduced Jan 5 2005 (http://thomas.loc.gov/cgi-bin/query/D?c109:1:./temp/~c109i7BOnq::)

PokerCrab

08-26-2005, 09:55 AM

Does anyone here report as a professional poker player? and if so - do you do your own tax work with a software? and if so, what kind of tax software do you use??

Mempho

08-26-2005, 10:15 AM

[ QUOTE ]
Does anyone here report as a professional poker player? and if so - do you do your own tax work with a software? and if so, what kind of tax software do you use??

[/ QUOTE ]

I have before. I would use TurboTax. I believe it will fill out a Schedule C and calculate the self-employment tax you owe.

Krazy Dan

08-26-2005, 12:18 PM

[ QUOTE ]
The Fairtax does not account for any income. It is not an income tax, it is a consumption tax.

[/ QUOTE ]

I know that. My point is that it is more fair for gambling although worse in most other regards as a revenue-collection mechanism.

[ QUOTE ]
You haven't researched 1 word of the Fairtax and you're condeming it.

[/ QUOTE ]

What are you talking about? I've argued this with other FairTax shills and consider myself more well-read on this proposal than most.

[ QUOTE ]
No corporations pay tax. If you need to understand why.

(image deleted)

Any taxes you think corporations pay are paid from the income of it's customers. And if the taxes increase the corporation increases it's pricing. (unless it's a commercial airline)

[/ QUOTE ]

You really missed the point of my critique, which had you understood you would have realized that I am well-read on the subject.

Krazy Dan Independent Contractors, Inc. charges ABC Company $50,000 for services rendered, nontaxed. The KDIC buys a car for partial business use, gets some tax relief for it. KDIC moves to a larger apartment to put in a home office, and gets partial tax credit for it. KDIC has a party in his home for his clients and receives a business tax rebate on the food and entertainment.

While, if instead of incorporating, Krazy Dan works for ABC company, he receives $50,000 for services rendered, nontaxed. Krazy Dan buys a car so he can go to work, but he has to pay the full 23% tax. Krazy Dan moves to a bigger apartment so he can work at home, but he still has to pay the full 23% tax. Krazy Dan invites his co-workers and bosses over for a party, but once again pays the full 23% tax.

Can you see the difference?

Why don't I expand on this further? My father will be really happy that the money in his Roth IRA will be double taxed when he withdraws on it later in life -- taxed when he originally earned the money and taxed when he spends it. He'll be really happy when the money he receives in Social Security benefits will be subject to tax, too.

The two groups of people with the highest proportion of disposable income -- teenagers and the very wealthy -- now have disincentive to spend and less spending certainly is not good for the economy. While the money held by the wealthy will eventually be spent (either by them or by their heirs decades in the future), the tax faces decreased utility as inflation and time value of money lowers its value.

I have severe doubts that a 30% tax rate, let alone 23%, would cover government expenses (all else equal).

[ QUOTE ]
[ QUOTE ]
It's not even a bill yet, is it?

[/ QUOTE ]
Yes it is H.R. 25 introduced Jan 5 2005 (http://thomas.loc.gov/cgi-bin/query/D?c109:1:./temp/~c109i7BOnq::)

[/ QUOTE ]

Thank you for sharing that. I now have to write my representative.

bookie socks

08-26-2005, 09:58 PM

[ QUOTE ]
[ QUOTE ]
The Fairtax does not account for any income. It is not an income tax, it is a consumption tax.

[/ QUOTE ]

I know that. My point is that it is more fair for gambling although worse in most other regards as a revenue-collection mechanism.

[ QUOTE ]
You haven't researched 1 word of the Fairtax and you're condeming it.

[/ QUOTE ]

What are you talking about? I've argued this with other FairTax shills and consider myself more well-read on this proposal than most.

[ QUOTE ]
No corporations pay tax. If you need to understand why.

(image deleted)

Any taxes you think corporations pay are paid from the income of it's customers. And if the taxes increase the corporation increases it's pricing. (unless it's a commercial airline)

[/ QUOTE ]

You really missed the point of my critique, which had you understood you would have realized that I am well-read on the subject.

[/ QUOTE ]

OK I guess I did misunderstand. I think it was confusing the first time you wrote it.

[ QUOTE ]
Krazy Dan Independent Contractors, Inc. charges ABC Company $50,000 for services rendered, nontaxed. The KDIC buys a car for partial business use, gets some tax relief for it. KDIC moves to a larger apartment to put in a home office, and gets partial tax credit for it. KDIC has a party in his home for his clients and receives a business tax rebate on the food and entertainment.

While, if instead of incorporating, Krazy Dan works for ABC company, he receives $50,000 for services rendered, nontaxed. Krazy Dan buys a car so he can go to work, but he has to pay the full 23% tax. Krazy Dan moves to a bigger apartment so he can work at home, but he still has to pay the full 23% tax. Krazy Dan invites his co-workers and bosses over for a party, but once again pays the full 23% tax.

[/ QUOTE ]

OK, here you have 2 different situations. A business and an individual.
KD Inc would still not pay tax on income under the "Fairtax". In addition, KD Inc would no longer have to spend time and money on prpareing a tax return. And business to business sales would not be taxed. On top of that, under the current system if KD Inc doesn't pay taxes and gets credit for expenses, that is money taken from other individuals who have earned it and given to KD Inc. That is not a fair tax.
Now as far as Krazy Dan working for ABC company, how is he getting away with not having income tax deducted from his $50,000 in services rendered? Lets assume payroll tax is being deducted from his paycheck under the current system. After the "Fairtax" he will get his paycheck with no Federal, SS, or medicare taxes taken out. He will have more money to save (which he will not be taxed on the earnings) and spend. He can spend up to the poverty level and receive a "prebate" check from the feds every month equal to the taxes paid up to the poverty level. (this could include things used at the dinner party)Dan can buy a used car and not pay 23% tax on it.

[ QUOTE ]
Can you see the difference?

Why don't I expand on this further? My father will be really happy that the money in his Roth IRA will be double taxed when he withdraws on it later in life -- taxed when he originally earned the money and taxed when he spends it. He'll be really happy when the money he receives in Social Security benefits will be subject to tax, too.

[/ QUOTE ]

This is a downfall. Any money already in those accounts will be taxed again when used for consumption. But any future money put into a retirement account will go in with untaxed money and the earnings will not be taxed.

 Not flaming you but for someone who claims to be well read on the subjuct you really seem to misunderstand alot.

xniNja

08-26-2005, 10:10 PM

I won't declare unless I have to, I don't think I'm making anything the IRS cares about right now anyway, and I'm a student. Screw them.

Krazy Dan

08-28-2005, 09:00 AM

[ QUOTE ]
[ QUOTE ]
Krazy Dan Independent Contractors, Inc. charges ABC Company $50,000 for services rendered, nontaxed. The KDIC buys a car for partial business use, gets some tax relief for it. KDIC moves to a larger apartment to put in a home office, and gets partial tax credit for it. KDIC has a party in his home for his clients and receives a business tax rebate on the food and entertainment.

While, if instead of incorporating, Krazy Dan works for ABC company, he receives $50,000 for services rendered, nontaxed. Krazy Dan buys a car so he can go to work, but he has to pay the full 23% tax. Krazy Dan moves to a bigger apartment so he can work at home, but he still has to pay the full 23% tax. Krazy Dan invites his co-workers and bosses over for a party, but once again pays the full 23% tax.

[/ QUOTE ]

OK, here you have 2 different situations. A business and an individual.

[/ QUOTE ]

Actually, it's not. It's the same situation, except under the KDIC label the work agreement is as a consultant rather than as an employee. Because KDIC is a company providing consulting services, it qualifies for tax rebates for business expenses that KD the employee wouldn't.

[ QUOTE ]
In addition, KD Inc would no longer have to spend time and money on prpareing a tax return.

[/ QUOTE ]

H.R. 25 Section 903(c) disagrees with you, although the return would be obviously simpler. And mind you, there would be a dozen returns a year.

[ QUOTE ]
And business to business sales would not be taxed.

[/ QUOTE ]

That's the whole point of the independent contractor problem that I described earlier. If you can structure your employment as a consultant or independent contractor, you are able to avoid paying portions of tax on things like automobiles, fuel, and food.

Here's another related, albeit different, example. BobCo is a real estate manager which builds new houses, leases them, and then sells them a couple years. Sounds normal, right? But BobCo has created a market in which a house that would have provided tens of thousands of dollars in tax revenue might only provide a couple thousand, and BobCo profits the difference.

In numbers, BobCo builds a $200,000 house (paying no tax), leases it for a few years (where taxes are remitted to the government), and the house depreciates in value for some reason to $190,000. It still sells for $240,000 on the open market because building a new, equivalent house and selling it to a private citizen would cost $247,000 including FairTax. BobCo made $50,000 on real estate that declined in value, all money sheltered from tax, because it is sheltered from tax.

[ QUOTE ]
On top of that, under the current system if KD Inc doesn't pay taxes and gets credit for expenses, that is money taken from other individuals who have earned it and given to KD Inc. That is not a fair tax.

[/ QUOTE ]

Are you talking about Net Operating Loss, which is the only thing I can think of that you are referencing? That's actually one of the most fair aspects of the current tax system.

[ QUOTE ]
Dan can buy a used car and not pay 23% tax on it.

[/ QUOTE ]

Dan can buy a new car and not pay the full tax on it when he is a consultant and not an employee.

[ QUOTE ]
 Not flaming you but for someone who claims to be well read on the subjuct you really seem to misunderstand alot. 

[/ QUOTE ]

Ah, yes, I misunderstand the subject because I'm not supportive of it.

If you would like me to further explain the problems with FairTax, could we please do this via private message, as this is a serious derail from the pretty much dead thread?

broiler

08-28-2005, 09:51 AM

The big problem with the Fair Tax is that the IRS will still exist to monitor the collection of sales tax. Many people think that the Fair Tax will get rid of the IRS, but this is not the case. The IRS or some similar agency will still be out there to do audits of the people collecting the tax.

I have been a part of many audits and sales tax audits are far worse to deal with than income tax audits. There is no comparison between the two. The burden on corporations under a sales tax audit border on ridiculous. I can only imagine what the audit rate would be on corporations once the income tax is abolished. All of those auditors with time on their hands from no individual tax returns can't be a good thing.

bookie socks

08-28-2005, 03:47 PM

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Krazy Dan Independent Contractors, Inc. charges ABC Company $50,000 for services rendered, nontaxed. The KDIC buys a car for partial business use, gets some tax relief for it. KDIC moves to a larger apartment to put in a home office, and gets partial tax credit for it. KDIC has a party in his home for his clients and receives a business tax rebate on the food and entertainment.

While, if instead of incorporating, Krazy Dan works for ABC company, he receives $50,000 for services rendered, nontaxed. Krazy Dan buys a car so he can go to work, but he has to pay the full 23% tax. Krazy Dan moves to a bigger apartment so he can work at home, but he still has to pay the full 23% tax. Krazy Dan invites his co-workers and bosses over for a party, but once again pays the full 23% tax.

[/ QUOTE ]

OK, here you have 2 different situations. A business and an individual.

[/ QUOTE ]

Actually, it's not. It's the same situation, except under the KDIC label the work agreement is as a consultant rather than as an employee. Because KDIC is a company providing consulting services, it qualifies for tax rebates for business expenses that KD the employee wouldn't.

[/ QUOTE ] which makes it 2 different things. In one situation it's a small business and the other situation it's an employee who doesn't receive the benefits of being a small business. Different rules.

[ QUOTE ]
In addition, KD Inc would no longer have to spend time and money on prpareing a tax return.

[/ QUOTE ]

[ QUOTE ]
H.R. 25 Section 903(c) disagrees with you, although the return would be obviously simpler. And mind you, there would be a dozen returns a year.

[/ QUOTE ]
That is not about tax return paper work. That section is dealing with reporting income so you can get the correct amount of Social Security paid to you when you are elegible to receive it.

[ QUOTE ]
And business to business sales would not be taxed.

[/ QUOTE ]

[ QUOTE ]
That's the whole point of the independent contractor problem that I described earlier. If you can structure your employment as a consultant or independent contractor, you are able to avoid paying portions of tax on things like automobiles, fuel, and food.

Here's another related, albeit different, example. BobCo is a real estate manager which builds new houses, leases them, and then sells them a couple years. Sounds normal, right? But BobCo has created a market in which a house that would have provided tens of thousands of dollars in tax revenue might only provide a couple thousand, and BobCo profits the difference.

In numbers, BobCo builds a $200,000 house (paying no tax), leases it for a few years (where taxes are remitted to the government), and the house depreciates in value for some reason to $190,000. It still sells for $240,000 on the open market because building a new, equivalent house and selling it to a private citizen would cost $247,000 including FairTax. BobCo made $50,000 on real estate that declined in value, all money sheltered from tax, because it is sheltered from tax.

[/ QUOTE ]

You're making my head hurt because that makes no sense.

[ QUOTE ]
On top of that, under the current system if KD Inc doesn't pay taxes and gets credit for expenses, that is money taken from other individuals who have earned it and given to KD Inc. That is not a fair tax.

[/ QUOTE ]

[ QUOTE ]
Are you talking about Net Operating Loss, which is the only thing I can think of that you are referencing? That's actually one of the most fair aspects of the current tax system.

[/ QUOTE ]How can it be fair for someone not to pay taxes and yet receive money from the government in the form of taxes taken from someone else.[ QUOTE ]

[ QUOTE ]
Dan can buy a used car and not pay 23% tax on it.

[/ QUOTE ]

Dan can buy a new car and not pay the full tax on it when he is a consultant and not an employee.

[ QUOTE ]
 Not flaming you but for someone who claims to be well read on the subjuct you really seem to misunderstand alot. 

[/ QUOTE ]

Ah, yes, I misunderstand the subject because I'm not supportive of it.

If you would like me to further explain the problems with FairTax, could we please do this via private message, as this is a serious derail from the pretty much dead thread?

[/ QUOTE ]

Chaser

08-31-2005, 10:14 AM

Mempho,
Thanks for the nice post. I still can't figure out what kind of difference in taxes we are talking about in between declaring net profit or winning losing session. Could someone (probably Mempho) run down this example and see how much money you would actually pay declaring one or the other.

Lets say
You have salary 60K
You played last year and made 20K net ( 50k win 30k loss)

How much taxes you will pay if you file net? ( I know you can't but for the sake of comparison)
60 + 20

How much taxes you will pay if you file +w -l?

60+ 50 (-30)

If you have mortage or other itemized deduction makes +w -l declaring better because you have eliminated your standard deductions anyway?

Thanks
Nrogi

Siingo

08-31-2005, 10:42 AM

I am one of those... Poker is taxfree in sweden if you play in a casino connected to EU...

broiler

08-31-2005, 11:34 AM

At the income levels that you are talking about, the difference in tax is minimal. The things that you lose are the AGI sensitive items such as: ability to contribute to a Roth IRA, education credits, and student loan interest deduction.

Once your AGI crosses $150k (using a round number here), you start to lose your other itemized deductions due to phaseouts.

I ran the round numbers for a single person and the tax under the net method was just under $15k with no other itemized deductions. The correct reporting came to a tax of about $16k. If you already itemize due to other deductions, I got the exact same tax due.

HoosierFan

08-31-2005, 12:57 PM

The big difference is in most state taxes, which base their taxable income of the Federal AGI. If you include your gross winnings in your AGI and deduct your losses as itemized deductions, you will not be able to take those deductions in many states.

To take an example to the extreme: You gross $100,000 of winnings and lose $99,000. Assuming you already itemize, there would be no change in the federal tax. However, in say Ohio, you would owe tax on the $100,000 which would be at the marginal tax rate of over 7%. So you would owe $7,000 of tax on $1,000 of income!

Chaser

08-31-2005, 03:53 PM

Thanks for the answers.

Well this sux if your deductions are not considered as valid ones. Do you know where can I find which states accept them or not? NJ here

Thanks
Nrogi

HoosierFan

09-01-2005, 11:09 AM

It doesn't look like NJ allows any itemized deductions... Sorry!

broiler

09-01-2005, 11:23 AM

Gambling losses are allowed for NJ residents. Line 23 of the NJ-1040 is net gambling winnings. The instructions clearly say that you are allowed to net your substantiated gambling losses against your gambling winnings for this line of the return.

09-18-2005, 05:54 AM

[ QUOTE ]
The big difference is in most state taxes, which base their taxable income of the Federal AGI. If you include your gross winnings in your AGI and deduct your losses as itemized deductions, you will not be able to take those deductions in many states.

To take an example to the extreme: You gross $100,000 of winnings and lose $99,000. Assuming you already itemize, there would be no change in the federal tax. However, in say Ohio, you would owe tax on the $100,000 which would be at the marginal tax rate of over 7%. So you would owe $7,000 of tax on $1,000 of income!

[/ QUOTE ]

So basicly you can't play poker! - I don't see how you can do anything but lose money if this is the way it works. If you broke even you would then still owe the 7k right?

Why do we spend so much time learning to play poker? Just so that the act of playing the game costs us less then a bad player? - in the end we both lose, or am I missing something. -

Scotty O

09-18-2005, 10:56 AM

I agree, it is unfair for how a session is accounted for. Makes its very difficult to track. One can have 1000's of sessions every year. Alomost impossible to track. I vote for deposits v. withdrawals for the ring games and count tournaments separately. The later is eaisier to track.

vilemerchant

09-18-2005, 11:28 AM

Paying taxes on poker winnings is a silly idea. This is not an honest living, it's a way to trick others out of their money. It's daylight robbery and I've never known a bank-robber to pay taxes /images/graemlins/smile.gif

Sorry but the idea of paying honest taxes on a dishonest living just doesn't sit with me!

-D. Beat

Jimbo

09-18-2005, 11:56 AM

[ QUOTE ]
So basicly you can't play poker! - I don't see how you can do anything but lose money if this is the way it works. If you broke even you would then still owe the 7k right?

[/ QUOTE ]

In Ohio and perhaps a few other States, yes. Most States however do not compute your taxes in this manner. Several have zero State income tax. My State has a 6.5% cap for the highest rate but it is computed on my 1040 amount after my itemized deductions so this method has no additional adverse effect on me.

XxGodJrxX

09-18-2005, 02:34 PM

I've read this whole thread looking for an answer, but I only see technical terms on tax laws. How much $ do you have to have made playing poker to report it? I have made around $2 grand since I started a few months ago. With a part-time job, poker money, and scholarships from my university, I probably make $6 or $7 thousand dollars a year. I am fearing having to pay a huge % of my winnings to the IRS, and that just may make playing poker a waste of time when it comes to making $$.

AlexTrue

09-18-2005, 03:18 PM

Very thoroughful thought! /images/graemlins/smile.gif

09-18-2005, 04:41 PM

[ QUOTE ]

In Ohio and perhaps a few other States, yes. Most States however do not compute your taxes in this manner. Several have zero State income tax. My State has a 6.5% cap for the highest rate but it is computed on my 1040 amount after my itemized deductions so this method has no additional adverse effect on me.

[/ QUOTE ]

So I guess there are some states where you can not net enough profits to pay for the taxes on on your gross?!? How horrible! Does anyone know if Illinois is one of those states?

somapopper

09-19-2005, 12:34 AM

Anyone expecting any guidance in the near future from the IRS on this? Given the questionable legality of online poker anyway, and the realitive lack of action on the IRS's part here, I've always assumed that the IRS and the government in general would clarify their position. Hopefully, in the form of a federal law defacto legalizes internet gambling and lays out a clearer taxation policy.

I think it's totally ridiculous to expect some college student to report 1.5 grand of poker income over the course of a year (just as very few folks report marginal winnings at the slots). But at the same time, someone making 100k+ clearly needs to report it as income, and hopefully have it taxed as normal income would be.

k_squared

09-19-2005, 03:29 AM

you have to report ANY income you recieve... In the case of gambing income the IRS is very clear that any winnings are supposed to be reported and depending onwhether you file as a professional or a recreational player you have to do different things.

There is no minimum amount you have to win before you report your winnings. In fact, as far as the IRS is concerned you should be reporting even if you are a break even player.

There are plenty of resources out there to learn more about these questions. Just do a search and look for a book on taxes and gambling income.

-K_squared

Mempho

09-19-2005, 05:53 PM

[ QUOTE ]
Anyone expecting any guidance in the near future from the IRS on this? Given the questionable legality of online poker anyway, and the realitive lack of action on the IRS's part here, I've always assumed that the IRS and the government in general would clarify their position. Hopefully, in the form of a federal law defacto legalizes internet gambling and lays out a clearer taxation policy.

I think it's totally ridiculous to expect some college student to report 1.5 grand of poker income over the course of a year (just as very few folks report marginal winnings at the slots). But at the same time, someone making 100k+ clearly needs to report it as income, and hopefully have it taxed as normal income would be.

[/ QUOTE ]

The IRS doesn't care. You can write "drug dealer" in the occupation space and they really don't care. They just want their part, whether the income is legal or illegal...meaning that the government doesn't have to clarify anything concerning it's legality. The IRS has already clarified their position that they can tax it, however.