Taxes question on investing with poker money

[FishHooks]

Since I make under 10k a year in poker, I haven't really filed for taxes. Probably another topic in it's self. However If I wanted to invest some of this money...how would that work. I would have to pay taxes on my investments but would the IRS wonder how I got that money to invest in the first place...

[James282]

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Since I make under 10k a year in poker, I haven't really filed for taxes. Probably another topic in it's self. However If I wanted to invest some of this money...how would that work. I would have to pay taxes on my investments but would the IRS wonder how I got that money to invest in the first place...

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If you get audited, you'll get [censored]. Simple as that really. Why not just file it? You'll pay a minimal percentage on 10k, especially if you don't have any other source of income(which it sounds like).
-James

[spino1i]

True, but it isnt likely they are going to audit you. Ive had a couple different lawyers advise me that the IRS will quite likely just leave internet poker players alone. Plus its hard show how much money youve made playing poker (considering you can go to a casino and lose it).

[spino1i]

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Since I make under 10k a year in poker, I haven't really filed for taxes. Probably another topic in it's self. However If I wanted to invest some of this money...how would that work. I would have to pay taxes on my investments but would the IRS wonder how I got that money to invest in the first place...

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If you get audited, you'll get [censored]. Simple as that really. Why not just file it? You'll pay a minimal percentage on 10k, especially if you don't have any other source of income(which it sounds like).
-James

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I can think of a very good reason not to file: thats 1500$ you're paying at least. I dont think its worth 1500$ for the very slight chance the IRS audits you (which I think is 1 in 200 at least)

[FishHooks]

Maybe I should clarify, I wont file untill I make over 15k ish in a year. I've only made about 5k but thats in 6 months so I just took the 10k figure. However would this money be safe to invest with, will my chances of getting audited go up a bit. My investment choices are index funds, if that makes any difference, which i dont believe it does.

[Ed Miller]

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True, but it isnt likely they are going to audit you. Ive had a couple different lawyers advise me that the IRS will quite likely just leave internet poker players alone. Plus its hard show how much money youve made playing poker (considering you can go to a casino and lose it).

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This is $#@!ing terrible advice, and both the advice giver and seeker need to know it. Report ALL of your income. If you are an online player, and you fail to report all of your winnings, you set yourself up for big penalties and possibly jailtime.

If you get audited, when they say, "Why didn't you report this online poker income?" you can't answer, "I lost it at a casino."

1. Even if that were true, you'd have to report your winnings as income and your losses as deductible losses. So you still underreported.

2. Then they'd ask to see documenatation (like a daily log) of exactly where and how you lost that money. Can't show it? Well, you didn't lose it then, and you're on the hook for all of the taxes on it.

3. Want to falsify records to "show" that you lost it? Get caught (and you wouldn't be the first one they caught doing something like that) and you go to jail.

#1 on the list of audit triggers is trying to hide income by keeping it offshore. That's their top trigger. So just because Joe Q. Public only gets audited 0.5% of the time doesn't mean that you will.

For instance, if you declare that you made very little this year, but you also declare thousands in capital gains or dividends or other interest, and someone goes looking and sees transfers from Neteller, you're cooked, and prepare to be audited.

I don't want to be an alarmist, but anyone advising you NOT to report income, particularly documented offshore income like poker winnings, is telling you the wrong thing.

[Ed Miller]

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Maybe I should clarify, I wont file untill I make over 15k ish in a year. I've only made about 5k but thats in 6 months so I just took the 10k figure. However would this money be safe to invest with, will my chances of getting audited go up a bit. My investment choices are index funds, if that makes any difference, which i dont believe it does.

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Are you saying you plan not to file a return at all? Or you plan to file, but not report the poker income? Not filing at all is beyond stupid.

[FishHooks]

I'm only 18 and have never filed for taxes before...in college as a dependant so not sure as to what I should legally file.

[Ed Miller]

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I'm only 18 and have never filed for taxes before...in college as a dependant so not sure as to what I should legally file.

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If you invest any money in your name, you'll basically have to file a tax return. Furthermore, if the IRS catches you having made money playing poker, and you didn't file a return, you are going to suffer big penalties.

It's time you sucked it up and learned about filing tax returns. If your total take for the year is $10k or less, you aren't going to owe much (in fact, if you weren't a dependant, you could easily owe nothing at all).

Look into opening a Roth IRA. Put the maximum ($4000) into it. Roth IRAs basically pwn for 18-year-olds. The idea is that your money will COMPOUND tax-free (i.e., you invest in something, it makes money, pays dividends, etc., and all that stuff can be reinvested and not taxed) and you can take it out tax-free.

If you put $4,000 in a Roth every year for the next four decades, and you invest it well, you will retire a multi-millionaire. Don't believe me? Assume you get an annual 8% return. A quick back of the envelope tells me that at 8% compounded, you'll double your money in a bit less than 9 years. So in 40 years, that's about 25x your money. Your $4000 that you put in this year will be worth $100,000. Your $4000 from next year will be slightly less than $100,000. And so on. Add up those, and you get multiple millions. All for $4000 (not a whole lot of money) per year.

And you will have access to those multi-millions tax free.

Any extra money you make is gravy. You can feel free to spend it, invest it in taxable investments, etc.

But you don't have access to that vehicle (Roth IRA) if you don't file your taxes... and you also expose yourself to penalties and a possible criminal conviction.

Ed, that's very good advice. One problem, though, is that you can only contribute up to your earned income to a Roth IRA. Fish won't have any earned income, unless he has a summer job or something, so he can't contribute to the IRA.

[Sniper]

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Fish won't have any earned income, unless he has a summer job or something, so he can't contribute to the IRA.

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But, Fishhooks is estimating roughly 10K income for the year.

[tshort]

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Fish won't have any earned income, unless he has a summer job or something, so he can't contribute to the IRA.

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But, Fishhooks is estimating roughly 10K income for the year.

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I think OP was assuming poker earnings are unearned income. I think they used to be unearned, but are now earned.

[FishHooks]

I'm pretty well versed on the investment side of things, taxes is where my trouble lies. However I'm thinking of investing in index funds in a general account not IRA, my thinking is I would like to have some money when I get out of college while I search for a job, furnish an apartment/house etc. Does that make sence, or do most people still feel an IRA would be best?

My parents are paying for my college (dorm, books, food), I have scholarships to cover tuition, and they dont itemize on taxes. Would it be beneficial for me to then "pay" for it myself so I can deduct that from winnings maybe (while letting them just transfer the funds into my bank)?

Also I'm not clear on how bonuses should be claimed, is there a book or some site that has tons of info on this.

[Ed Miller]

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Ed, that's very good advice. One problem, though, is that you can only contribute up to your earned income to a Roth IRA. Fish won't have any earned income, unless he has a summer job or something, so he can't contribute to the IRA.

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He can Schedule C his poker.