Tax Question : Claim Total Winnings or Cashout?

[midnight24]

Say for example, total profit for the year was 35,000. But say you only cash out $30,000 directly into your bank account and the remaining $5,000 remains in your bankroll on the poker site. What income are you supposed to claim come tax day?

[Kurn, son of Mogh]

First of all, you can't just claim your net. That's expressly forbidden in IRS Pub 529 (how many times have I written this?)

You have to claim winning sessions as income and losing sessions as itemized deductions.

There is also a school of thought that suggests you can claim deposits as losses and cashouts as wins, but that gets disputed and I've heard several cogent arguments on both sides.

Best idea is to hire a good accountant who is familiar with these things.

[Zetack]

[ QUOTE ]
Say for example, total profit for the year was 35,000. But say you only cash out $30,000 directly into your bank account and the remaining $5,000 remains in your bankroll on the poker site. What income are you supposed to claim come tax day?

[/ QUOTE ]

Both are wrong. Listen to Kurn.

As a side note, when you figure out how its supposed to work, you aren't going to be happy.

--Zetack

[lehighguy]

Each session, that's freaking impossible. I have 15 min sessions when I log on.

[RiverDood]

Everyone's IRS experience is different, and I've never had to deal with them on poker income.

But I did get audited years ago on a different Schedule C source of side income. Here's what I came away with:

-- if you're dealing with a dispute involving more than $1,000 in income, don't expect your auditor to have any sympathy with your arguments that doing the records right was a hassle. Collecting taxes is a hassle. This man is paid to put hassles into your life and make them stay there.

-- if you're dealing with less than $1,000 in income and the rest of your taxes are clean, you may be able to get the auditor to decide that your off-the-cuff presentation is "reasonable." Not perfect, but reasonable enough that they'll let you go with a warning to be more careful next time.

This is not a hard and fast cutoff. There may be auditors who want to put you through the wringer for every penny. There may be auditors who will cut you more slack. And of course only 1% or 2% of all tax returns get audited.

But there's every reason to think that the IRS over the next few years will want to take a close look at poker income. If you're making in the multi-thousands, you're asking for a nasty, nasty audit experience if you don't come in with the kind of records that the IRS wants.

[mlagoo]

[ QUOTE ]
Each session, that's freaking impossible. I have 15 min sessions when I log on.

[/ QUOTE ]

yeah, these were my thoughts.

for instance, ive only made about 2k playing SNGs this year. not talking big money here. but if i claim all my winnings, technically, as income, i'm talking like $12000 (actual money received from tourneys), whereas my tournament entries were about $10000. this seems kind of screwed up, and could potentially change my income bracket (i'm a student now). i dont want that =/

[ QUOTE ]
Each session, that's freaking impossible. I have 15 min sessions when I log on.

[/ QUOTE ]

If you've got a spread sheet prog., you could easily keep each session there and at the end of the year, or when you're curious, look at the bottom line.

[tubalkain]

[ QUOTE ]
First of all, you can't just claim your net. That's expressly forbidden in IRS Pub 529 (how many times have I written this?)

You have to claim winning sessions as income and losing sessions as itemized deductions.

There is also a school of thought that suggests you can claim deposits as losses and cashouts as wins, but that gets disputed and I've heard several cogent arguments on both sides.

Best idea is to hire a good accountant who is familiar with these things.

[/ QUOTE ]

Who knew a Klingon could become something as distasteful as a tax expert?

[lehighguy]

I play on a lot of sites that don't have pocker tracker support.

I have no records for the last year except my cash out and neteller stuff.

Since I don't play online I don't know what record keeping assist the online sites offer.

I just got a PM from someone asking me for a copy of my spreadsheet. I told him I don't need one but my past experience with spreadsheet made me think it would be an easy way to keep the records. I offered to set up an example sheet for him.

I'll now make the offer for anyone. Remember now, it's been some time since I've used the things and as good as I used to think I was, there are always more knowledgeable/better and the newer progs do things I used to wish for.

Buy hey, it'll be worth exactly what you pay for it. zip.

[DcifrThs]

[ QUOTE ]
I play on a lot of sites that don't have pocker tracker support.

I have no records for the last year except my cash out and neteller stuff.

[/ QUOTE ]

the only site i know and play on regularly that doesn't have readily available data put ON YOUR COMPUTER for you is paradise. i dont keep paradise records but my forthcomingness with the rest of my poker income will be 100%.

i keep meaning to ask my accountant this, and i spoke extremely briefly w/ antoher 2p2er about it but id rather not have to pay tax on(or be able to get more deductible credit for) money i use as my current poker bankroll. since this is a self employed venture, the argument stands that the available funds online is working capital necessary for proper and complete adherence to the variance associated with the business. its a tough argument though b/c corporations pay taxes (or book deferred tax liabilities) on accounts receivable booked with current period income despite the lack of received funds. the longer their days to cash, the worse the business appears in terms of cash flow but they are still liable to the IRS for income booked under US GAAP and filed with the IRS. so that working capital argument may not be all that strong /images/graemlins/frown.gif

i will have an answer eventually but i thought id just put that out there as it was mentioned to me and discussed w/ another 2p2er.

Barron

[lehighguy]

It's alot harder to keep records of online poker if it isn't tracked by pocker tracker.

I mean, do all those little ten minute sessions count.

[Zetack]

[ QUOTE ]
It's alot harder to keep records of online poker if it isn't tracked by pocker tracker.

I mean, do all those little ten minute sessions count.

[/ QUOTE ]

Poker tracker is not put out by the IRS. So what PT calls a session I wouldn't worry about. But if literally you sit down play for ten minutes, get up, go watch television for an hour, come back play ten minutes, get up....yeah those may all count as sessions.

There is some indication that in a B&M setting the IRS wants you to consider each table a different session. But since nobody in the world actually does that, but treats each gambling session as a session, my guess, and let me emphasize guess here, is that you would be alright counting from the time you sit down to play to the time you log off as a session.

--Zetack

[lehighguy]

Well there is absolutely no way for my to get that data. Even going foward it would represent an unfathomable hassle, I would spend as much time keeping records as I spend playing.

[Neurotoxin]

isn't the only reason you need to do this session recording is if you're bracket is going to be under the top? If you've made more than enough to put you into the top bracket can you just go ahead and net?

[billyjex]

[ QUOTE ]
Well there is absolutely no way for my to get that data. Even going foward it would represent an unfathomable hassle, I would spend as much time keeping records as I spend playing.

[/ QUOTE ]

I am in the same boat as you lehigh. I guess I ignored the whole tax thing and now i'm starting to realize how serious it is. That's not to say I don't have money saved up -- an extremely vague estimate is I have made 40k this year, and I have about 11k for taxes (I know I will need more for this, and I will have to dive into my roll /images/graemlins/frown.gif

It is frustrating because I am just a young college kid who just happened to start making a shitload of money on my computer. Obviously I know this argument gets me nowhere with anyone so I need to contact an accountant ASAP.

[MicroBob]

first - my record-keeping is for crap....New Year's Resolution anyone?
So my opinions aren't exactly coming from someone who does as he preaches.


Lehigh - if you're going pro you will have to learn record keeping.
'session' doesn't have to mean each freaking table or each 10 minutes trip before going out and taking out the garbage and then coming back for 10 minutes more.

(disclaimer that I'm not a tax-expert) - If you just had a log/chart that on Dec 8 you played a total of 5 hours on site A at limits 5/10 and 10/20 and you also played 2 hours in a tournament on site B and you had your updated bankroll change for the day that would likely be sufficient.
(you would show that on site A you were +$600 and your roll on that site went from $9400 to $10000 and your total roll was adjusted same of course. On site B you busted out of a $109 tourney...so your roll on that site needs to be shown too).

It is on you to prove these things.
I believe it specifically says somewhere that in order to file a schedule-C you need to keep accurate records of your income (just like any regular small-business owner would have to).

It doesn't have to be something so detailed that it becomes ridiculously time-consuming. Just a couple different ledgers for the sites that you played at on that day. You can probably get away with counting the whole day as a 'session'. This particular session included 1000 cash-game hands AND a tournament.


Get Gamblers Guide to Taxes by Walter Lewis for more info (nothing on internet-gambling...but plenty of other stuff for professional and recreation gamblers).
Also be sure to read all of Ed Miller's upcoming articles on various tax stuff in future editions of the 2+2 mag (his first article on this was in Nov).

[lehighguy]

When the new year starts I was planning to declare myself pro and talk to a tax guy. But as the other poster said, I'm just a college student that fell into a pile of money. My records for last year will be really sketchy.

[Zetack]

[ QUOTE ]
Well there is absolutely no way for my to get that data. Even going foward it would represent an unfathomable hassle, I would spend as much time keeping records as I spend playing.

[/ QUOTE ]

How is it possible going forward that this is such a hassle it'll take as much time as you spend playing poker? What, are your sessions 90 seconds long?

Try this oh so complicated method. 1. Keep a notebook next to your computer that's only for poker. 2. Finish playing. 3. open notebook 4. Write date. 5. Write down site(s) played on. 7. Write amount won or lost. 6. Close notebook.

Crap that took 45 seconds, how are you ever going to stand it?

At the end of the year you're going to have to account for bonus's and rakeback as well so you might have a page of your note book for each of those things as well.

--Zetack

[lehighguy]

A lot of times I log on for 10, 20, 30 min. I play on multiple sites at once. It's a rediculous hassle, especially in light of the fact that I'm only going to be charged based on the net amount. All of that extra accounting is pointless.

[sammy_g]

[ QUOTE ]
It's a rediculous hassle, especially in light of the fact that I'm only going to be charged based on the net amount.

[/ QUOTE ]
But you're not taxed based solely on net amount (at least in the US). /images/graemlins/confused.gif

Your winning sessions are income, and you claim your losing sessions as deductions up to the amount of your winnings. This is not the same thing as simply reporting "I won $X playing poker."

[lehighguy]

Explain. Deductions reduce income right?

[Kurn, son of Mogh]

I would think any good accountant would be creative enough to solve this problem. I also see no reason why the IRS would get real anal about counting a day as a "session". Their rules say wins and losses must both be listed. I know some people who've told me their accountant uses cashouts & deposits.

I think you can come up with a workable model that in the event of an audit at least shows an attempt to comply with the regs.

Bottom line is the IRS says you can't net gambling wins and losses and report a single figure. Is it stupid? yes. Is it Draconian? yes. Is it fair? no.

Hey it's the IRS, WTF should we expect?

[sammy_g]

[ QUOTE ]
Explain. Deductions reduce income right?

[/ QUOTE ]
It's not the same though. For one, you can't take a standard deduction. You have to itemize.

[Kurn, son of Mogh]

Correct, unless you already itemize, the IRS overtaxes your gambling income.

[lehighguy]

How big is a standerdized deduction?
What else can I itemize? Am I giving something up?
I've never done my taxes before.

[Kurn, son of Mogh]

How big is a standerdized deduction?

$6500 single

What else can I itemize? Am I giving something up?

The big one is mortgage interest. Download a Schedule A for Form 1040 from the IRS site to see the rest, but the bottom line is, if you're not paying a mortgage it is doubtful you can beat the SD.

As a young single man, you could very well be totally and completely screwed by the tax laws.

If you win $9k and lose $6k, netting $3k, what happens is you have to declare $9,000 in income from gambling. However, the standard deduction of $6,500 is more than your losses so you don't have an reason to itemize.

So, you have to pay taxes on the $9k of winnings, but you get ZERO tax break on the $6k of losses. The net effect is that while you netted $3,000 in gambling, you pay on $9,000 meaning the taxes you pay on your gambling actually exceeds your gambling net gain.

Yea, our laws SUCK.

I however itemize since I own a house, so it's not a big deal to me. The only problem is 1/2 the time I play at UB and forget to run the history grabber so my PT records are woefully short of complete. Add to that tracking what I got in rakeback or bonuses and it's a mess.

[MicroBob]

[ QUOTE ]
I also see no reason why the IRS would get real anal about counting a day as a "session". Their rules say wins and losses must both be listed. I know some people who've told me their accountant uses cashouts & deposits.


[/ QUOTE ]


(disclaimer again that I don't know diddly):

It's my suspicion that this would be correct.

If you are making a concerted effort to document your income and pay a fair amount it is likely the IRS won't come crashing down on you too hard.
They obviously would be more interested (I think) in nailing those who are going out of their way to avoid their tax-obligations.



As i mentioned previously...don't worry about playing for 20 minutes at a shot.
Just record your final number at the end of the day (or beginning of the next day..or whatever) and count the whole day as a session.



I believe in Walter Lewis's book it is argued that there is some vagueness as to what constitutes a 'session'.

When this stuff was put in place for horse-racing they wanted you to document every bet....and I think some of that language carried over to poker and blackjack card-counters.
Obviously it's impossible to document every single money transaction (every single bet at the BJ and poker table).



Someone else mentioned in the NVG forum that if they found against you they would likely just make you pay up the remainder you owed and maybe some interest. I'm not sure if I'm remembering that correctly though.


Also - one would think that if you had an amount of money and purchases roughly corresponding to what you reported (or even a little less) that the IRS would find that you were indeed attempting to be fair and weren't trying to screw the system.



I suspect this kind of stuff happens with small-business owners all the time too.
They get lazy about keeping their records just like anyone else might.
I'm pretty sure I read some language along the way that "saying I'm too busy to keep accurate records" isn't an excuse.

I bet this stuff happens all the time and most people don't go to jail over it.


Get a notebook....make an attempt...don't worry about 20 minute sessions...just having a running daily-total of each online account's balance (each poker site, neteller, and your bank-account) gets you most of the way there.
If you also have "number of total hours played on each site during each day" and "limits played" as well as all your transactions back and forth (deposits and cash-outs) you are clearly being pretty diligent about documenting your income.

[flair1239]

[ QUOTE ]
A lot of times I log on for 10, 20, 30 min. I play on multiple sites at once. It's a rediculous hassle, especially in light of the fact that I'm only going to be charged based on the net amount. All of that extra accounting is pointless.

[/ QUOTE ]

I record the ending balances of each of my sites everyday that I play.

I count each day as a session; Regardless of whether I play (1) 4 hour session or (2) 3 hour sessions on that day. Each calendar day I log a hand, I count as a session. Once a week I punch the information into excel and have it show my w/l for the day.

I can't imagine that this will not satisfy the IRS requirement.

[elmo]

Kurn- I am filing as a pro. My accountant said that keeping records on a daily basis would suffice. Should I be looking for another accountant? I am claiming 100% of my winnings

[billyjex]

I will start record keeping, but I still have the problem of this year. IF I make a journal, and just make up the whole year until it adds up to ~$40k, think that'll fly? I mean, I'm just confused what I have to do for this year.

[lehighguy]

So I lose the $6500 deduction, isn't that in effect like $3k extra in taxes /images/graemlins/frown.gif

I'm going to end up paying alot on the 25K I won huh. Figure 10k?

Can I declare myself a pro for last year right now. Maybe try to deduct pocker software and rent and my new moniter.

[droolie]

I've been keeping records of every deposit and every cashout.
On Dec. 31st I will cashout my entire online balance from all poker sites. The total cashouts are going as my earnings. The total deposits are my losses deductions.

If the IRS doesn't accept this I'm screwed but I'm hoping that if the proverbial crap hit the fan I could get some decent representation and probably survive an audit using this method. I plan on netting somewhere in the neighborhood of 15-20K this year but I do not intend on filing as a pro gambler as I have a regular F/T job with W2 and 1099 etc and a wife who files jointly with me. We have a house and kids and all that other crap on there too.

[Annulus]

im with you man. i have been playing online for over 3 years now. pretty much just broke even the first couple of years. win some and lose. i didnt know anything about poker and taxes.

this year is another story. after studying and many years of expieriences i have become a winning player this year. estimate winnings at 17K-20K. this includes hundreds of $33 and $55 sngs and a bunch of MTT. the problem is that i have no records what so ever. ill admit that i was very naieve about tax laws and gambling. now im starting to get stressed out.

one good thing that i have going for me is that i play at many sites, but i eventually cash-out all winnings through partypoker and IGM pay to my bank account. So, if i win some money at Paradise, i will cash-out to neteller and then deposit money at partypoker and then cash-out to my bank account. so, all my money being cashouted is through partypoker. I know that i can get my 1 year transaction history from partypoker. so, i not going to worry about "sessions" this year. I will find a good tax person and see what they say. sorry for rambling but did i make some sense?

[MicroBob]

my hunch is that the irs wouldn't be too happy...but that the trouble you would get in wouldn't be too excessive.

of course, you also have p-tracker I assume as further documentation.

[Kurn, son of Mogh]

It depends on the size of your other income. The top dollar federal tax rate in the US is 36%.

[genya]

link to IRS info about gambling:
http://www.irs.gov/newsroom/article/0,,id=108277,00.html

[CORed]

[ QUOTE ]
First of all, you can't just claim your net. That's expressly forbidden in IRS Pub 529 (how many times have I written this?)

[/ QUOTE ]

Yes, but my "session" at Party poker will run from Jan. 1, 2005 to Dec. 31,2005.