Do small poker winners/losers get really screwed by IRS?

Ulysses · #1 04-05-2004, 03:49 PM

So, I just finished doing my taxes. I itemize anyway, so I just filed my wins/losses blah blah blah.

But here's a scenario. A relatively low-income guy plays poker just for fun. Let's say he loses $4000 over the course of the year. And he wins $3000. For a net loss of $1000 for the year, a small price for entertainment at the cardroom a couple of times a week - about the same as going to the movies. Let's say either he's really honest about taxes or he never won in the ring game and that $3000 came in the form of a jackpot win. Either way.

Now he does his taxes. He doesn't have any itemizable deductions besides poker so he's better off taking his standard deduction.

Yet he still has to file $3000 in winnings adding to his gross income even though he actually lost $1000.

Am I missing anything here? This seems flat out ridiculous.

Zeno · #2 04-05-2004, 04:24 PM

[ QUOTE ]
Yet he still has to file $3000 in winnings adding to his gross income even though he actually lost $1000.

[/ QUOTE ]

I have a friend that played Internet poker for a while and I was helping him with his play - and he decided not to play any more. And it was because of the issue you have raised. He has a family now and does not want trouble with the IRS. He went over the tax laws and found that it is very convoluted and sometimes nebulous in reference to gambling wins or loses. And that you could not deduct losses. Or that was his conclusion also. Which does seem insane - But not surprising.

Card Player magazine use to have a guy or a column that would give tax advice or help. Perhaps you could contact them.

Others may know the official right thing to do. I have no comments other than that.

-Zeno

Ulysses · #3 04-05-2004, 04:37 PM

You can deduct losses against winnings. But you have to itemize. For someone who plays a lot (say you have $100k in winning sessions and $50k in losing sessions), this is not that big a deal. You report $100k in winnings as income and itemize $50k in losses as deductions.

But, for the small recreational gambler who wants to be legit (or has to be legit w/ reported things like a jackpot or tourney win), I think he can end up getting screwed when his losses are less than the amount of his standard deduction (and he doesn't have other deductions to itemize).

Zeno · #4 04-05-2004, 05:22 PM

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But, for the small recreational gambler who wants to be legit....

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Yes, My friend was a recreational gambler and came, I think, to the same conclusions that you have drawn. Plus the whole 'problem' with the legality of Internet poker lead him to shy away from it. He is a conservative engineer type that would probably only do well in smaller limit games. So it was best that he quit, anyway.

-Zeno

Ragnar · #5 04-05-2004, 05:58 PM

You can also get screwed if you are a small time gambler and win in one type of gambling and lose in another. This also assumes that you are honest with the IRS--and I am because the stakes are too high to get caught chiseling on small amounts.

I won in Fantasy Football last year, but had some winning and losing sessions with a net loss in poker. As a result my itemized deductions of losses didn't help that much in offsetting my winnings due to the itemization rule.

If the IRS were fair they'd simply let you offset the winning with all of your losses, at least to the extent of winnings.

Zeno is right. For the small time recreational gambler playing at low limits (like me and his friend) the costs might outweigh the fun. It is also a colossal pain to keep track of the wins and losses in the way that the IRS requires. Did you know that you start a new session every time you change tables in a B & M? You are supposed to record that.

Ragnar

scotnt73 · #6 04-05-2004, 06:06 PM

i dont report my gaming because i live in a state where poker for money is illegal and i dont want to admit to it on paper. do you guys really report to the irs that you play illegal gambling online if your state doesnt allow it? it seems to me that making an extra 30k a year illegally would be a bigger crime than dodging taxes on it. correct me if im wrong im asking.

Ulysses · #7 04-05-2004, 06:39 PM

In the unlikely event you were to get prosecuted for illegal gambling, you will most likely just get a slap on the risk.

If you get audited and the IRS comes after you for tax evasion, the penalties are quite likely to be stiff and severe.

In general, IRS penalties are pretty laid-back when it appears that your intent was to pay the taxes you owed. When it looks like you went out of your way to not pay taxes, things get pretty harsh.

That's why a lot of the "strategies" people suggest are actually pretty horrible. Things like cashing checks at a check-cashing place then depositing $2k chunks to your bank. That reeks of active tax evasion and they will come after you hard.

PuppetMaster · #8 04-05-2004, 07:00 PM

[ QUOTE ]
So, I just finished doing my taxes. I itemize anyway, so I just filed my wins/losses blah blah blah.

But here's a scenario. A relatively low-income guy plays poker just for fun. Let's say he loses $4000 over the course of the year. And he wins $3000. For a net loss of $1000 for the year, a small price for entertainment at the cardroom a couple of times a week - about the same as going to the movies. Let's say either he's really honest about taxes or he never won in the ring game and that $3000 came in the form of a jackpot win. Either way.

Now he does his taxes. He doesn't have any itemizable deductions besides poker so he's better off taking his standard deduction.

Yet he still has to file $3000 in winnings adding to his gross income even though he actually lost $1000.

Am I missing anything here? This seems flat out ridiculous.

[/ QUOTE ]
The IRS is a terrorist organization. I salute anyone who is dishonest and doesnt pay the full tax amount owed.

Easy E · #9 04-05-2004, 11:05 PM

blame the government that put them together.... and your definition of "terrorist" needs to be refined

Easy E · #10 04-05-2004, 11:08 PM

I won in Fantasy Football last year, but had some winning and losing sessions with a net loss in poker. As a result my itemized deductions of losses didn't help that much in offsetting my winnings due to the itemization rule.

Maybe I'm missing something here. What is different about how you're itemizing your sports bet wins vs. fantasy league wins vs. poker wins vs. any other wins?

If the IRS were fair they'd simply let you offset the winning with all of your losses, at least to the extent of winnings.
I thought that's what you WERE supposed to be doing.