Who Pays Taxes on Poker Earnings? (POLL)
 

I think this is an issue everybody should seriously consider.

I've been playing for a few months and have accumulated a couple of thousand in the bank from poker and I'm not sure what to do with this in terms of taxes. Who pays taxes on their poker earnings, and how much do/did you make before you started to?

Also, I am thinking if I did pay taxes on this, I'd leave out my online bankroll. Is there a way for IRS to get me on this? Has anyone gotten in trouble for not paying taxes on poker income?

Poll below, Thanks for your responses!

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

I pay on all my winnings.

That said, if I were going to cheat, I would pay taxes on my online play and conveniently omit my live play. It would be very easy for the IRS to nail my ass on my internet play since there's such a clear paper trail, whereas live play is all cash and harder to trace.

But that's just hypothetical. Pay your taxes and don't be a deadbeat.

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

Pay your taxes don't be a leach on society. Check out this link for tips on taxes. taxes

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

I voted Nope as I'm not liable for any taxes on my winnings!

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

Don't be stupid. If you make money and you don't pay taxes you are subject to horrible fines. The IRS is not going to want to throw you in jail, but you'll have to pay what you owe plus penalties and late charges.

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

http://www.onlinepokerfaq.com/guide/tax-sessions.html - lol i dont see how anyone filing their taxes this way is not getting screwed and is even able to make money

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

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?

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

[ 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 ]

Would you rather be audited after FAILING to pay your taxes?

Acme

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

Have there been cases of people getting audited? There are so many people playing online, where does the government draw the line? Do they randomly select people or start at the top? How do they get the information if online casinos are offshore?

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

i make plenty in online poker but i would never give the us goverment one dime of my income. So no i never will pay taxes! [img]/images/graemlins/smile.gif[/img]

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

No i would rather not get audited after failing obviously but if I already have unclaimed winnings in my bank account and then I start reporting now... during an audit they'd still go back and see I had unpaid for winnings and charge me fines, interest, and back taxes anyway.

With all these people playing online for high stakes.. alot of them being young 20 year olds ignorant about filing taxes, id love to know where they start at with this as well.

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

Also, couldn't i just consider each "session" as the time between when my money is deposited into the poker account and when it is with drawn? They don't specify what a session is and if you documented your sessions this way it would keep your gross income from gambling down.... like instead of reporting earnings of 100k and losses of 80k and a 20k profit.. it would show up as a winning session of 20k since you deposited maybe $50 and with drew 20k and that was a session.

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

[ QUOTE ]
Also, couldn't i just consider each "session" as the time between when my money is deposited into the poker account and when it is with drawn?

[/ QUOTE ]

No. While they don't define session, there is anecdotal evidence from gamblers that have been audited that makes it clear this would not be acceptable. It is pretty clear that a session cannot be considered longer than a day...unless you are actually playing the entire time stretching more than one day.

Acme

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

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.

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

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.

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

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

TT [img]/images/graemlins/club.gif[/img]

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

Hope you get audited [img]/images/graemlins/laugh.gif[/img]



(Assuming you are a US citizen)

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

bad form.

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

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.

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

bump

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

[ 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

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

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

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

[ 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.

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

[ 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).

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

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

Tip: Hong Kong

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

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.

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

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?

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

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

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

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.

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

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

[/ QUOTE ]
find them for what?

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

[ 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.

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

[ 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 ]

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

[ 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.

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

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.

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

[ 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.

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

[ 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.

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

[ 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.

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

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.

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

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.

Re: Who Pays Taxes on Poker Earnings? (POLL)
 

[ 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 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.