Paying taxes on Poker Winnings...
 

One thing I don't get is the fact that the US Gov't continually asserts that online poker for Real Money is not legal and never will be...

Yet they want its citizens to, first, acknowledge that they activly participate in an activity they deem to be "not legal"
and, second, to pay taxes on the
"illegal" activity.

My question would be: What is to stop good ol' Uncle Sam from locking you up
the very second you go to him to report your "illegal" income (that you earned by
participating in the activity of Online poker play for Real $$$ that they deem to be illegal)?

Whats it you got to say for yourself, Uncle Sam?

"Ohh...It's illegal...yea, but we still want to tax it...yeah..."

That's like the Gov't saying that selling Crack on the streets is illegal, but, oh yea,
all Drug-dealers cometh forth and please pay taxes on you sale of illegal drugs...
(OK,
not even close to being the same thing, but I am just trying to make a point here...lol).

Is it just me or are things really screwed up at this point.

IMO, if the US Gov't wants to collect tax revenues on Online Poker play (specifically the small minority of players who are significant money winners) then why don't they
acknowledge its legitimacy and its legality. Until they do that, how can they collect taxes on it?

Did they tax alcohol during prohibition? No. Who would be nuts enough
to come forth and say they were making moonshine in their bathtub in their basements - nobody would!

(I'm NOT saying that this is a defense for NOT paying your taxes, I'm just trying to illustrate a point...)

...I bet you that there are a lot of poker players in fear of reporting their income b/c
of the Gov't's stance on Online poker.

If I ever become a big money winner w/ Online poker, I am simply moving to Canada or the UK or somewhere else...

Hope I'm not alone in thinking this.

Joe M.

Re: Paying taxes on Poker Winnings...
 

Al Capone went to jail for tax evasion, not rackateering, murder or anything else.
Plus the coffee houses in Amsterdam still have to pay taxes on it's "ggodies" they sell, but the official stance from the government is that it is illegal.
In illinois I saw on the news that our state governemnt actually has cigarette cellophanes with the illinois stamp and a pot leaf on it. If you sell only with these cellophanes, they cannot get you for tax evasion. (seriously this isnt a joke) Its just so that when they bust you they can get you on tax evasion, saying "he could have filed on that 20 pounds!"

State and Federal governments are far from perfect....or rational, fair, honest..ect. for that matter.

Re: Paying taxes on Poker Winnings...
 

You should read the history of Al Capone.

Re: Paying taxes on Poker Winnings...
 

[ QUOTE ]
If I ever become a big money winner w/ Online poker, I am simply moving to Canada or the UK or somewhere else...

[/ QUOTE ]

Correct me if I'm wrong, but I believe both of these countries tax PROFESSIONAL gamblers. They don't tax those who persue gambling as a hobby, but if it is your main/only source of income, you are paying up just like everyone else.

Re: Paying taxes on Poker Winnings...
 

I don't know about Britain, but Canada does not tax Poker or Blackjack winnings. You have been corrected.

NTA

Re: Paying taxes on Poker Winnings...
 

Official definition of Professional? Definition used to determine whether you go to jail if you don't pay taxes?

Seems like something this important should be spelled out somewhere.

Re: Paying taxes on Poker Winnings...
 

I just did a little reading on "the fall of" Al Capone...

I found an overview/summary only, so if you would like to "educate" me w/ a few specifics
I would be grateful... [img]/images/graemlins/cool.gif[/img]

It said that new tax laws enacted in 1927 allowed the Fed. Gov't to pursue Al on the charge of tax evasion...and that the "Untouchables" (
Eliot Ness and his "hand picked" team of incorruptable US Treasury agents (lol...sounds cool)
were able to
find receipts linking Capone to illegal gambling income and evasion of taxes on that income.

That last line is what I don't get...how can one pay taxes on illegal income?
This statement is illogical.

Who cares if said person is paying taxes on "illegal income!?!?!?!?!" If they
have the income, then they are going to jail for having it in the first place! It's (however they got the money) illegal?!?!
Why do they have to NOT pay taxes on the income to merit a jail sentence? lol

Re: Paying taxes on Poker Winnings...
 

OH, and I forgot to say that by the Federal Gov't's collecting of the taxes on
said income source, aren't they acknowledging its legitimacy by virtue of this fact alone?

Re: Paying taxes on Poker Winnings...
 

I should add, no taxes are paid on ANY gambling winnings, including the lottery, by Canadians. And Canadian citizens who have won money in the US can get back any taxes paid in the US from 1997 onwards.

Plus we get free health care. [img]/images/graemlins/cool.gif[/img]

Re: Paying taxes on Poker Winnings...
 

The part that you are missing in the Al Capone case is that the gov't didn't have to prove that the source of the income was illegal. All that that gov't proved was that Capone had income that he did not report and that he willingly refused to pay taxes on that income. Everyone knew that the source of the income was illegal activities, but the source of the income was not a factor in the decision of the court.

Re: Paying taxes on Poker Winnings...
 

[ QUOTE ]
OH, and I forgot to say that by the Federal Gov't's collecting of the taxes on
said income source, aren't they acknowledging its legitimacy by virtue of this fact alone?

[/ QUOTE ]

That's not how they see it.

Re: Paying taxes on Poker Winnings...
 

[ QUOTE ]
I don't know about Britain, but Canada does not tax Poker or Blackjack winnings. You have been corrected

[/ QUOTE ]

You are incorrect. I live in Canada. I am an online proffesional poker player. My sole source of income is from poker.

I have to pay taxes on my poker winnings. I went to 2 different accountants and they both said the same thing.

My income from poker is substantial, do you think I would pay taxes just for the hell of it?

You have been corrected

Re: Paying taxes on Poker Winnings...
 

Fortunately your accountants are not the CRA (Canada Revenue Agency). They have deemed all gambling winnings as non taxable. The "profession" of poker lies in a grey area between hobby and regular income generating activity. Because online poker itself is illegal in Canada, you should not be paying taxes. I doubt drug dealers do.

A Canadian here in a family court case had to inquire about this to the CRA, and they gave him the all clear. His sole income is poker as well.

The McGuinty government in Ontario considered taxing gambling winnings last year but did not because the casinos (which are owned and run by the government) were deemed to be income producers in and of themselves. If it was all privatized, we would probably be paying taxes on our poker income right now.

It is specifically written in the Canadian tax code that a professional BlackJack player is tax exempt. (I believe this was an issue in the early 80's).

You have absolutely no reason to pay income tax. Even if this is considered your "profession" you are in the clear. I have met many accountants in my line of work and am not surprised that they gave you bad advice. If possible, try to do your taxes on your own. Ask the CRA directly if you have questions.

Re: Paying taxes on Poker Winnings...
 

no, you are wrong. if it's your main source of income, yes you do have to pay taxes on your gambling winnings in canada, i assure you.

[ QUOTE ]
Because online poker itself is illegal in Canada, you should not be paying taxes. I doubt drug dealers do.

[/ QUOTE ]

sadly enough, yes they do. drug dealers, prostitutes, or anyone else dealing with illegal income actually has to properly file their taxes. they can deduct "business expenses" too. handcuffs, whips, scales, whatever. the government wants your money, they don't care so much about how you got it.

Re: Paying taxes on Poker Winnings...
 

I realize that any "professional" activity which YOU define as your source of income is subject to tax. But it is the CRA which makes the final decision as to whether you must pay it or not. As already stated, the CRA has made decisions in this regard. If you have any particular question, you can clear it up with them.

Even if the CRA deemed that we had to pay tax on online poker winnings, this is something that could be challenged in court or negotiated on. BlackJack already has been written into the Tax code itself as not being subject to taxation at the "professional" level.

Re: Paying taxes on Poker Winnings...
 

Online poker is illegal in Canada really ? Will they ever pursue someone playing online poker or ?

By the way a "professionnal" gambler HAS to pay taxes but the grey part is how they define a "professional" gambler.


Gambling Profits

10. Profits derived from bookmaking or from the operation of any gambling establishment (carried on legally or otherwise) constitute income from a business. In addition, an individual may be subject to tax on income derived from gambling itself, if the gambling activities constitute carrying on the business of gambling; see the decision of MNR v. Morden, (1961) CTC 484, 61 DTC 1266 (Ex. Ct.). The issue of whether or not an individual's activities are such that he or she can be considered to be carrying on a gambling business is a question of fact that can be determined only by an examination of all of the circumstances and the taxpayer's entire course of conduct. Although no one factor may be conclusive, the following criteria should be considered in making the determination:

(a) the degree of organization that is present in the pursuit of this activity by the taxpayer,

(b) the existence of special knowledge or inside information that enables the taxpayer to reduce the element of chance,

(c) the taxpayer's intention to gamble for pleasure as compared with any intention to gamble for profit as a means of gaining a livelihood, and

(d) the extent of the taxpayer's gambling activities, including the number and frequency of bets.

It is clear from various decisions of the courts that earnings from illegal operations or illicit businesses, such as illegal gambling and fraudulent business schemes, are not exempt from tax. (See for example, the decisions in The Queen v. Poynton, (1972) CTC 411, 72 DTC 6329 (Ont. C.A.) and MNR v. Eldridge, (1964) CTC 545, 64 DTC 5338 (Ex. Ct.).) Hobbies



There was a great thread not long ago
http://forumserver.twoplustwo.com/showfl...rt=all&vc=1

I haven't consulted any accountants but I called 2 times the CRA and talked to 2 differents person over there and they said it's considered as a windfall...

Re: Paying taxes on Poker Winnings...
 

Both of the accountants I went to were unsure of the issue and both of them had to contact the CRA to clarify things.

One of them did it the next day, the other picked up the phone and called right then and there while I was in the office with them.

As far as the CRA is concerned if I am expecting an income and receiving income from my poker playing and it is my sole source of income then yes it is taxable.

As far as your comment regarding drug dealers not paying taxes because it is an illegal activity so they don't have to pay taxes, it doesn't even compare.

What did they finally arrest Al capone for? Tax evasion. Was he legit, I think not

This nonsense about not having to pay taxes on poker in Canada is nonsense and it needs to stop because there is some really bad advice out there.

Re: Paying taxes on Poker Winnings...
 

[ QUOTE ]

That last line is what I don't get...how can one pay taxes on illegal income?
This statement is illogical.


[/ QUOTE ]
IRS: "Illegal income, such as stolen or embezzled money, must be included in your gross income."
It's not illogical. Illegal does not mean the laws ignores it.

This is not to say poker winnings are illegal. It is very different to run an unlicensed casino than to gamble in one.

Re: Paying taxes on Poker Winnings...
 

The individual provinces make up the gambling laws. In Ontario, every casino must be run under the auspices of the Ontario Gaming and Lottery Association. Of course, foreign internet casinos are not. Technically, players should not be gambling in a casino not controlled by the province while physically present in Ontario. That's what makes it illegal. Of course this law cannot be enforced and even if the government tried draconian measures to stop it, they could not seize any money because it is held in foreign countries. So there is no profit or advantage in pursuing it.

Thanks for confirming the windfall situation for Canadian poker players. We have so much stupid bureaucracy that sometimes we can find loopholes that work to our advantage. I can literally go to Casino Windsor five days a week 8 hours a day and not be considered a "professional" because the casino is run by the government for profit. Online gambling is a stickier situation but luckily the CRA has decided in our favour on this one.

Re: Paying taxes on Poker Winnings...
 

Which province do you live in? This might effect the policy.

Luckily the CRA is not the IRS. On which income did they find Al Capone guilty of tax evasion, the illegal or legal ones?

Re: Paying taxes on Poker Winnings...
 

[ QUOTE ]
Online gambling is a stickier situation but luckily the CRA has decided in our favour on this one

[/ QUOTE ]

They haven't, thats the point you seem to be missing.

First you said we were lucky that we were fortunate because the accountants give bad advice. Now you say that we are lucky because the CRA is not the IRS.

If poker is your sole source of income, it is taxable. I didn't just say to myself Joe Schmoe on the 2 + 2 forums says it's not taxable so it must not be, or a buddy of mine knows about this stuff so he must be right.

I make over 6 figures from poker income and it is my sole source of income. I thoroughly researched the tax liabilities that effect me.

I called the CRA myself, was told it was taxable and I did not like the answer I was given.

I went to an accountant, who called the CRA and he was told it was taxable and I Still didn't like the answer I was given.

I went to a 2nd accountant, who also told me it was taxable.

I may not like the answer but it doesn't change it.

If you rely on poker as your sole source of income, it is taxable end of story.

Don't confuse winning 150K in a jackpot at the casino or winning the super 7 or lotto 649 lotteries which are not taxable with having a job (which is poker) with taxable income.

If you want to keep liiving in denial thats up to you.

You asked where i live, I live in Ontario, sounds like the same province as you since you are driving to windsor

Re: Paying taxes on Poker Winnings...
 

IS it the same situation for Quebec ? Can you forward me to somewhere where it says that online gambling is prohibited ?

I seriously need to see a lawyer or something... With all the cash I'm generating with poker I really don't want to run into trouble...

Re: Paying taxes on Poker Winnings...
 

The critical point is that the IRS cannot share information they have about illegal activities with law enforcement agencies. So whether you are an online poker player, drug dealer, or hired assassin, the prospect of getting arrested for admitting illegal activities to the IRS should not be a deterrent to paying your taxes.

Ed, if you're reading, how do you handle the lack of precedent with regard to paying taxes on online poker winnings? For example, how do you define a 'session'? Do PokerTracker records suffice as a way to substantiate your wins and losses?

Also, is there an accountant or tax attorney in the las vegas area that you would recommend?

Re: Paying taxes on Poker Winnings...
 

[ QUOTE ]

That last line is what I don't get...how can one pay taxes on illegal income?
This statement is illogical.


[/ QUOTE ]
Would you rather the government reward illegal behavior by not taxing it? I think that's much more illogical.

Moreover, it provides law enforcement with another avenue in which to prosecute. As with Capone, they simply were unable to gather enough evidence against him with regard to his other illegal activities.

Re: Paying taxes on Poker Winnings...
 

There are two other people here who have had the opposite response including one who had to present this in court. So the CRA is contradicting itself.

I think it is a matter of the way you present it to the CRA. If I was in your position, I would find any type of other work related activity, such as setting up your own consulting business in order to show that poker is not your sole source of income. A business does not have to produce money to be legitimate.

Re: Paying taxes on Poker Winnings...
 

I do believe your tax records are confidential. If you were a contract killer and put that on your tax return with earnings and expensee they could not use that agsinst you in a court of law. Though they could let the GOVT know you derived your income from illegal purposes and than try and catch you. That's the tax law here in Canada. Our privacy l;aws are a little tougher though .

Re: Paying taxes on Poker Winnings...
 

Luckily, the Criminal Code of Canada does not punish those making bets in an illegal gambling setup. It only goes after the organizers of the event. Because they are foreign, you are untouchable. The worst that could happen is having the RCMP raid the illegal gambling establishment and seizing all assests, which would include any money you have with them. However, none of these establishments are on Canadian soil, so we are free.

If we set up our own website here in Canada that was not registered and took bets from all over the country, we would be considered illegal. If we had our office in Montreal, the police would raid it, seize all our assets and take us to trial. The gravest punishment is only 2 years though. Of course, this would allow us to get free university education at Club Fed, and for us white collar criminals, things are very comfortable from what I hear. Private rooms, TV, free internet, conjugal visits. It's always a good backup plan [img]/images/graemlins/tongue.gif[/img]

Re: Paying taxes on Poker Winnings...
 

thanks for you reply. Basically I should be clean until they modify the rules.

Re: Paying taxes on Poker Winnings...
 

[ QUOTE ]
Ed, if you're reading, how do you handle the lack of precedent with regard to paying taxes on online poker winnings? For example, how do you define a 'session'? Do PokerTracker records suffice as a way to substantiate your wins and losses?

[/ QUOTE ]

I'm sorry, but I'm not really qualified to postulate about this matter.. it's a question for a tax attorney. Having said that, I think Poker Tracker is, no doubt, an invaluable resource for record keeping.

[ QUOTE ]
Also, is there an accountant or tax attorney in the las vegas area that you would recommend?

[/ QUOTE ]

I have a CPA, but I've been with him only six months, and I don't really feel comfortable recommending him yet. I haven't seen any problems, but he hasn't done a tax return for me yet.

Re: Paying taxes on Poker Winnings...
 

I live in the Netherlands and I'm hardly a tax expert here so I can't say anything about other countries.

Concerning the tax on illegal activities. In the Netherlands you can pay taxes over anything you earn money over and deduct the costs you make doing that. For instance there was a bit of an uproar over the income tax of a drugdealer (hard drugs not the often misunderstood coffeeshop situation) who deducted the cost of his pitbull terrier and his gun (all fire arms are illegal in Holland) from his income tax. The taxes will not report you to the police as they like you paying taxes. This doesn’t mean though that their money has been laundered and they can spend it on anything they like, the police will still take them down if they can’t proof that their too expensive car and too expensive house is not bought with money from non illegal activities. They just don’t get into tax trouble also. (I’m pretty sure they can also deduct the cost of laundering the money btw)

So a Dutch citizen would be better of paying taxes over illegal activities.

Poker specific, I’ve asked a tax inspector what their view on it was at the moment and he said that it’s a bit unclear if it isn’t your primary income as it depends on how poker is classified. (a gambling game, a game of skill etc etc) This is of course a specific Dutch issue as the taxes differ on pure luck games etc. Someone probably needs to go to court of this so we have an officlial ruling over this. If it is your primary source of income you should just treat it like you have a own business and pay normal income tax over it. So that would make things rather clear. He also told me that it would be best if I kept well documented records on my winning and losing and reserved an amount of my winnings to cover my ass in case they suddenly became very interested.

This was not an official conversation so he gave his professional opinion without putting it in writing or making statements I could hold him to. He did say that if he didn’t know about it, it wasn’t an issue yet. What he also added was that there’s a department of the taxes always looking into and monitoring new things as to determine the taxability of it. If poker was getting so big as I made believe it was he wouldn’t be surprised if they would take an official stance in the near future which would be inline with current tax laws and would be applicable from day one of online play, not from this day onwards. (hence his advice to make reservations)

That sounds logical to me and also something that all of us should reckon with, not just the Dutch players.

Lastly he said that if I win a couple of hundred $$ a year not to bother at all. If it becomes thousands the situation would change. I told him that I would hopefully need to reserve huge amounts in the future.

So document and reserve! The worst thing that can happen is that you actually have to use that reserve to pay taxes, otherwise you have savings. In any even you’ll better of than getting into huge financial problems with the tax department or have nothing to show for after playing poker for a couple of years.

Schedule C
 

OK. Suppose I've decided to file on schedule C. What should my schedule C look like?

Schedule C has a line for "gross receipts or sales", and then lines for various forms of costs and expenses.

The two issues that confuse me the most are:

1) What is a "gross receipt or sale". Looking at my neteller, etc. -- how do I count it?

2) On what line do I report my buy ins or losses?

Re: Schedule C
 

I know I'm just a lowly HR Block Tax preparer, but if I were you, I wouldn't mess with the schedule C unless you're a serious pro who makes big money and does a lot of traveling to various tournaments.

If you get cute and try and claim expenses against your winnings, you're gonna get called on the carpet.

The schedule C is just not designed for professional gamblers. If you don't believe me, try and find the "Professional Gambler" business code.

Re: Schedule C
 

[ QUOTE ]
I know I'm just a lowly HR Block Tax preparer, but if I were you, I wouldn't mess with the schedule C unless you're a serious pro who makes big money and does a lot of traveling to various tournaments.

If you get cute and try and claim expenses against your winnings, you're gonna get called on the carpet.

The schedule C is just not designed for professional gamblers. If you don't believe me, try and find the "Professional Gambler" business code.

[/ QUOTE ]

That is funny. I had a business for several years, that did not have a business code for the 1040. (I used one of the miscellaneous codes). Filed schedule C every year, deductions expenses and the works.

It is probably unwise to file a sched C for gambling unless it is your full time occupation. I would not do it unless my CPA wanted me to do it that way.

Please back up your reasoning with valid arguments though. Lack of a code is not a valid reason not to file that way.

Re: Schedule C
 

[ QUOTE ]
[ QUOTE ]
I know I'm just a lowly HR Block Tax preparer, but if I were you, I wouldn't mess with the schedule C unless you're a serious pro who makes big money and does a lot of traveling to various tournaments.

If you get cute and try and claim expenses against your winnings, you're gonna get called on the carpet.

The schedule C is just not designed for professional gamblers. If you don't believe me, try and find the "Professional Gambler" business code.

[/ QUOTE ]


Please back up your reasoning with valid arguments though. Lack of a code is not a valid reason not to file that way.

[/ QUOTE ]

OK

You had a business. I'm sure you provided either goods or services.

What goods & services does a professional gambler provide? None!

That's why the Schedule C is inappropriate.

Re: Schedule C
 

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
I know I'm just a lowly HR Block Tax preparer, but if I were you, I wouldn't mess with the schedule C unless you're a serious pro who makes big money and does a lot of traveling to various tournaments.

If you get cute and try and claim expenses against your winnings, you're gonna get called on the carpet.

The schedule C is just not designed for professional gamblers. If you don't believe me, try and find the "Professional Gambler" business code.

[/ QUOTE ]


Please back up your reasoning with valid arguments though. Lack of a code is not a valid reason not to file that way.

[/ QUOTE ]

OK

You had a business. I'm sure you provided either goods or services.

What goods & services does a professional gambler provide? None!

That's why the Schedule C is inappropriate.

[/ QUOTE ]

I highly suggest anyone consult with a gambling-familiar CPA before taking Foghatlive's (or anyone else's) specific filing advice.

Re: Schedule C
 

I am a CPA. Without going into major detail, there are two recognized ways to declare your poker winnings on your Form 1040:

1 - report gross winnings as any other gambling winnings, and then deduct your losses as an itemized deduction, but only to the extent of winnings.

2 - File Schedule 'C' as a professional gambler (poker player). Using this method, you report "Gross Revenues" and deduct "expenses".

In general (and I emphasize the word 'general'), the higher the revenues are, the more advantageous it is to file schedule 'c'. There are exceptions to everything, however.

The Internal Revenue Service recognizes both methods, and have specific rules pertaining to each way. Allowing professionals to report via Schedule 'C'was a major "win" for players, and was only recognized after legislation in US Tax Court.

In summary, I agree with Mr. Miller. Consult an EXPERIENCED professional. In addition, you can self educate yourself via certain books, i'm sure which the gambler's book shop would have, but i've seen a few in the local Barnes and Noble.

That's it. Good luck.

Brett

Re: Schedule C
 

[ QUOTE ]


I highly suggest anyone consult with a gambling-familiar CPA before taking Foghatlive's (or anyone else's) specific filing advice.

[/ QUOTE ]

Agree 100%

I'm just throwing in my 2 cents.

Re: Paying taxes on Poker Winnings...
 

Brett,

If you're still around, just wondering if gambling losses are considered "expenses" on a schedule C?

Re: Paying taxes on Poker Winnings...
 

[ QUOTE ]
One thing I don't get is the fact that the US Gov't continually asserts that online poker for Real Money is not legal and never will be...



Hope I'm not alone in thinking this.

Joe M.

[/ QUOTE ]

Gambling laws have to be the most hypocritical of all laws , especially in NY where I live.

I can go to the corner deli and play a million different numbers games, or go to Off Track Betting and bet on horses, but I can't play poker online.

Re: Paying taxes on Poker Winnings...
 

[ QUOTE ]

Gambling laws have to be the most hypocritical of all laws , especially in NY where I live.

I can go to the corner deli and play a million different numbers games, or go to Off Track Betting and bet on horses, but I can't play poker online.

[/ QUOTE ]

That is not the law in new York.