Clarifications about Tax
 

I have read many of the tax articles on here, and I just wanted to clarify some things.

1) We only have to pay taxes if our net winnings for the year is over 10k.

2) We only have to pay taxes if our net winnings (after deductions of "poker expenses") is over 10k.

3) A tax year runs from Jan 1 to Dec 31.

4) Since I am 19, and "gambling" in US law isn't of legal age yet, but I play on party where age 18 and up is ok I still have to pay gambling taxes?

5) My bank account has crossed the 10k mark this year. but I have not won a net of 10k, because I went on a -4.2k downswing shortly after. I have to/don't have to pay taxes?

Thanks to anyone that knows about these things. I have been reading the old tax articles a lot, and I seem to still be confused about these.

Re: Clarifications about Tax
 

I won't add more than what's already in the search archives, but 1) and 2) are absolutely not true in the U.S. 3) Is true for almost all individuals, and you would have to give the IRS a good reason for going off the calendar year tax year reporting.

This FAQ page will answer some of your other questions.

Re: Clarifications about Tax
 

To answer your questions as simply as possible:

1) Not necessarily. A professional will have self employment taxes. A nonprofessional player might still pay taxes at a net of $10k, if the winning sessions are high enough to cause phaseouts to kick in. A recreational player would have to play at fairly high limits in order to cause the sessions to work out in this way. Also, if your parents are still claiming you as a dependent on their return, then your will start paying taxes at a lower number.

Finally, don't confuse a tax liability with the need to file a tax return. You should file a tax return even with lower amounts of income because the statute of limitations does not begin on an unfiled tax return. There is no reason to give the IRS an unlimited time to ask questions about your income.

2) Similar to number 1, except that "poker expenses" would only apply to a professional gambler. Due to self-employment taxes, you would need to pay taxes at a much lower level of income.

3) The tax tear is the calendar year for you.

4) Your age and the legality of gambling have no impact on the taxability of your gambling winnings.

5) You should file a tax return, even if the tax that you owe at the end is zero because of the reason listed in answer 1.

Re: Clarifications about Tax
 

I strongly suggest you talk to a professional tax preparer who can starighten out your errors, including:

(1) You must pay taxes on all of your income; if you earn $10 playing poker, you must include that $10 in your income.

(2) Net winnings aren't as important as your gross wins and your gross losses--unless you're a professional you can't itemize;

(4) You must pay taxes even if you're underage (or have earned income illegally)....

In any case, talk to a professional.

-- Russ Fox (EA)

Re: Clarifications about Tax
 

I'm pretty sure you can itemize if you're not a professional. You just can't take the standard deduction AND itemize just your poker losses. Correct?

Re: Clarifications about Tax
 

So... just for clarification if I use Neteller as a median between my WAMU account and my Party account, what transactions can the IRS(or whoever I pay taxes to) actually see, and what part is based on the honor system?

Re: Clarifications about Tax
 

You are right. The only way to deduct gambling losses for the nonprofessional is to itemize.

Re: Clarifications about Tax
 

The IRS would have easy access to your account at WM since part of the banking regulations require them to turn over your information when properly requested.

Neteller, even though it is not an American bank, has also stated that they will also turn over your account information to the IRS, if an appropriate request is made.

The poker sites are pretty standard in saying that they will not release your information to the IRS. However, after the IRS is denied by the poker sites, they will ask you to provide the information. The only caveat here is that you would be under audit before the IRS asked you to turn over that kind of information.

Re: Clarifications about Tax
 

Oops. What I should have said is that you can't "net" wins and losses unless you're a professional; not that you can't itemize.

-- Russ

Re: Clarifications about Tax
 

under what circumstances would the IRS look at my account? I am still a dependent, I barely have any net winnings and as far as official records go I have never held even a part time job.(i worked for my aunt for a summer)

Re: Clarifications about Tax
 

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4) Since I am 19, and "gambling" in US law isn't of legal age yet, but I play on party where age 18 and up is ok I still have to pay gambling taxes?

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I'm not sure what you're talking about here, we have non-tribal 18+ casinos in Washington state.

Re: Clarifications about Tax
 

really? all cardrooms and casinos that aren't "indian" are 21+

Re: Clarifications about Tax
 

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under what circumstances would the IRS look at my account? I am still a dependent, I barely have any net winnings and as far as official records go I have never held even a part time job.(i worked for my aunt for a summer)

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If you are subject to US tax laws, and if you have made $10,000 playing poker and you don't declare it and pay taxes on it, you are in violation of the law, period. Your age, dependency, other employment, the legality of your winnings, etc., etc., are irrelevant. There are a number of ways you can come to the attention of the IRS. For one thing, anyone who knows you play poker and who doesn't like you (like, say, a dumped girl friend) can drop a dime on you and will receive a financial reward if it turns out you have income you didn't declare and pay taxes on. I dare say I myself could make a few bucks by telling the IRS the screen names of all the silly folk who have publicly declared on 2p2 that they don't pay taxes on their poker winnings. The IRS could identify the persons behind the screen names without difficulty, and then the fun would begin. Not of course that I would do such a thing, but I could, and so could anyone else. Banks and other financial institutions send information on accounts to the IRS which matches up what is in people's accounts with what is in their returns. Discrepancies invite audits.

I knew someone who was hounded by the IRS on the grounds that he had not declared money from student bribes (for undeserved good grades). There were, of course, no bribes and no undeclared income, but there was a large pain in the butt for this fellow until it was straightened out. My assumption is that some disgruntled student angry about his/her grade informed the IRS as a means of vengeance that this guy was taking bribes , and the IRS obligingly made his life a misery for a while. He did not have any undeclared income, but if someone drops a dime on you and you do have undeclared income, you are in serious trouble. You can gamble that you won't come to the attention of the IRS, but if you lose, you can lose big. The best you could hope for is that they decide you are an ignorant fool, rather than an out and out tax-dodging crook.

And once again, it is not simply a matter of net winnings....

Get yourself some real advice from a professional knowledgeable in the application of tax law to gambling income. If you get caught, the best that can happen is being required to pay back taxes embellished with penalties, interest, and fines. In the worst case, you go to the federal slammer for a while.

Re: Clarifications about Tax
 

thanks. unfortunately i have not made 10k in poker winnings this year. some people are saying i must declare anyways. i am confused.

Re: Clarifications about Tax
 

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thanks. unfortunately i have not made 10k in poker winnings this year. some people are saying i must declare anyways. i am confused.

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There is a certain threshold (I am not sure of the current number). If you made above that threshold you must file, and you must declare all income, including gambling income. If your total income is below that threshold, you do not have to file, although you can file to get a refund of any tax withheld. This is explained in the beginning of the tax form booklet.

Re: Clarifications about Tax
 

I'd like to thank everyone for the help that they have provided regarding this post. Take care all.

Re: Clarifications about Tax
 

haha, I dont pay taxes, US government will never know about me!!! LOLOLOLOL!!!! SUCKERS!!!

Re: Clarifications about Tax
 

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thanks. unfortunately i have not made 10k in poker winnings this year. some people are saying i must declare anyways. i am confused.

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There is a certain threshold (I am not sure of the current number). If you made above that threshold you must file, and you must declare all income, including gambling income. If your total income is below that threshold, you do not have to file, although you can file to get a refund of any tax withheld. This is explained in the beginning of the tax form booklet.

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I am not sure if this is the exemption you are speaking of, but I recall that there is a provision that says that 1.) if you are under a certain age (I believe 23 or so), and have earned under a certain amount in a tax year (~4350 or so), then you do not have to file. Please consult IRS literature on this to find out exactly what the deal is, but this loophole applied to me for FEDERAL (but not local) taxes several years ago when I was in college.

Re: Clarifications about Tax
 

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really? all cardrooms and casinos that aren't "indian" are 21+

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I specifically said non-tribal. I know of at least three 18-and-older cardrooms in my city alone. I work in one of them. So it's not federal law. I'd guess that if casinos elsewhere are 21+, it's either because of local/state laws or because they serve alcohol and don't want to go to the trouble of differentiating between customers who are okay to gamble but not drink and customers who are okay to do both. Kind of like strip clubs in some localities.

Re: Clarifications about Tax
 

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under what circumstances would the IRS look at my account? I am still a dependent, I barely have any net winnings and as far as official records go I have never held even a part time job.(i worked for my aunt for a summer)

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If you are subject to US tax laws, and if you have made $10,000 playing poker and you don't declare it and pay taxes on it, you are in violation of the law, period. Your age, dependency, other employment, the legality of your winnings, etc., etc., are irrelevant.

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You are incorrect, there is no $10,000 threshold.

Russel Fox already summed it up, take his advice only... ignore the advice of others in this thread. Russell is one of the foremost authorities on taxation for gamblers, Mr. Fox is a tax practitioner enrolled to practice before the Internal Revenue Service. You can read some of his essays at www.gambling-law-us.com

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

Re: Clarifications about Tax
 

I would like to know what part of my advice was incorrect or misleading that the OP or any others should ignore. I may not be as well known, but my points are just as valid as any made by Mr. Fox, who I also recognize is one of the foremost authorities in this area. You won't find any disagreement in any post that I have ever made on this site and what Mr. Fox has stated on any of the same topics.

Your statements are the kind that have chased away other CPAs from this site. There are a handful of qualified people on this site who answer tax questions with all of skill and qualifications that Mr. Fox has. Please don't disrespect us with such a blanket statement as "ignore everyone except Mr. Fox."

Re: Clarifications about Tax
 

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under what circumstances would the IRS look at my account? I am still a dependent, I barely have any net winnings and as far as official records go I have never held even a part time job.(i worked for my aunt for a summer)

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If you are subject to US tax laws, and if you have made $10,000 playing poker and you don't declare it and pay taxes on it, you are in violation of the law, period. Your age, dependency, other employment, the legality of your winnings, etc., etc., are irrelevant.

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You are incorrect, there is no $10,000 threshold.

Russel Fox already summed it up, take his advice only... ignore the advice of others in this thread. Russell is one of the foremost authorities on taxation for gamblers, Mr. Fox is a tax practitioner enrolled to practice before the Internal Revenue Service. You can read some of his essays at www.gambling-law-us.com

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

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No, TT, you are incorrect. I never said there was a $10,000 threshhold. In fact, I said if you made $10,000 playing poker and didn't declare it, you would be in violation of the law--and you would be, because $10,000 is over the threshhold that requires you to file.

There is a section on who is required to file in the front of the income tax booklet. If you meet the criteria for filing listed there, you must file, and if you must file, you must declare all your gambling winnings, as well as all other income derived from taxable sources. Note, you must declare all your winnings without regard to your losses. If you itemize, you can deduct your losses from your winnings up to the amount of your winnings. You cannot use gambling losses to offset non-gambling income. You MUST keep records of what you won and lost where/when to substantiate your claims. If you are a professional gambler and gambling is your business, then you file schedule C and the rules are different and complicated. The point is, for the OP, that his age and dependency and whether he gambles legally or illegally are irrelevant. He must add up his income from taxable sources (e.g., wages, salaries, interest, dividends, profits and TOTAL--not net-- gambling winnings). If his income is above the threshhold for filing, then he must declare every dollar of his gambling winnings without regard to his losses. If he has enough deductions to make it worthwhile to itemize, then he can deduct his losses from his winnings.

Re: Clarifications about Tax
 

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under what circumstances would the IRS look at my account? I am still a dependent, I barely have any net winnings and as far as official records go I have never held even a part time job.(i worked for my aunt for a summer)

[/ QUOTE ]

If you are subject to US tax laws, and if you have made $10,000 playing poker and you don't declare it and pay taxes on it, you are in violation of the law, period. Your age, dependency, other employment, the legality of your winnings, etc., etc., are irrelevant.

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You are incorrect, there is no $10,000 threshold.

Russel Fox already summed it up, take his advice only... ignore the advice of others in this thread. Russell is one of the foremost authorities on taxation for gamblers, Mr. Fox is a tax practitioner enrolled to practice before the Internal Revenue Service. You can read some of his essays at www.gambling-law-us.com

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

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No, TT, you are incorrect. I never said there was a $10,000 threshhold. In fact, I said if you made $10,000 playing poker and didn't declare it, you would be in violation of the law--and you would be, because $10,000 is over the threshhold that requires you to file.

There is a section on who is required to file in the front of the income tax booklet. If you meet the criteria for filing listed there, you must file, and if you must file, you must declare all your gambling winnings, as well as all other income derived from taxable sources. Note, you must declare all your winnings without regard to your losses. If you itemize, you can deduct your losses from your winnings up to the amount of your winnings. You cannot use gambling losses to offset non-gambling income. You MUST keep records of what you won and lost where/when to substantiate your claims. If you are a professional gambler and gambling is your business, then you file schedule C and the rules are different and complicated. The point is, for the OP, that his age and dependency and whether he gambles legally or illegally are irrelevant. He must add up his income from taxable sources (e.g., wages, salaries, interest, dividends, profits and TOTAL--not net-- gambling winnings). If his income is above the threshhold for filing, then he must declare every dollar of his gambling winnings without regard to his losses. If he has enough deductions to make it worthwhile to itemize, then he can deduct his losses from his winnings.

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There have been numerous incorrect posts in the past declaring there to be a threshold of $10,000, hence your original post can easily be misunderstood as also advocating a fictitious threshold. Glad to see you and I are on the same page.

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

Re: Clarifications about Tax
 

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under what circumstances would the IRS look at my account? I am still a dependent, I barely have any net winnings and as far as official records go I have never held even a part time job.(i worked for my aunt for a summer)

[/ QUOTE ]

If you are subject to US tax laws, and if you have made $10,000 playing poker and you don't declare it and pay taxes on it, you are in violation of the law, period. Your age, dependency, other employment, the legality of your winnings, etc., etc., are irrelevant.

[/ QUOTE ]

You are incorrect, there is no $10,000 threshold.

Russel Fox already summed it up, take his advice only... ignore the advice of others in this thread. Russell is one of the foremost authorities on taxation for gamblers, Mr. Fox is a tax practitioner enrolled to practice before the Internal Revenue Service. You can read some of his essays at www.gambling-law-us.com

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

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No, TT, you are incorrect. I never said there was a $10,000 threshhold. In fact, I said if you made $10,000 playing poker and didn't declare it, you would be in violation of the law--and you would be, because $10,000 is over the threshhold that requires you to file.

There is a section on who is required to file in the front of the income tax booklet. If you meet the criteria for filing listed there, you must file, and if you must file, you must declare all your gambling winnings, as well as all other income derived from taxable sources. Note, you must declare all your winnings without regard to your losses. If you itemize, you can deduct your losses from your winnings up to the amount of your winnings. You cannot use gambling losses to offset non-gambling income. You MUST keep records of what you won and lost where/when to substantiate your claims. If you are a professional gambler and gambling is your business, then you file schedule C and the rules are different and complicated. The point is, for the OP, that his age and dependency and whether he gambles legally or illegally are irrelevant. He must add up his income from taxable sources (e.g., wages, salaries, interest, dividends, profits and TOTAL--not net-- gambling winnings). If his income is above the threshhold for filing, then he must declare every dollar of his gambling winnings without regard to his losses. If he has enough deductions to make it worthwhile to itemize, then he can deduct his losses from his winnings.

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There have been numerous incorrect posts in the past declaring there to be a threshold of $10,000, hence your original post can easily be misunderstood as also advocating a fictitious threshold. Glad to see you and I are on the same page.

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

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TT, the OP seemed to have the peculiar idea that if he had less than $10,000 net winnings, he didn't have to pay taxes on them, and he seemed to think that somehow being young and dependent and winning his money illegally would excuse him from owing taxes. A bunch of people (me included) kept trying to explain that he had it all wrong, but he didn't seem to be getting the picture. I hope the situation is now clear to the OP and to all the other posters who are not accustomed to the infamous 1040 with all of its myriad attachments and complexities. Any and all of you, if your total income is over a certain (low) threshhold (which changes slightly from year to year), you MUST file, and if you must file, you MUST declare every dollar of your poker winnings--not your net winnings, but your gross winnings. You MUST keep meticulous records of winning and losing sessions (and the question of what is a session is vexed), and you can only offset winnings with losses if you itemize.

Folks, you cannot blow off this obligation because you are young or still live with your folks or because you would rather not admit to income derived from activities of dubious legality. The IRS is not going to overlook the tax liabilities of hordes of young guys who are winning tens and hundreds of thousands of dollars just because the transactions are offshore or because the young guys winning and losing these sums of money would rather not be bothered with taxes. I think that was the point of Edward's article--a genral sense that somehow taxes don't apply to young guys who just wanna have lucrative fun. I read posts from guys who say they don't keep records and don't know how and others who publicly boast that they have no intention of paying taxes on their poker winnings (how stupid is that). Online poker is not under the radar and the IRS has its ways. The best advice is to get good professional help and meet your legal obligations.