Poker as a Microbusiness
 

I just read a Tax Hotline article which discusses home-based "microbusinesses" as a way to save on taxes. A microbusiness is basically an unincorporated small-scale enterprise that is usually just a supplement to your day job. It seems to me that small-stakes poker play would qualify -- and give me a chance to deduct from my winnings the cost of the poker books I buy and my broadband connection.

People with microbusinesses typically run into trouble when they can't prove a profit motive to the IRS. That is, they're trying to use a money-losing hobby to get tax deductions. But for a winning poker player, the profit motive is obvious.

Because I have no interest in being a professional poker player, I had never considered my poker play as a "business." Based on this Tax Hotline article, it seems it might actually qualify.

Have any of you nonprofessional players tried approaching (and accounting for) your poker play this way? Do you see any problem with treating part-time poker play the same as, say, part-time freelance photography with respect to being a legitimate business? Is this too good to be true?

Re: Poker as a Microbusiness
 

I'm not a tax expert, but I'd be careful in this respect. I seem to remember something in the Tax Code that specifically refers to gambling earnings being taxable, and losses being deductable only to the extent of winnings. If this is the case, you would probably be risking it.

I seem to remember in the late '90s, people were trying to declare their stock daytrading as a business for similar reasons (I'm kinda fuzzy now on the specifics). But it seems the IRS did not agree with this interpretation of "business".

Tax experts are welcomed to disagree with me. In fact, please do, because I would like to deduct my expenses in this way as well! [img]/images/graemlins/wink.gif[/img]

Re: Poker as a Microbusiness
 

That would be a great idea - one that I have recently looked into. It would allow you to deduct all of your expenses (internet, new computer, books, travel - for all you B&M players)and use them to offset any winnings. You would not be required to take your losses as itemized deductions. You could file a Schedule C with you "poker business" and even get the home/office deduction including mortgage interest and utilities. The IRS doesnt like this plan as much as I do.

The IRS puts a high standard on what they consider a professional gambler. Unfortunately, most of us would not qualify. This is a decent article on the subject:

http://www.cardplayer.com/poker_maga...es/?a_id=13166

I would be interested if anyone has tried this on previous returns and what degree of sucess they had.

Re: Poker as a Microbusiness
 

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I'm not a tax expert, but I'd be careful in this respect. I seem to remember something in the Tax Code that specifically refers to gambling earnings being taxable, and losses being deductable only to the extent of winnings.

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Yes, this is correct. But I'm not really talking about deducting losses, because I can do that already and still have profit left over (assuming I continue to beat the micros on Party, which I think is a fair assumption).

Rather, I'm interested in deducting auxiliary expenses such as poker books and my internet connection (after already having deducted my losses from my winnings). Also, an added advantage I didn't mention is the new "Solo 401(K)," which allows you to shelter 100% of the income from an unincorporated business, up to $13,000.

Again, maybe there's something I'm not considering which makes this impossible. OTOH, if poker can be a full-time business for some people, why not a part-time business for others?

Re: Poker as a Microbusiness
 

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The IRS puts a high standard on what they consider a professional gambler. Unfortunately, most of us would not qualify.

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I guess my question is: Do you have to be a "professional gambler" for your gambling to be a business? To take my previous example, someone who is a software engineer by day and freelance photographer in his spare time is not a "professional photographer" even if he treats his photography as a business. (Or is he? Does having even a small business in a field make you a "professional" in that field as far as the IRS is concerned?)

Re: Poker as a Microbusiness
 

Among the most important court decisions were those regarding whether a full-time professional gambler's wagering activity constituted a trade or business for income tax purposes. (Groetzinger v. Comr. 1985) "there is an equitable basis for according a high-volume short-term trader different tax treatment than the taxpayer who occasionally engages in a short-term trade."

In (Comr. v Groetzinger 1987), the Supreme Court concluded "to be engaged in a trade or business, the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer's primary purpose in engaging in the activity must be for income or profit." This landmark decision confirmed the availability of professional gambler status for income tax purposes. (IRS Code §162(a) and §62(a)(1)).

If you want to claim poker as a business you must be considered a "professional gambler." Otherwise, your winnings are included as ordinary income and your losses are itemized deductions up to the extent of winnings and subject to income limitations. If you manage to convince them that poker is your business those items such as books, internet, vegas vacations, and the like become business expenses deductible on your Schedule C.

You can bet that if the IRS doesnt get their cut of your gambling winnings because you claim gambling is your business they will desire a closer look.

Re: Poker as a Microbusiness
 

This only has come up recently, since irregular low-limit players would rarely claim their $500 yearly win on their taxes anyway. On-Line though you've got a paper trail and need to actually claim net winnings.

This is not a substitute for tax advice, but I'd guess that "yes", it qualifies as a business. And I don't think you need to worry about "profit motive" since you are only filing this way if you ARE winning and therefore HAVE a profit (not just a motive). Be advised there there is some sort of "3 years in a row" rule you'll need to contend with in, you guessed it, 3 years. You shouldn't have any trouble with deducting poker books but WILL have trouble deducting all your computer and your broad-band.

- Louie

Re: Poker as a Microbusiness
 

Fortunately in Canada, we do not get taxed on gambling winnings. 100% in our pocket!!!!

Re: Poker as a Microbusiness
 

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This is a decent article on the subject:

http://www.cardplayer.com/poker_maga...es/?a_id=13166



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What about this requirement?

3. You must show a profit in three out of five consecutive years. This rule is applied by the IRS to distinguish businesses from hobbies or recreational activities.


This is my first year playing poker seriously, and I will be reporting my winnings, can I file as a pro, or do I need to wait until I have 2 more winning years to qualify?

Re: Poker as a Microbusiness
 

I'm not an expert, but I am a small business person, and I've filed my own taxes, including Schedule C, for every one of the last seven or eight years.

A lot of the stuff that gets posted on 2+2 strikes me as somewhere between wrong and silly.

Anytime anybody starts a new business they're not going to be able to show profits on 3 out of the past 5 years, or whatever the number is. I've always shown a profit, and nobody ever asked about the past five years during the first five years I paid my taxes (or at any other time.)

You don't need a "business telephone listing," "business cards," or a "permit" to be a professional gambler. Nobody's going to be impressed because you have those things, when your business doesn't need them.

If you're a casual gambler, like 99.9% of all gamblers, gambling is not your business. The IRS doesn't want you deducting all your losses. Similarly, if you're an amatuer photographer, they don't want you deducting the cost of all your cameras and film. If you like to collect stamps in your spare time, they don't want you deducting the cost of the stamps. If you like to play video games... well you get the idea.

There's no magic formula for distinguishing between a business and a hobby, but there is one crucial distinction: whether you made a profit.

Most people don't make money off their hobbies.

If you made a profit, the IRS wants to get paid, and the Schedule C is probably the right place to do it.

Some other distinctions include whether you treat it as a business (keep records, for example), and whether you have an expectation of making a profit.

The only thing that makes gambling a little trickier than other hobbies is that occasionally recreational gamblers get lucky. If you go to Vegas once or twice a year, and happen to score one time, you probably shouldn't file a Schedule C, because you're still just a recreational player who happened to get lucky.

The bottom line is, any time you have a business, you can and should use a schedule C. A Scedule C allows you to deduct the costs of your business from your income, and record the result as your "profits."

IMO, most of the people in this forum should probably be using Schedule C.


Again, this is just my opinion, based on my own experience and knowledge of the tax code. If someone knows better than me, please correct me.


Oh, one other thing - the $500 thing is a widespread misunderstanding. Technically, you're supposed to report all your income, even if income from a particular source is less than $500.

The $500 thing, I believe, comes from the amount of money after which someone employing an independent contractor has to (or is supposed to) send in a W-2.