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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.

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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).