Online Poker Taxes

[djcolts]

Online Poker Taxes FAQ

I started playing online in late May. I'm about a break-even player/small winner. However, I saw this link yesterday and I'm frightened to death that even as a small-time poker player (playing .5/1 and 10+1 SNGs), that if play enough (note not WIN enough, but PLAY enough), that with the way the laws are right now, I could lose the ability to contribute to my Roth IRA and/or lose my mortgage interest deduction even if I break even on my online poker. Can someone with much more experience enlighten me on this? Thank you.

[tommy300]

I am also very interested in hearing any advice/what people have done in the past with this.

[aquifex harse]

This could be a serious issue for alot of posters on this site. I'd be interested to know how the law stands in the UK

[Kurn, son of Mogh]

Go to a tax accountant and ask.

Here's the question you must ask yourself. If I am audited, where's the paper trail? Remember, the online sites are not reporting anything to the IRS, but your bank might report regular a regular influx of cash.

One poster in another thread mentioned that an accountant had advised him to use deposits at poker sites as losses and withdrawals as wins. I can't vouch for either the veracity of the post or if the IRS would accept that.

If all you do is play at a B&M poker room, well, it's all cash and there's zero paper trail. The internet however, changes all that.

[djcolts]

Here's a concrete, simple example:

Let's say I make 70K a year (I don't - just an example) at my regular job. I start playing online poker, and catch the 30+3 SNG bug. I play 5 SNGs a day for a whole year. That is $165 a day, and take that times 365 days, and that is $60,225. I break even for the year - so I win $60,225. According to the FAQ I posted in the original post, the entry fees count as losing sessions that can be deducted - but (not in the post - but I heard this elsewhere) doesn't take away from your Adjusted Gross Income. And the $60,225 in winning are part of your AGI. Therefore, even though I break even, because for a single person the AGI limit to contribute to a Roth IRA is $110,000 - I'm over the AGI limit, so I can't contribute to a Roth IRA because my AGI would be over $130,000.

I hope that shows what I'm particularly concerned about.

[Kurn, son of Mogh]

You have a choice. You can either not report your poker income/deductions and still contribute to the Roth and risk an uncomfortable situation with the IRS if you get audited.

or

You can decide what's more important to you - playing online poker or contributing to the Roth, and then accept the consequences of your decision. (either no more Roth or much less poker)

Life's about tradeoffs.

[tommy300]

[ QUOTE ]
You have a choice. You can either not report your poker income/deductions and still contribute to the Roth and risk an uncomfortable situation with the IRS if you get audited.

or

You can decide what's more important to you - playing online poker or contributing to the Roth, and then accept the consequences of your decision. (either no more Roth or much less poker)

Life's about tradeoffs.

[/ QUOTE ]

It should not be like this! He only made $70K, not the $130K that shows up as income. He broke even on the year with poker, no extra $$ than the $70K, why should we have to count it as $130K+??

It doesn't make sense. Why should there have to be a trade-off? There shouldn't IMO. Whatever I want to do with my money, I should be able to do. If I profited $5K on the year for poker, pay taxes on the extra $5K, not the "won" $60K+...and lose Roth and house benefits....not all of us live close to a casino, or want to sit around with a 5 hour waiting list....

[cardcounter0]

suppose instead of playing on-line poker, he set up a fruit stand on the corner and sold apples. He sells 130k worth of apples and so has to report an extra 130k in income.

Expenses of selling apples was also 130k, which he deducts so his net gain is 0. However, because of the extra income, the same bad things happen, in regards to funding roths, Alternative Minimum Taxes, etc.

If you start making poker winnings that equal your normal salary you file as professional player and use schedule C, or you incorporate and make your poker playing a corporate activity.

See a tax advisor or CPA.

[gonzo787]

Im seriously chugging away trying to do just that. Midway through the year both incomes are neck and neck.
Here is something to think about though: Because the casinos do not report anything to the IRS, they have no way of knowing exactly how you got the money. Perhaps you won a huge tournament. It would seem to me that they can only track the actual profits you make. I have also seen some people post that online poker is one long session.

The sad thing is that I don't see things changing in the future. The government has yet to embrace online poker. Although, technically the same rules apply to B&M games. Although, nobody complains there, because profits seem as though they would be much harder to track.

[driller]

Technically, you are supposed to declare all your winning sessions or events (such as a winning lottery ticket). Then you can deduct all your losses on the itemized deduction schedule -- the same place you deduct your interest payments. You can deduct gambling losses up to the extent of your winnings. In other words you can break even but not show a net loss from gambling. Thus if you broke even, there would be no addition to your taxable income. However, your adjusted gross income would be increased by the amount of your gross winnings.
The only question I see is the record keeping. I think the idea of just using your deposit and receipts from the online poker site would work, because using each session for many online players would generate a huge amount of useless paper.