Taxes on online winnings

[Webster]

The two CPA's I have talked to said that unless you are making a TON of money and putting thousands into you bank on a ragular basis, there is a very very very very small chance you will be caught and only unless there is something else going on.

WITH THAT SAID - you really do not want to be caught.

Remember - the current administration has really cut the funds to the IRS and they are working on a thread of a budget and are VERY undermaned. Bush's incompetancy has helped online poker. [img]/images/graemlins/wink.gif[/img]

[axioma]

yup, londons fun at night. getting back is the problem though! [img]/images/graemlins/wink.gif[/img]

[The once and future king]

London smells.

[Jman28]

With so many people playing online poker, not to mention sports and bj etc., does the IRS really worry about a guy who cashes out say, $7k over one year? $15k? $50k?

[moondogg]

[ QUOTE ]
With so many people playing online poker, not to mention sports and bj etc., does the IRS really worry about a guy who cashes out say, $7k over one year? $15k? $50k?

[/ QUOTE ]

If you cashout a few grand, you bank probably won't set off notify the IRS. Probably.

If you cashout more than 10K into your bank account, you bank definitely WILL notify the IRS (as required by law).

If you cashout well over 10K over the course of the year, but do it in increments of a few grand, you bank may or may not notify the IRS. It would be up the the bank, and some banks will report it to cover their ass.

However, you don't have to be reported for anything to be randomly audited. Certain financial behavoir can make you more likely to be audited, but nobody at the IRS is saying "well, he seems to have thousands of unreported gambling income, but it's less than $X, so we'll make a point of auditing him".

You may get audited. You may not. If you DO get audited and have not reported the few thousand of poker money you cashed into your bank, you are going to be seriously screwed. If you want to assume that your won't get audited, that's your perogative, but to me it seems like a pretty huge downside risk.

[John Deere]

I am planning on simply claiming my year's net winnings as "other income", rather than claiming my total winning session revenue as income and my losses as itemized deductions (I still don't itemize anyway).

See, the problem with the IRS is that they can declare you guilty until you prove yourself innocent -- the exact opposite of what we should expect in the American justice system.

If we were "innocent until proven guilty", then here is what would happen if the IRS got suspicious of my gambling winnings based on my claim (using the method I described above):
1) IRS looks at bank records, sees $X transferred from Neteller over course of year.
2) IRS looks at income tax form, sees $X claimed as "other income".
3) In order to prove wrongdoing, IRS must now prove that my net winning session income was greater than $X. They would have to obtain records of my play over the course of the past year from Party/Empire.

Now, it would be very unlikely that #3 would occur, since Party/Empire are not located in the US and, well, we've all dealt with their customer service, so we know how hard it is to get a hand history from YESTERDAY, let alone 12 months ago. As such, it would be impossible to prove that I did not have all winning sessions and that my claim is accurate.

Unfortunately, the federal government allows the IRS to place the burden of proof on the citizen to prove their innocence in the face of accusations. If one cannot produce the requested records, they are assumed to be guilty. In this case, the IRS expects us to keep detailed diaries, and provide them as evidence when requested.

Nonetheless, I find it doubtful that the IRS, having gone through #1 and #2, would waste time pursuing it any farther. Then again, what do I know.

[jujujaja34]

1) How easy is it for the IRS to pull up records of ATM withdrawls with the debit card?

2) Do they typically dig that deep?

Just curious...

jujujaja34

[thwang99]

Your suggestion seems solid, claiming net winnings instead of wins and deducting loses, but they aren't.

Using each method has different consequences and can result in having to pay different amounts of taxes, having to pay AMT, being disqualified for an IRA, etc...

- Tony

[J.R.]

1) How easy is it for the IRS to pull up records of ATM withdrawls with the debit card?

Very easy. Its issued by a US bank, so its just a subpoena for electronic records the bank is legally required to keep.

2) Do they typically dig that deep?

If they become interested (ie. you get audited) and have reason to suspect these records exist.

[Im Just A Bill]

Hi Slick, here is what I do. I have been playing online blackjack for some time and am relatively new to poker. I have been tracking wins/losses in Quickbooks setting up each casino to look like a bank account. At the end of the year, I just run a standard P&L and report the net winnings as income. Quickbooks offers a nice easy way to track win/loss by time period and casino with some of the built in reporting. It also helps track receivables (cash-outs).

I believe that technically you cannot deduct losses and expenses from your winnings unless you are running it as a business and filing sched C. But, I consider it all one big session and feel that since I am reporting at least the amount showing up in my bank account each year that I am in line with the spirit of the law.

Hope this helps,
Bill