2005 Tax Preperation

[largeeyes]

I consider a session between deposits and withdraws from rooms because they are so close. Nearly every one was profitable, since I"m a bonus whore. I'm not gonna sweat the small stuff as I think I"m already going further than most. If I get thrown in jail, so be it.

[BradleyT]

Why couldn't he deduct the vegas trip and computer? Those are "work" related.

[Emperor]

Question:

Why is Poker considered Gambling but semi pro and pro sports where a "purse" is paid based upon entry fees not considered gambling?

Even the Internet Gambling Act which restricted US banks from moving money to Internet Gambling Sites specified that "Games of Skill where the purse was known ahead of time" were EXEMPT (such as Chess tournaments and Poker tournaments)

How is Poker different from Semi Pro golfers who all buyin and then play for a purse that is awarded to the top 10% of finishers?

I would argue Poker is not anymore like gambling than these other things. These other activities are not taxed as gambling income. They are taxed as regular income.

[Entity]

I'm getting the book everyone is recommending, but I'm a bit curious until then. I've made about $5k from poker play and deposit bonuses, etc., but have very little other income (was unemployed and living off of savings for the majority of the year). I'm wondering what the easiest way to do this will be, and additionally, for next year -- when I'm hoping for my income to be about 50% from poker/poker related and 50% from web design/business -- what the easiest way to do this will be.

Rob

[david050173]

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First if you only make 25K and are head of a household (not as a single), you are not going to owe a lot of taxes since you have the standard deduction, a personal exemption and a dependant.

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When you declare gambling winnings, you need to declare winnings sessions and income, and deduct losing sessions as gambling loses. To do the latter, you must itemize deductions and therefore lose the standard deduction.

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Good point. He probably can qualify as a professional but I am not sure if that is an advantage (ie has to pay social security but can deduct expenses). Either way if your net income is only 25K you are not going to owe a lot of taxes so an interest penalty isn't going to be too brutual.

[broiler]

You are right the the underpayment penalty is really just interest on the tax owed. The rate is 4 or 5% based upon when the payment was due.

I would say that the penalty isn't going to be that much since we are looking at $25k of income. The taxable income would only be $11,650 (after deducting $7,150 for standard deduction and $6,200 for personal exemptions). The tax on that amount is only $1,241. Since there is a child, then you have the child tax credit for $1,000, which reduces the tax to $241. I will also add that I haven't thrown in an earned income credit because that is a good way to get audited in this situation. The EIC would give you a refund, but I really don't recommend trying it. Therefore, the end result is a balance of $241*1.05= $253.

Even if we add another $5k in income, you are only looking at an additional $450 in tax.

[david050173]

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You are right the the underpayment penalty is really just interest on the tax owed. The rate is 4 or 5% based upon when the payment was due.

I would say that the penalty isn't going to be that much since we are looking at $25k of income. The taxable income would only be $11,650 (after deducting $7,150 for standard deduction and $6,200 for personal exemptions). The tax on that amount is only $1,241. Since there is a child, then you have the child tax credit for $1,000, which reduces the tax to $241. I will also add that I haven't thrown in an earned income credit because that is a good way to get audited in this situation. The EIC would give you a refund, but I really don't recommend trying it. Therefore, the end result is a balance of $241*1.05= $253.

Even if we add another $5k in income, you are only looking at an additional $450 in tax.

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I forgot all about the EIC. I wouldn't turn it down just because of a fear of an audit if it was a decent chunk of money (I think 25K is towards the upper end so we might be talking a hundred dollars instead of a thousand). Depending where you live, there are places which help low income people determine if they qualify or not.

One other thing is if you made 5x as much from poker as normal income, I wonder if your required to file as a professional?

[largeeyes]

Yowza. Thanks for all the help guys. No kid here, but this thread is incredibly helpful.

[broiler]

If you don't have a kid, then ignore the previous calculation because it susbstantially changes the numbers. First, you would be single, not head of household, unless you are supporting someone at your residence. The other major difference is in the amount of your deductions.

The revised tax number is going to be $25,000-4,850-3,100= $17,050 of taxable income. The tax on that is $2,204*1.05= $2,314 with penalties. You can see how different the result is if you change the facts slightly. The safe thing to do is get ready to pay about 10% of your final win in taxes.

[largeeyes]

Yuck. Eh, o well I guess. My bad for mixing up the terminology. Thanks for the help.