Tax Implications- big tournament win

[elcheapo]

I didn't see a particular place to post this so might as well be here. I am a college student who quit his job to play poker as the main source of income. I've never really had to worry about taxes because I assumed that little 3-700 cashouts every week would slide under the radar and I could just plead ignorance if caught. After a 10K December and a 50K January (empire 200k win) I feel that the government is just about guaranteed to want their supposedly entitled piece. The question is how much of this 60k will have I to give back and who do I need to talk to etc.?? I would love to get a response back from those who have made a big score online and now deal with the huge tax implications currently. I am a dependent and have been told by my parents to keep the money in my account until a course of action is found.

[Shoe]

Sorry to break it to you, but your going to end up in federal pound-me-in-the-ass prison.

On a more serious note... yes you need to pay taxes on your winnings just like income you make from any other job.

[elcheapo]

This is not about skipping out on my beloved American right but about the process that needs to occur to make sure everybody is happy.

[johnd13]

Documentation, documentation, documentation. If this is not your profession, you can offset some winnings by your losses but you have to keep good records of the losses...


If it is your profession, you can deduct more things like travel expenses, software, books, just like any other legit business. Best advice, talk to a professional CPA

[Zinzan]

2004 was my first year playing online poker. Here's what I plan to do:

I'm just looking at money that has went out of my bank account and into my bank account from online poker (e.g. withdrawals from pokersite minus initial deposits into site). Theoretically, I understand we're supposed to keep journals of gains and losses for every session (definition gray), but the only records the IRS has somewhat readily available are the moneys going into and out of my U.S. bank accounts. I will create a 2004 "journal" noting dates of deposit and withdrawal from/to my bank accounts. Yes, my bankroll has grown beyond that a bit, but I think of the money I haven't cashed out as unrealized gain.

In addition, I may or may not reduce my declared other income by a few hundred dollars for B&M tourney entry fees (no cashes yet). I will add these dates and fees to my "journal". I even have a receipt from my Lucky Chances entry.

That is what I plan to do, but please don't take this as legal or tax advice. I think I'm doing what's fair. Doing it all "by the book" would amount to approximately the same tax burden, but the non-monetary burden would be overwhelming.

Thoughts/comments?

-Z

[sternroolz]

You need to talk to a CPA. I am uncertain of how "professional" poker players have to account for their winnings and write offs. I am also uncertain of how the Feds and how state view online winnings.

Maybe you want to start with the web page of the guy that writes tax advice for cardplayer, I. Nelson Rose. His web page is www.GamblingAndTheLaw.com.

BTW, make no doubt about it, the IRS has become significantly more active in pursuing taxes off of gambling money. Because of the internet, these results are very easy for the IRS to track. There are several pro's that the IRS is threatning(or has filed charges on already) to file charges on for tax evasion.

[docknet]

Call me totally stupid if you like, but how do the feds find out about money won from an offshore gambling site? Especially when you cash out via check?

[jcx]

If you intend to report your winnings and pay taxes on them, ensure that you make a estimated tax deposit to cover tax owed on that Jan win. Otherwise you'll have a nasty surprise waiting for you a year from April in the form of an estimated tax penalty. Also, since you are claimed on someone else's return as a dependent, bend over and hold your ankles. You'll have precious few deductions to take. You really need to hire a CPA if you want to do this right. Good luck.

[Rusty266]

[ QUOTE ]
Call me totally stupid if you like, but how do the feds find out about money won from an offshore gambling site? Especially when you cash out via check?

[/ QUOTE ]

At this time, the Feds aren't likely to find out about how much money you have in an offshore gambling account. At this time anyway. With the online poker explosion its possible that things could change at some point, but it will be a difficult hurdle for them, and you will likely hear about it when things do change.

However, according to the law, you are required to pay taxes on your winnings. In addition, you are required to report any holdings in offshore accounts that exceed $10k. So even though the Feds don't know this information and at this time are not able to access this information under most circumstances, that is the law.

As for cashing out via check, it depends on the size of the check and what you do with it on whether or not the Feds will be able to learn the details of the transaction.

If you are audited by the IRS, naturally any check that is deposited into any banking account you may have, will be discovered. One of the things they require for the audit is bank statements, so you will need an adequate explanation for each transaction that takes place. If you are not audited? No harm no foul. Roll the dice and take your chances if you feel like gambling.

If you simply cash the check at the corner check cashing outlet then it depends on the size of the check on whether or not the Feds may get wind of the transaction. Any bank or other check cashing establishment is required to provide documentation to the IRS on any transaction over $3k or on any transactions in one day totaling $10k. So, if for instance, you keep your withdrawls at say 2.5k, and you cash a check every week at a different check cashing outlet around town, then in theory, the IRS should not have any documentation on any of these transactions.

But throw in some major red flags on your return, maybe some hint of fraud, which does indeed result in an IRS audit, and my guess is that all bets would be off, and you may be surprised at what the Feds can discover.

Obviously the key is to not be audited and unfortunately there is no real fool proof system on that. I did nothing wrong at all, didn't make a single mistake on my return, have never cheated on my taxes, etc., but I got audited. After 9 months of meetings and exchanging information the issue was finally resolved and I didn't give them a dime. I sure am glad I didn't have to explain all of those unreported gambling winnings though.

The bottom line is this. If you are not audited, and you keep your withdrawls below the $3k level, then the odds are greatly in your favor that the IRS will never know the difference.

So I guess you gotta ask yourself a question. Do I feel lucky? Well do ya punk?

[scrummie2]

I'm a law student (not a tax lawyer, but have taken tax). Rule on gambling winnings is that they are income, and must be declared as such - however, you can "basket" them against your gambling losses as was mentioned above. You need to document your losses though as, just as it was mentioned, the gov't takes interest in deductions of gross income based on gambling losses.

By basket I mean that only the losses can be deducted against the winnings (i.e. if it cost you $20k in entry fees for different tourneys and you won $50k, your "income" for tax purposes is $30k). Can't deduct "expenses" of professional poker playing against the winnings from a purely personal standpoint (i.e. cost of plane tickets to tourney in AC wouldn't be deductible from the gambling winnings.) Although perhaps if you incorporated yourself as a business then you could right them off but that's a whole different issue ha ha