Tax thought to ponder

[moondogg]

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Good example... thank you. Your net is still 400, but you have different scenarios. Do these differences make a difference in how much you end up paying? Again, I'm very ignorant about the line items in the tax form.

Does it make a difference because in sceanrio 1 you are reporting the least in your gross income which keeps you at a lower tax bracket? And in scenario 4 you are reporting the most which might put you in a higher bracket?

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It shouldn't affect the total tax you owe very much, and shouldn't affect your tax bracket. I gave an amatuer (i.e. me) run-through of the tax effect here. Take it with a grain of salt, I very well may be wrong.

Note: While the changes in gross income will not have very much effect on your total tax liability, your Adjusted Gross Income (which IS affected) can be used to determine eligibility for participation in financial aid programs or Roth IRAs.

[JPinAZ]

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I would think that by filing taxes for on-line winnings you would be admitting to the government that you do in fact play poker, illegally, on-line. Am I way off base here? This is a night and day comparason but wouldn't it be the same as a drug dealer admiting he sold drugs for a living but decided he wanted to pay taxes on his income?

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Remember, Al Capone wasn't put into Alcatraz for racketeering. He was put there for not reporting his racketeering income.

[DeucesUp]

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Anyway, I asked him this question and he said it doesn't matter how detailed you keep your records. In the end, it's just two numbers. total wins, and total losses. So I said to him that IRS wants poker players to report wins and losses at a "session" level (per table, I guess) because this favors the IRS whereas lumping everything together favors Joe Public. He said he didn't really understand why this is so.

Did I not ask the question right? Is he not the right person to help me if he says this? What do I need to ask him? I wish I can talk to a CPA who has some experience in this.


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No, you did ask a legimate question and I'm not sure why a CPA wouldn't understand why this is important.

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It shouldn't affect the total tax you owe very much, and shouldn't affect your tax bracket. I gave an amatuer (i.e. me) run-through of the tax effect here

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Moondogg gives a good example, but neglects the effect of itemized deductions which adversely effects people who don't have a mortgage and don't pay state taxes, i.e. those that don't itemize deductions on their tax returns.

Everyone is entitled to a standard deduction of $4750-$9000 depending on circumstances. Or you have the option of itemizing things like mortgage interest, charitable contributions, state income taxes, property taxes and gambling losses etc. If the sum of these is greater than your standard deduction, you use this instead of the standard deduction. The problem comes for those that don't have much in the way of itemized deductions except for gambling losses because you can't use the standard deduction AND declare your gambling losses.

Here's an extreme example:

----Say you're married and between you and your spouce's "regular" jobs you make $100K a year. This puts you in the 25% tax bracket and has a standard deduction of $9000.

----Now say you're a lousy recreational poker player who has lost $10K during the year, but the sum of your winning sessions is +$50k and the sum of your losing sessions in -$60K.

----Now if you don't have any itemized deductions other than the gambling losses (most people have at least some, but just for the example assume is 0), you have two choices:

a.) Use the standard deduction and pay taxes on $100 (salary) + $50K (winnings) - $9K (standard deduction) = $141K

-or-

b.) itemize and pay taxes on $100K (salary) + $50(winnings) -$50K (losses - losses limited to amount won) = $100K

Obviously the second choice is better. But if you hadn't gambled you would have paid tax on $100K (salary) - $9K (standard deduction) = $91K.

Thus, you're paying tax on $9K extra which is about $2250. So you're paying over two thousand dollars in tax for gambling and LOSING!


The short moral of this long example is that anyone who spends any decent amount of time gambling has to itemize deductions, so you lose out on your standard deduction.

If one were allowed to account just a net won this wouldn't be the case and even if one were allowed to net on a weekly basis, if might not be the case since a lot of the fluctuations smooth out if one plays a lot per week.

[SamJack]

Here's my approach to it.

I too keep a daily record of win/loss per site.

I know there has been previous discussion and the conventional wisdom is that each session must be kept separately.

We all know that that is an near impossible task as many of us multi-table, switch tables, etc.

As some one pointed out earlier, there is little precedent or guidelines on how on-line poker earnings should be tracked for tax purposes.

I feel comfortable in the approach I'm taking. If I were to get audited, I feel pretty confident that IRS will accept the records I kept. (which incidentally is on Quicken. Transaction betwen bank acct, neteller and poker account are kept. and daily winnings/losses are entered in each poker account).

Ethically (morally?), I also feel comfortable with the way I'm tracking and reporting my poker winnings and losses.

SamJack

[mistrpug]

Deuces, your example has a serious flaw in it that should be pointed out.

"The amount of losses you deduct cannot total more than the amount of gambling income you have reported on your return."

That's straight from the IRS's website. So if you won $50k, but lost $60k, you'd have to declare $50k in winnings and $50k in loses.


But your point is valid. The standard decution thing sucks. It looks like all I'll be able to claim (other than gambling losses) is state and local taxes.

[mmcd]

Why would a losing recreational poker player bother to report anything on his return unless it helped to secure him some tax benefit. It's not like he has extra money laying around that he'd have to account for if audited. He didn't earn any income, he lost 10k out of his 100k salary playing poker.


Basically what you are saying here is that every person who goes to a casino fairly regularly and gambles recreationally has to keep careful records of all their wins and losses and report them on their tax returns. I don't think this is the case. In any given poker game, how many of the suckers do you think are keeping careful records of their winning/losing sessions so they can report this information to the IRS (and their wife for that matter).

I'm pretty sure all this nonsense applies to professional players or consistent recreational players who WIN (and win something more than a negligible amount).

[mistrpug]

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Why would a losing recreational poker player bother to report anything on his return unless it helped to secure him some tax benefit. It's not like he has extra money laying around that he'd have to account for if audited. He didn't earn any income, he lost 10k out of his 100k salary playing poker.


Basically what you are saying here is that every person who goes to a casino fairly regularly and gambles recreationally has to keep careful records of all their wins and losses and report them on their tax returns. I don't think this is the case. In any given poker game, how many of the suckers do you think are keeping careful records of their winning/losing sessions so they can report this information to the IRS (and their wife for that matter).

I'm pretty sure all this nonsense applies to professional players or consistent recreational players who WIN (and win something more than a negligible amount).

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I don't really know. I was just pointing out that you can't delcare more loses than wins.

[DeucesUp]

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"The amount of losses you deduct cannot total more than the amount of gambling income you have reported on your return."


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Yes, that's why the deduction in my example was $50K not $60K I even indicated that with a note

b.) itemize and pay taxes on $100K (salary) + $50(winnings) -$50K (losses - losses limited to amount won) = $100K

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Why would a losing recreational poker player bother to report anything on his return unless it helped to secure him some tax benefit. It's not like he has extra money laying around that he'd have to account for if audited. He didn't earn any income, he lost 10k out of his 100k salary playing poker.



Basically what you are saying here is that every person who goes to a casino fairly regularly and gambles recreationally has to keep careful records of all their wins and losses and report them on their tax returns. I don't think this is the case.

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Technically, this IS the case. However, very few people worry about it and generally the IRS won't either because records don't usually exist. But what does happen all the time is when people win a big jackpot (I believe $5k or $10k is the limit -- and this could include a poker tournament win or a big night at high-stakes), the casino files a 1040-G form reporting this to the IRS. Then, you certainly have to report it and in order to deduct losses, you have to keep records.

Many people have been hurt by this if they gamble regularly, lose quite a bit so they don't worry about the tax implications and then hit a big slot jackpot at the end of the year. Now their stuck paying taxes on the whole thing or going back and "making up" records for the losses they've taken during the year which the IRS frowns upon.

[Blarg]

Is something like Quicken and Turbo-Tax adequate, do you think, for someone who just wanted to go that route instead of finding a CPA?

[moondogg]

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Moondogg gives a good example, but neglects the effect of itemized deductions which adversely effects people who don't have a mortgage and don't pay state taxes, i.e. those that don't itemize deductions on their tax returns.


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You're right. In the recent coversations, it has generally been assumed (by me at least) that deductions were being itemized. However, if it wouldn't make sense for you to itemize if you weren't gambling, you are going to get screwed (basically, you forfeit some or all of your deduction).