Taxes and College Financial Aid

[RiverMel]

Please take a moment to seriously digest the consequences of the gross income accounting methods that are mandated by the IRS. If you play enough, you are going to be reporting a very high income even if you break even at poker.

[Bukem_]

Then aren't those who play for a living getting killed in taxes?
Say you net 100 grand a year. I don't know how much you gross, but couldn't it be a million?

Isn't that going to crush you if you declare it all using this method?

[mmcd]

Haven't you ever worked a summer job that paid cash under the table?

I seriously doubt the government is gonna give two shits (or even find out) about the 12-18k in spending money a college kid wins in his spare time. I mean its not like you are going to have a huge bank account balance or be buying houses/boats/cars or anything.

I think the chances of a college student with no fulltime job and probably like 10k in a savings/checking account getting audited by the IRS are infintesimally small. If reporting it is gonna screw up your financial aid, I wouldn't worry too much about it.

Besides even in get-struck-by-lightening chance that you do get audited, they're not gonna throw the book at some kid who won a little bit playing cards, but didn't report it.

Probably worst case scenerio you have to pay you owe and a little bit in penalties.

Obviously this changes if you start making significantly more money.

[moondogg]

[ QUOTE ]
Then aren't those who play for a living getting killed in taxes?
Say you net 100 grand a year. I don't know how much you gross, but couldn't it be a million?

Isn't that going to crush you if you declare it all using this method?

[/ QUOTE ]

You don't pay taxes on your gross winnings. You declare your gross winnings on the 1040, declare your losses (up to the amount of your winnings) as deductions on Schedule A, and end up paying taxes on the net income. Also, your deductions are applied on lines 37 and 38, and your taxable income is calculated later on line 40. The end result is that your inflated AGI from gambling winnings might have an a very small increase on your taxable income (example below), which will almost definitely not raise your tax bracket, and whose impact on your final tax owed will be practically minsicule.

[Example] For a single filer with a single exemption whose non-gambling employment income is under 104K and whose gambling-adjusted AGI is over 104K:
If your AGI goes over a certain amount (104,625), your exemption amount will be decreased slightly (if your AGI is 150K, your exemption amount will be decreased by $256), which slightly increases your taxable income, which will cause an very small increase in your tax due (again if your AGI is 150K, and your taxable income will increase by 256, so if your tax rate is 25% your total tax will increase by $64, which should be relatively a very small fraction of what you pay for rake, internet access, etc).

However, you can get screwed over with things that require a maximum gross income, such as financial aid and Roth IRAs. The AGI doesn't mean a whole lot in a logical sense, but it's the number some people like to use to determine wealth.


Note: I ain't no CPA, accountant, etc. This is all based on the 1040, Pub 529, etc, all from the IRS website.

[slickpoppa]

Wow, that was actually a very informative post. Seriously.