Another Poker/Tax Post --- How To Suddenly Start Reporting?

[KramerTM]

Without giving away too much info so as to not make myself an easy catch for the IRS, I am 22 year who has been playing poker as a "side" source of income for about 4 or 5 years. Only in the last two years has it become lucrative enough where I have actually made what one (namely, the IRS) might consider to be substantial. If I had to estimate, I would say that I am up about $7K-$9K over this span. I very recently had a thought... "This is awfully convenient that the US government allows me to essentially take other people's money through these legally-questionable means without ever having to report a single dime."

Then, after doing some Googling and some 2p2 searching, I discovered the bitter truth. Not only do all gambling winnings have to be reported (and yes, poker is gambling no matter what your BB/100 rate is over 45,000 hands), but you can't even net your winnigs and losses to come with your "Other income" to file.

So, this brings up some issues for me, a generally good-standing citizen with little to no experience as taxpayer.

Issue #1: Is It True It Can Be Too Late To Start?
I noticed someone mentioned in a post something along the lines of "Well, if I start reporting now, then the IRS will find that I have years of unreported gambling winnings and it'll end up costing me a crapload in fines and interest, if not jail time."

Is there any validity to this sentiment? Is it true that if I have won about $7K over the last 2 or 3 years (probably half of that live and half of that online, if I had to estimate), that they'll want a piece of that as well as the income I plan to report from now on? Or will they just be satisfied and appreciative that I am reporting at all, unlike the millions who are probably opting out?

Issue #2: Dealing With Incomplete/Non-existent Records
While I have only downloaded PokerTracker very recently, I have been keeping a personal log of all my finishes over about 1,000 or so SnGs. I probably made about 3K of the overall 7K from these SnGs. Since this is the only record I have of any of my previous winnings, will this suffice as a record of my gambling activity? And futher, would I be setting myself up for IRS disaster if they found out I have another unreported $4K I magically used to buy TVs, DVDs, and other essentials with?

Issue #3: "You Don't Make Enough To Worry About It"
Maybe I'm overreacting a little, seeing as a lot of people who are reading this thread probably make $7K-$9K in a few months of work, but I'm more setting up for the future. Poker isn't going away from my life and my win rate is only improving. But is there some kind of unspoken arbitrary threshhold of winnings below which people aren't really expected to report anyway? I doubt this exists, but I thought perhaps I was getting worried for nothing because I know the IRS isn't exactly losing sleep over my unreported $7K.

Issue #4: Tips and Strategies to Minimize What You Lose in Taxes
Seeing as we are all poker players, I'm sure much research and plotting has been done in regards to tax-mitigating tactics. Short of any transgressions that will remove me from the good-standing citizen list, are there simple accounting techniques from which we poker players can benefit? For instance, save the risk of being robbed, is there any merit to keeping all live winnings as cash stashed somewhere as opposed to depositing it into a bank and establishing a paper trail? How about the popular idea of going to race tracks and collecting all the losing stubs? Could strategies like these actually amount to a signiciant reduction in your additional income?

Issue #5: My Money When I Win It or Receive It?
Straightforward. Ignoring the fact that online poker sites operate offshore, which I read is irrelevant to your reporting protocol, do I have to report my winnings when they occur or when I finally cash out? The best argument I can think of that I haven't heard anywhere, is that money still deposited at a poker site isn't the equivalance of stashing money under a bed. Money is the tool employed in poker by which more money is won. This is to say, if you are moving up limits in poker as your winnings increase your bankroll accordingly, it seems wrong to tax that bankroll. I could potentially be making no sense here.

I'll leave it at that for now. I still have plenty more questions, but I don't want to make this post dauntingly long. If anyone considers themself to be an authority on the subject, feel free to PM me in addition to responding within the thread.

[scott2130]

Keep searching other posts for your answers. There are many posts that will easily answer these questions. If you really want to know check out this really cool site.

www.IRS.GOV

I hear they know what they are talking about.

[dogmeat]

Opinion only!

I file, and have done so for several years, but the very first time I ever filed any gaming winnings I did so at the end of the year. If your win is small enough, you may not need to worry about any penalty for "late payment" for 2005 earnings (which are supposed to be paid quarterly).

I'd just go ahead and file my regular 2005 1040 and include your winnings either on the front (or better yet) or on a schedule C (essentially filing as a business - poker player). The IRS will then send you a set of quarterly coupons to prepay your 2006 taxes quarterly.

If you keep playing, and are making more money, it is a lot easier to pay the taxes you owe this way, instead of waiting until the end of the year and owing so much that it really hurts to make the payment, and penalties.

Dogmeat [img]/images/graemlins/spade.gif[/img]

[jrz1972]

[ QUOTE ]
Issue #5: My Money When I Win It or Receive It?
Straightforward. Ignoring the fact that online poker sites operate offshore, which I read is irrelevant to your reporting protocol, do I have to report my winnings when they occur or when I finally cash out? The best argument I can think of that I haven't heard anywhere, is that money still deposited at a poker site isn't the equivalance of stashing money under a bed. Money is the tool employed in poker by which more money is won. This is to say, if you are moving up limits in poker as your winnings increase your bankroll accordingly, it seems wrong to tax that bankroll. I could potentially be making no sense here.

[/ QUOTE ]

I've read this argument before, and it won't fly.

If you won a bunch of money at the craps table, but left the cash in a safe deposit box at the casino, do you think the IRS would agree that the money isn't really "yours" just because you left it there? (I'm pretty sure there was actually a case on this, but I don't remember where I read it).

Leaving your money at Party is exactly the same thing.

[jrz1972]

[ QUOTE ]
Issue #3: "You Don't Make Enough To Worry About It"
Maybe I'm overreacting a little, seeing as a lot of people who are reading this thread probably make $7K-$9K in a few months of work, but I'm more setting up for the future. Poker isn't going away from my life and my win rate is only improving. But is there some kind of unspoken arbitrary threshhold of winnings below which people aren't really expected to report anyway? I doubt this exists, but I thought perhaps I was getting worried for nothing because I know the IRS isn't exactly losing sleep over my unreported $7K.

[/ QUOTE ]

And yes, the IRS will happily track down your $7000. If the IRS will go after some poor waitress for underreporting a couple thousand in tips, they will definitely go after you.

Underreporting your income by $7000 is obviously not Willie Nelson-type tax evasion, but this kind of stuff is basically the IRS's bread and butter.