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Old 09-22-2004, 03:52 PM
Vuron00 Vuron00 is offline
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Default Tax subject revisisted

There have many posts in many different areas of this forum concerning tax laws and the tax implications of online gambling for the many of us in the US.

What we know about current tax law:

Each SESSION'S wins and losses must be documented.
GROSS winnings must be reported as income.
Losses are reporting as an itemized deduction.
Current tax laws were written with only B&M in mind.

This applies even for break-even or losing players. A player that breaks even exactly after 100 - $100 tournaments has losses of $10,000 (due to entry fees). But, they also have to report $10,000 as winnings. Reporting gross winnings has the effect of raising total income can have various impacts on tax brackets, IRA qualifications, loan qualifications, etc.

The most difficult and asked question is the definition of the word "Session". In the old days of B&M, the above example was easy to track. Each single tournament, ring game, etc. started with a buy-in and ended with some sort of a cash-out. The definition problem started even before online poker with the implementation of the Player's Card. Players were no longer required to buy in and cash out each time they wanted to play and record keeping got a little muddied.

The advent of online poker caused so many more questions than answers and nobody seems to know the correct way to report wins/losses, or the reasons for doing so. The biggest question is "What is a session?". With people playing multiple tournaments, ring games, mtt's simultaneously, possibly on multiple sites at once, the definition of a "session" becomes very cloudy.

One of the main suggested workarounds to these issues seem to be to only count deposits and withdrawels as wins and losses. Here is my take on this:

Technically, the money that we have stored in an online site is not ours. We make an original deposit for the opportunity to play in "real money" games as compared to "play money" games. When we "REQUEST" a withdrawel, it must be approved by the site and released to us. If you read the fine print on most of these sites, they can close our accounts for various reasons and we forfeit any "money" that we had in our account. They are not obligated to give us any money. Even worse, if one of these sites were to close down permanently, we have little to no legal recourse to receive any money. So, technically, every time we play a game of any kind and win, we are winning "credits" and not real dollars. When we request a withdrawel, if the site is nice enough, we receive real dollars in the form of a bank deposit, check, etc. I was given "$100" by an online site which was put into my account to start playing after I had left the site. When I didn't fulfill my obligations by playing enough hands, this "money" was removed from my account by the site. The online site can and will modify your account any way they see fit.

So, until we successfully make a withdrawel, we haven't really won anything and haven't received any money for wins.

The closest comparison that I can think of is the stock market. If you own stock in a company, that stock price rises and falls on a daily basis. Even though your net worth on paper is rising and falling, you haven't received any "real money" and do not have to pay taxes on this as it is not income until you sell that stock.

Another comparison could be the lottery. If you buy a lottery ticket and happen to win, you do not have to pay any taxes on the winnings until you actually cash in the ticket. Sure, you've theoretically won money and increased your worth, but until you claim it and get "real money", its all on paper.

If you win $100K online and never request a withdrawel, you'll never really have that money... will you? If you don't log into your PartyPoker account for 180 days, they can close your account and you'll forfeit everything in your account.

Just my 2 cents.
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  #2  
Old 09-22-2004, 05:05 PM
Wake up CALL Wake up CALL is offline
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Default Re: Tax subject revisisted

[ QUOTE ]
Technically, the money that we have stored in an online site is not ours. We make an original deposit for the opportunity to play in "real money" games as compared to "play money" games. When we "REQUEST" a withdrawel, it must be approved by the site and released to us. If you read the fine print on most of these sites, they can close our accounts for various reasons and we forfeit any "money" that we had in our account. They are not obligated to give us any money. Even worse, if one of these sites were to close down permanently, we have little to no legal recourse to receive any money. So, technically, every time we play a game of any kind and win, we are winning "credits" and not real dollars. When we request a withdrawel, if the site is nice enough, we receive real dollars in the form of a bank deposit, check, etc. I was given "$100" by an online site which was put into my account to start playing after I had left the site. When I didn't fulfill my obligations by playing enough hands, this "money" was removed from my account by the site. The online site can and will modify your account any way they see fit.


[/ QUOTE ]

Substitute chips for money and B&M casino for online account/casino and you have the exact same set of circumstances which has been ruled on by a Tax Court. The casino may refuse to cash out your chips yet the ruling was that once the chips were in your posession and you had either changed tables or left the table a session had ended and the accounting has begun. The way you are defining credits are just how chips in a casino are redeemed.


Just because you want it to be otherwise does not make it so.
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  #3  
Old 09-22-2004, 05:58 PM
Lost Wages Lost Wages is offline
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Default Re: Tax subject revisisted

If you win $100K online and never request a withdrawel, you'll never really have that money...

If I transfer it to my bank I still don't really have it. It's still just 1's and 0's in a computer. I don't see how an online poker account is any different than a bank account.

Lost Wages
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Old 09-22-2004, 06:08 PM
Shoe Shoe is offline
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Default Re: Tax subject revisisted

Just because the tax laws are messed up does not mean you can get around them by being logical. You still need to keep track of individual sessions online.
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  #5  
Old 09-23-2004, 12:07 AM
Vuron00 Vuron00 is offline
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Default Re: Tax subject revisisted

OK.. so what is the answer to the question...

What is an online session? And don't guess.
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  #6  
Old 09-23-2004, 01:52 AM
LondonBroil LondonBroil is offline
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Default Re: Tax subject revisisted

[ QUOTE ]
OK.. so what is the answer to the question...

What is an online session? And don't guess.

[/ QUOTE ]

That's a grey area. Do you see why?
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  #7  
Old 09-24-2004, 03:38 PM
Vazh Vazh is offline
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Default Re: Tax subject revisisted

According to 2 separate tax professionals that I talked to a session starts when you buy chips and ends when you convert those chips back to cash. So when you buy into Party from neteller your session starts, when you cash out to Neteller it ends.
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  #8  
Old 09-24-2004, 07:12 PM
Chipr777 Chipr777 is offline
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Default Re: Tax subject revisisted

This is a touchy subject for most. I know there are ways around paying taxes on on-line winnings. I guess my question would be since on-line gaming is technicly illigal in most places in the U.S. by paying taxes on winnings are you not addmiting wrong doing? To this point I know there's never been a conviction for anyone PLAYING on-line poker. Just something to think about. I would also think that any cashout under CTR laws (10,000.01) you wouldn't be required to report? Stop me if I'm wrong. What about having them send a check for over 10k, depositing the check as a front money account at a local casino, and withdrawing 10k a day as table markers. Is this legal or circumventing the law?
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