Little tax question, less or more than 5k.

[arkady]

I forgot the link, but I read directly from IRS.gov that when it comes to reporting gambling winnings they want you to do two different things depending on how much one reports.

Anything lower than 5k, they (and this is coming from memory) expect some kind of paper or W2 equivalent and apparently require one to pay 15% on it. Anything more than 5k is then taxed the full 28%. Can anyone who has had experience with this confirm or deny this?

If this is the case per se, then I or anyone would strongly consider to stop cashing out and just keep it in Neteller if you are close to the 5k line. Because reporting 4.9K and paying 15% seems MUCH MUCH more preferable than reporting 6k and paying 28%...at least for this year.

[arkady]

wanted to add that it might be either 25% or 28%, but still an appreciable difference.

[cardcounter0]

There isn't such a thing.

[Warik]

Tax "bracket" is somewhat of a misnomer. People think that you are paying 15% on your income and once you reach the magic number it jumps to 25%... this is not entirely accurate.

If you look at page 62 of http://www.irs.gov/pub/irs-pdf/i1040.pdf, you'll get a better idea.

Look at page 74. It LOOKS like you jump to 28% at the $68,800 mark - but that's entirely true.

Suppose you make $75,000.

You're paying 10% on the first $7,000, 15% on the next $21,400, 25% on the next $40,400, and 28% on the final $6,200. That's $15,746 which is 21% of $75,000, not 28%.

These $5,000 and $6,000 figures you are giving don't mean anything out of context anyway because your total tax rate depends on your total income. It's not broken down.

If you're going to pay tax on your winnings, you can try doing what I do. Try to estimate how much you'll win this year playing poker if all things remain the same. i.e. if you make 2 BB/hr playing $5/$10, estimate how many hours you'll play and multiply that by $20. Figure out the tax and there you go - you'll always have enough left to pay taxes.

On the other hand... you're supposed to pay quarterly estimated tax anyway, so you can set it "aside" by mailing a check to Uncle Sam.

Oh, and don't forget to buy some hoops.

(anybody who knows what they're talking about please correct any mistakes in my post - I'm learning more about our wonderful tax system every day)

[TLC]

** I am not a CPA or any other kind of tax professional **

I think you are talking about W2G reporting. You'll typically get one of these from casinos if you win over $1200 on games like slots and bingo ($1500 on Keno). I believe they are also required to report if you won more than $600 and it was more than 300 times your wager.

The "payer" of the winnings (i.e., casino), is required to withhold 25% of the winnings if they are over $5,000 and are from certain sources (e.g., lotteries, or if you won 300x your bet). I think they are required to withhold 28% if you don't provide a "correct" tax payer identification number and 30% if you are a foreigner.

Some others here will need to verify this, but I believe that withdrawal from NETELLER wouldn't be subject to this since they don't know the nature of the winnings nor are a gambling institution. It would be like the IRS holding a bank responsible for you depositing cash you had won from a casino. I don't know if online gambling sites are required/encouraged to file W2G's since they are offshore. Even if they were (which I don't think they are), it would probably be for big wins like MTTs at the time of your winning regardless of when you cashed it out. Cashing out is merely transferring your net winnings and do not indicate the nature of any single win.

Now, just because the "payer" is not required to file paperwork and withhold taxes from the winnings, it does not eliminate your responsibility to keep track of winnings/losses, report them appropriately, and make any necessary estimated tax payments.

** I am not a CPA or any other kind of tax professional **

[arkady]

warik,

so if everything is done in terms of a combined income, i guess these numbers truly are meaningless.

i am not sure what you mean by your suggestion of estimating my earn, I have a very a good idea of what I'll pull in come January - but I would rather keep it in Neteller and find out what the best amount of money to withdraw is anyway.

Even if the numbers I present are pointless, just by breaking it down using your system (which is great, brackets are indeed misleading) then I can pull an amount that I need that won't require me to pay that extra 28% (for instance).

Point being just how much I make is not the most important number, its how much I withdraw and place in my bank - money sitting in Neteller is not "earned" yet as far as IRS can see.

[arkady]

THat is actually exactly what I read and just couldn't formulate it as nicely as you did - thank you. The W2G thing does not apply in the way I thought it applied [img]/images/graemlins/smile.gif[/img]

[Warik]

[ QUOTE ]
i am not sure what you mean by your suggestion of estimating my earn

[/ QUOTE ]

Let's say you make $40,000 at your real job and make 2 BB/hr playing $5/$10 poker. Let's say you typically play 10 hours per week. 10 hours per week x 52 weeks = 520 hours. 2 bb/hr = $20/hr. 520 hours x $20/hr = $10,400. So, you estimate that you will earn $10,400 playing poker assuming your winrate doesn't change, hours don't change, and you don't move up or down in limits. $40,000 + $10,400 = $50,400 which in total is about $9,000 worth of tax liability.

However! You're already paying taxes out of your check each week, so you only need to estimate for the $10,400 worth of poker income. That extra $10,400 is taxed as 25%, so you come up with about $2,500. $2,500 / 4 = $625 per quarter. You'd send a check every quarter for $625. When you do your taxes in April if you paid too little, you'd send the balance. If you paid too much, they'll send you the difference. That's how you estimate.

[ QUOTE ]
Point being just how much I make is not the most important number, its how much I withdraw and place in my bank - money sitting in Neteller is not "earned" yet as far as IRS can see.

[/ QUOTE ]

nononono... you'll get in big trouble for that if you're audited. Let's say you make $20,000 this year playing poker, withdraw $1,000 and keep $19,000 in Neteller or online. A few years down the road if you get audited for any reason, you'll have to justify all of this poker income. Saying "oh, I kept it online so it wasn't 'earned' yet" will get you in trouble. The money was EARNED in 2004 so you need to pay tax on it in 2004. When it hits your bank doesn't matter.

Unfortunately, it's not like the stock market where you don't have to pay tax on the $1,000 you made on your Microsoft shares because you didn't sell any yet.

[lostinthought]

[ QUOTE ]
Point being just how much I make is not the most important number, its how much I withdraw and place in my bank - money sitting in Neteller is not "earned" yet as far as IRS can see.

[/ QUOTE ]

are you kidding?

[Vazh]

The point is not "when the money was earned" it is "what can the IRS see"? If you get audited how is the IRS going to see what's in your Neteller account? I currently trust all the sites I play on, but if a few of them shut down and decide to keep our money are you really going to want to pay taxes on that? As far as I'm concerned it isn't mine until it's in my checking account.

Please convince me otherwise if I'm really wrong.