2005 Tax Preperation

[Corey]

Ignoring how handle my 2004 taxes, I plan to take extra precautions in 2005 as for the first time I will be combining a significant amount of "9-5" income with (hopefully) a decent amount of internet gambling winnings.

(before anyone starts, I know "go to a tax professional" would give me an answer, but I'm seeking the opinions of people who have personally gone through this process so I can mare sure I'm getting the best IRS "deal.")

Are there any steps I should take now, before the start of 2005? For example, should I W/D everything to Neteller, so I have a baseline, or will my own data suffice, as any IRS audit would reveal the same numbers?

I am setting up a MS Access database that will copy the PT "Sessions" tab and parse the data by any conceivable IRS measure of a "session.” What measures are internet pros using this year (ignoring B/M trips)? I would assume either daily or site sign-on/sign-off.

Also, How should I treat realized (withdrawn) winnings through the course of 2005? Do poker winnings count even if they are not realized? Say I start with a BR of $500 at 1/2; end up with a BR of $1,000, realizing $5,000 in the process (for my new PC setup and a trip to Vegas). Clearly, the 5k will count, but can I delay reporting the 0.5k until it is realized?

I am bowing to the 2+2 Gods while waiting for my copy of Gambler’s Guide to Taxes (as I do a fair amount of +EV non-internet gambling as well)

[broiler]

There is no reason to do anything extra before the start of the year. You are already going to use PT to help track your sessions, so the only thing I might do is keep a running total of your bankroll separately.

There is a very good article linked in this forum within the last day or so that defines session. I believe the article was written by a tax attorney and is very detailed on how to count sessions.

Poker winnings count once your session is completed. The withdrawal of money from one account to another has no impact on the taxable nature of your sessions.

I will give you an example loosely based on your question. Certain facts are added to make the examply fairly complete. On 1/1 you deposit $500 for poker. During 2005, your winning sessions total $7,000 and losing sessions total $2,500. Now your bankroll would be $5,000, but you withdtrew $4,000 for the computer and Vegas trip. The math works out to an ending bankroll of $1,000. For your taxes, you would have $7,000 of gambling winnings to report as gambling income and $2,500 of gambling losses as an itemized deduction.

The reason I say to keep a running bankroll is to show the IRS, in case of audit, how the withdrawal reconciles to your reported income and deductions. If you have no records or refuse to supplt the records, the IRS is allowed to use any "reasonable method" to determine the numbers that should be reported. From my experience, you don't want a reasonable method to come into play because they find the worst gambler that reports income their way and apply it to your situation. You have no records, so they get make up numbers and the courts will rule in favor of the IRS. The best solution is to have records and then it is up to the IRS to disprove your records.

[scott2130]

Why not only report the income you cash out and bring to the US?

Party is based in India (i think) and my money is in an Indian bank, I assume. I also assume this account is not in my name but in Party's along with everyone elses money earning interest for Party.

Now correct me if I am wrong, but I have money in an off shore account that is NOT in my name.

If the IRS really wanted to track my very small bankroll down, then review my tax return, and finally send an auditor out to ask me about it, they would be spending alot more money then I MAY owe in tax.

On the other hand, if I deposit money into my bank account with my regular paychecks and this totals say $10,000 more then my w-2 amounts it would be easy to track. Your bank sends deposit data to the IRS all the time and this is an easy computer job to compare deposits to claimed income. Tipped employees get caught like this all the time. Another post says to get a check and cash it at a check cashing place. I don't know what records these places keep but it sounds safer then electronic transfers of any kind. Also keep in mind the odds, # of gamblers, IRS auditors, bigger fish to fry, there is a formula there somewhere. This is all unnecessary thought because I know all 2+2ers report all there winnings to the IRS.

[broiler]

I will preface all of my answer here by saying that I am required by state law and ethical codes to give answers that are based on the law.

The fact that any site is outside the US and doesn't have your money at their bank in your name is irrelevant. You know how much money in their account belongs to you and how you got to that amount. I equate your thought to the gamblers who thought that the safe deposit box at the casino that held their chips were not income. They lost in court. The IRS even has a form for reporting accounts outside the US. Party has a cashier function to tell you how much of your money they are holding.

I agree that it is unlikely that a small player is caught, but as I said, I'm just stating the law. The IRS does have a formula to determine whose return gets looked at. If you score a certain number based upon your reported income, then your return gets examined.

I will also say that the IRS can be very petty. I have seen one case where they made a miscalculation on a payroll return and the difference was less than $2. The penalties and inteest were another $200. It took me a month of phone calls to finally get everything waived because the person that input the information at the IRS double counted a part time employee.

I agre that everyone here is on the up and up, but you never know about the lurkers who don't post [img]/images/graemlins/smile.gif[/img]

[largeeyes]

What about declaring at the end of the year you made x $(you withdrew it all in December lets say and only then had the cash). Wouldn't you be nailed with tons of penalties for unpaid taxes on this money? If I declare what I earned, what do I do about the fact I haven't been making tax payments all year long?

[broiler]

You won't necessarily be nailed with penalties for underpayment of estimated taxes. There are a couple of exceptions that can keep you ok for this year.

The first exception is that you have paid in 100% of your prior year tax. If you play poker part time, then your withholding from a full time job can take care of this. One caveat here is that if your prior year AGI was over $150,000 then the rule is 110%. This exception also doesn't apply if your prior year tax was zero.

The other major exception is that you can have 90% of the current year tax paid in. If you really only had the earnings at the end of the year, then you can annualize the income. Annualizing your income will put it all in the last quarter of the year and make the estimated tax payment due January 15.

If you don't fit into one of the exceptions, then you really are stuck for underpayment of estimated tax penalty.

[largeeyes]

100% of prior year tax? What does that mean? I left my job in March(completely unrelated to poker). I have since continued to play online and keep things afloat, but made no tax payments for that money(which has just sat in neteller except for about 4500). I want to make a pretty large(10-15k) withdraw and apply it to this year's taxes because next year I start a new job and that money will be thrown into a whole new tax bracket. Yes, I know I'm not declaring it all correctly, but frankly, it's a little late do dot all the i's and cross all the t's. This year, I only earned about 4-5k at my job and probably 4-5x that in other endeavours. [img]/images/graemlins/crazy.gif[/img] I plan on declaring what I made this year I think all out, for the reasons I previously mentioned. What kinda penalties would that ensue, any idea? If my total income is still only 25kish, shouldn't even then my taxable income be relatively low if I file as Single head of household?

[david050173]

[ QUOTE ]
Why not only report the income you cash out and bring to the US?


[/ QUOTE ]

Because you are committing tax fraud. Up to you to decide if the risk reward is worth it to you.

[david050173]

[ QUOTE ]
100% of prior year tax? What does that mean? I left my job in March(completely unrelated to poker). I have since continued to play online and keep things afloat, but made no tax payments for that money(which has just sat in neteller except for about 4500). I want to make a pretty large(10-15k) withdraw and apply it to this year's taxes because next year I start a new job and that money will be thrown into a whole new tax bracket. Yes, I know I'm not declaring it all correctly, but frankly, it's a little late do dot all the i's and cross all the t's. This year, I only earned about 4-5k at my job and probably 4-5x that in other endeavours. [img]/images/graemlins/crazy.gif[/img] I plan on declaring what I made this year I think all out, for the reasons I previously mentioned. What kinda penalties would that ensue, any idea? If my total income is still only 25kish, shouldn't even then my taxable income be relatively low if I file as Single head of household?

[/ QUOTE ]

First if you only make 25K and are head of a household (not as a single), you are not going to owe a lot of taxes since you have the standard deduction, a personal exemption and a dependant. I believe the penalty for not paying estimated taxes (or not withholding enough) is strictly an interest one.

[mistrpug]

[ QUOTE ]


First if you only make 25K and are head of a household (not as a single), you are not going to owe a lot of taxes since you have the standard deduction, a personal exemption and a dependant.

[/ QUOTE ]

When you declare gambling winnings, you need to declare winnings sessions and income, and deduct losing sessions as gambling loses. To do the latter, you must itemize deductions and therefore lose the standard deduction.