Professional online player, what to do with the tax ?

AKQJT · #1 04-03-2003, 03:33 PM

any comments, I will appreciate.

Online poker has been my only job for two years and may be my only job forever. Each month, there are about 5k - 15k to my check account from Neteller and FirePay or by checks.

1. There is a article in CardPlayer March 28: Want to File Your Taxes as a Professional Gambler. It says: You must show a profit in three out of five consecutive years. This rule is applied by the INS to distinguish business from hobbies or recreational activities.
So according to above statement, I do not need worry about tax in five years. is it true?
2. if I do not pay tax in 5 years, will IRS ask me why I have so much $$$ in my bank account and no job but do not pay tax? does IRS have software system to automatically check everyone's bank account? I understand that if no one reports to IRS, they will not bother to investigate each individual.
3. If I report my gambling income, how do I pay the social security?
4. How about Medicare ? After I retire at age 65, should I have Medicare benefit if I pay tax for my gambling income?
5. I can not remember exactly how much I win(do not want bother to remember it, I have 10 accounts on different sites), if I win 100k/year, but I just report 80k to IRS, what will happen ?

Thanks to everyone, I believe some of the professional on line players would like to the answers. Good luck to everyone. wish royal flush comes to you soon.

RiverMel · #2 04-03-2003, 03:41 PM

Re: #1: No no no. You owe tax every single year. What that article was saying was that you needed to show a profit in order to have the priviledge of being considered a professional gambler. If you don't meet that criterion, you still must report your income only you are not allowed to file as a professional gambler (which has privleges).

Also, you need to keep accurate records. And that means you have to record every session. You can't just "not remember" your exact income. If you get audited and don't have any records...well, let's just say it won't be pleasant.

I am not a tax professional. When in doubt, talk to one.

Bubmack · #3 04-03-2003, 04:09 PM

The IRS does not review everyones bank statments to find the professional gamblers. But if you are audited they may or may not ask to see your bank records. They would instantly know that you are receiving significant amounts of $$ and not claiming it as income. They also audit individuals that do not file tax returns to ensure they are properly not filing. In an audit of someone without a tax return - they would obviously ask to see your bank records.

Bubs

Emperor · #4 04-03-2003, 04:21 PM

The best advice has to be SEEK A PROFEESIONAL...

You have a bunch of issues here.

One major one being is all of this money is being made offshore. Neteller is offshore. The IRS doesn't make a habit of tracking offshore accounts, only the $$ that is flowing into US Banks from offshore. If you keep a majority of your income in offshore accounts and that money was never in the US then you PROFFESSIONAL TAX ADVISOR might be able to help you avoid taxes on it. (You will just have to retire in Aruba.)

Remember avoidance is legal, evasion isn't.

Bubmack · #5 04-03-2003, 04:56 PM

I dont know too many tax professionals that will assist in tax evasion. If it is earned it is income - regardless of where it sits. (off shore or not) But you are correct in that the IRS will not be able to track unless it comes into an American Bank.

Bubs

PokerPaul · #6 04-03-2003, 04:56 PM

Income is always a taboo subject, but here in the anonymity of cyberspace, i would like to hear how much a pro poker player generally makes.

I was in an indiana poker room couple of weeks ago, and there was a 10-20 pot limit omaha game going at table behind me. Lots of huge stacks playing there, and most pots were around $800, but some pots got pretty close to $10000. Anyways, this one older guy at table had green and black chips in front of him totalling at least $30000 at table, and player beside me tell me he was a professional player, multimillionaire several times over.

I must admit he was an extremely good player (it seemed), and he kept winning through out night.

Were they exaggerating, or are there really hi flier super wealthy poker players who make millions in poker??

MtSmalls · #7 04-03-2003, 05:46 PM

A few thoughts/notes/clarifications for you:

1) the three out of five rule is not a rule for declaring income, but to define whether or not you can DEDUCT expenses (i.e. that computer you use, fees charged for transactions etc). This was put into place so amateur golf club makers for example couldn't deduct the cost of their materials, if they weren't charging enough to make a consistent profit.

2. Track your income and pay your taxes. every year.

3. you can declare yourself self employed and pay 13+% of your income (quarterly) in social security taxes. Then you get to deduct HALF that amount on your annual income taxes.

4) Medicare is part of the Social Security system, I believe, and would follow if you do #3 above...

5) Track your wins and losses (each account SHOULD help you do this). Add them up, take your deductions, pay your tax. You could probably get away with under-reporting your income for years. But the self-employed (see above) are the first to get audited....

togilvie · #8 04-03-2003, 06:34 PM

Online gambling is illegal. I think you should consult a tax advisor, but my instinct is that you are going to be between a rock and a hard place. I don't know how you can declare the tax from an activity that is illegal in the US, unless you're living as an ex-pat in a country where it's legal. Similarly, filing as a gambler (on a signed document with the gov't) will make a pretty easy court case if they decide to go after you.

This is why mobsters and drug dealers launder money to justify the cash inflows without a legitimate source.

Jimbo · #9 04-03-2003, 06:52 PM

"Online gambling is illegal." Would you mind posting a link to the statute showing online poker is illegal for the players? I make this request all the time but they never show proof.

Emperor · #10 04-03-2003, 07:23 PM

Some Telecommunications Act of 1492 (I dont know the year)

makes it illegal for you to PLACE or receive a bet over a telephone line or other communications media

check the archives its been discussed before. I'm too lazy to look it up.

Thats why all of the online gambling site owners live in non-extradition countries. Federal indictments under this Telecommunications Law.

Now I did here that they amended this to EXCLUDE state run horse/dog tracks (awfully convenient) and POKER ROOMS, but I haven't confirmed this.