#1
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What I learned about taxes today.
Disclaimer: I'm not an accountant, this post is meant for general info only. Your mileage may vary.
I met with my accountant today, it was a pretty interesting expereince. First, cause I'm 25 and have never had professional help before, second because my accountant is very cool. We discussed the issues at hand and he did an excellent job of explaining the way one goes about reporting gambling income. Basically, there are two levels of gambling income. You either play as a "hobby" or as a "business", depending on your level of involvement, not necessarily the amount that you won. To make it clear, claiming only your net winnings is illegal. If you are a "hobby" gambler you basically claim your gross winnings on your 1040 and then you can deduct your losses. This is the catch-22 for most hobby players, because the standard deduction is usually larger than your itemized losses, so you end up paying tax on your gross winnings. Once again, claiming only your net earnings is illegal and you will get burned if audited. I filed as a hobby player for 2003; however, I was (lucky?) enough that my total losses were larger than the standard deduction so I will only be paying tax on my net earnings. The other side of the coin is the professional gambler. When you reach professional status you are allowed to deduct expenses that are "necessary" to pursue the enterprise. Examples would include travel/lodging for tournaments, possibly a computer for an online player etc. The catch here is because you are a business you must pay self-employment tax (15%) on your earnings. The self-employment tax is basically the same tax you pay as an employee for Medicare and Social Security. As an employee you pay 7.5% and your employer matches it (for a total of 15%). As a self-employed person you are both the employer and the employee so you get to pay it all. In addition professional gamblers should report and pay quarterly estimated tax. Apparently some states and local gov'ts will hit you with penalties and interest if you fail to pay quarterly even your first year. I believe the IRS requires this during your second year. We didn't go into detail on this very much, but since I'm planning to file as a professional for 2004 this will be an area we will follow up with. As far as your records go... You are required to keep a journal of your gambling records so that you can substantiate your claim if you are audited. There is probably some leeway here, but it should include the date, location, stakes, win/loss, etc. The more detail the better (cover your ass). If you are unsure of your situation I would highly recommend hiring professional help. I was a little leery to pay for something I probably could have researched and done myself, but I find that having a professional there to assist you is worth it. After we were "done" with the meeting, we ended up chatting for about 20 mintues about the game, how it works, why I'm able to be a winning player, etc. I always find people's reaction to poker intersting...they just don't understand how it works. Those of us who post on this forum, study the books, etc really do represent such a small slice of the poker world we often lose sight of the fact that most people think it's a luck game and only play for entertainment. Anyways, I hope this helps point anyone with questions in the right direction. Peace, Jason EDITED TO ADD: My accountant said that a good rule of thumb would be that for every $1 you make in (net) profit you whould expect to pay $.40 in taxes as a professional player. This includes, Federal, State, local, self-employment, etc. |
#2
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Re: What I learned about taxes today.
[ QUOTE ]
I was (lucky?) enough that my total losses were larger than the standard deduction so I will only be paying tax on my net earnings. [/ QUOTE ] Not exactly. While you do pay taxes on just your net, you have now "lost" your standard deduction. |
#3
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Re: What I learned about taxes today.
i knew a lot of this stuff already from various sources -
1 - these forums 2 - my dad who is a part-time accountant and does my taxes 3 - Gambler's Guide to Taxes by Walter Lewis still...there were a couple of tid-bits in there that i was unaware of. good summary. and a good reminded to keep accurate daily records...an idea that is reinforced time and time again in gambler's guide to taxes. that 40% bit kind of ticks me off. i'm moving to canada....or peru....or somewhere. |
#4
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Re: What I learned about taxes today.
40% could be quite low. If you have another considerable source of income all poker winnings could be in your marginal tax rate. For many this would be 28% federal, up to 6% state, up to 1% city and up to 15% FICA. You could be paying 50% or more.
If you do not currently itemize, the standard deduction could eat up all of your losses. This could put your poker tax rate at 100%. Please correct me if I am wrong. |
#5
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Re: What I learned about taxes today.
[ QUOTE ]
I always find people's reaction to poker intersting...they just don't understand how it works. [/ QUOTE ] I had a similiar experience with my accountant yesterday. I filed as a pro gambler, and 2003 was my year of pro gambling. When she told me my four figure tax liability (which was about what I expected) she then said "hope you hit something big soon." *sigh* Another thing that seemed to be a source of puzzlement for her was that I didn't receive a 1099 from any of the sites. This is more of an American thing, as many people seems to think these sites in Antigua, Gibraltar, Costa Rica, wherever, care about American tax forms. |
#6
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Re: What I learned about taxes today.
you may be better off searching for an accountant that potentially has a better understanding of internet-gambling laws.
easier said than done i am aware...but you're accountant seemed rather inaware. |
#7
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Re: 40% seems fair....
Personally I think the governemnt should take atleat 50%, god knows they deserve it.
I also think they should start taxing the air. It should be a requirement to keep track of the hours you psend exercising, and then based on age and weight and athletic ability, the air you used will be taxed. (Exemptions for those who plant trees.) |
#8
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Re: 40% seems fair....
Lol. I saw your Subject line and went into flame mode.
I find it very demoralizing that pro gamblers mostly pay 40% of their winnings. Is this the standard for every American including regular vegas pros? There's gotta be some legal way around this ridiculous number. The sad thing is that I have absolutely no faith in our government to fix anything like this. There's obvious issues w/ Bush and WOMD in Iraq, and now he is coming out of the closet as the full-blown biggot that he is trying to ban gay-marriage. /rant off |
#9
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Re: 40% seems fair....
my beliefs are anti-Bush also....but it would probably be wise to keep such politcal conversations to the other-topics forum.
when i want to witness a repub-vs.-demos. flame war i can watch cross-fire on cnn or some other similar talking-head program (yelling-head program??). this isn't the place and only serves to take the discussion away from poker. |
#10
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Re: If I played in a B&M
[ QUOTE ]
Lol. I saw your Subject line and went into flame mode. I find it very demoralizing that pro gamblers mostly pay 40% of their winnings. Is this the standard for every American including regular vegas pros? There's gotta be some legal way around this ridiculous number. The sad thing is that I have absolutely no faith in our government to fix anything like this. There's obvious issues w/ Bush and WOMD in Iraq, and now he is coming out of the closet as the full-blown biggot that he is trying to ban gay-marriage. /rant off [/ QUOTE ] If I only played in a B&M, I would keep all my money in cash and declare nothing. |
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