IRS and Poker Income

I'm starting this thread more out of curiosity than anything.. does anyone have a good reference or can explain how online poker income is treated by the IRS.

Specific questions include but are not limited to:

Is there a financial "threshold" you have to cross before it matters?

Is it considered "income" before you withdraw it from a site and thus taxable at that time?

Do they consider only your net income or treat it as gross income minus deductions? (the latter would be f'd up but not surprise me)

etc..

First of all, you're not suppose to have online poker income if you reside in the U.S.

As far as treating gambling winnings when signing a W2 form, I always claimed losses over the winnings. At least I'm pretty sure that's how that works. My accountant does all my returns. I actually haven't personally filed a tax return in 30 years. I usually have to pay thousands every year.

Oh really? I'd like to see a link for that law.

Live poker I know it's just net profit, I'm sure online poker works the same way. I'll have to look into that when I start making thousands of dollars

For now I don't think I need to worry about paying taxes on a couple hundred bucks per year.

Yes you're technically right. Not sure how you would explain having profits though.

A couple of things.....First off....You do NOT have to pay taxes on any money that is in your poker accounts that you have NOT withdrawn. You could have 100 Million dollars in your Poker Stars account, none of it is taxable, until you withdrawl it.
Secondly you have to pay taxes on all of your winnings, and you can also deduct all of your losses.
Here is an example:
Let's say you are a serious recreational player and play five 4-hour sessions every week, two $15-30 tables at a time. Depending on how you count your sessions, this could be either 5 or 10 sessions per week (the IRS is not clear on the definition of a session, since online poker didn't exist when they wrote up the regulations). Let's say this is 250 sessions per year. Suppose you win 130 of them with an average profit of $1,000 (that's $130,000 in winning sessions) and lose 120 of them with an average loss of $1,000 (that's $120,000 in losing sessions). The good news is you have a $10,000 net win for the year. Congratulations. The bad news is, the $130,000 you must declare in gross income is going to cost you. First of all, while you can deduct the $120,000 losses, your other deductions will be limited.

So yes you have to pay taxes on all of your winnings, even if you lose them. Yes your losses will take away from some of what you have to pay.

This is what I do and would do if I were you.

Say you win $10,000, and you withdraw that from your online account, IMMEDIATELY take out your taxes, record your winnings and keep that money you took out for your taxes in a safe or put in a seperate bank account, DO NOT SPEND THIS MONEY! DO NOT INCLUDE THIS MONEY INTO YOUR BANKROLL!!!!! You WILL have to pay this, now with that said, say you lose enough money that you do not have to pay taxes on your winnings, well you'll have that extra money to put back into your bankroll at the end of the year.

As a business owner I stress the fact that you MUST pay your taxes, if the IRS audits you and finds out you won poker money and didn't report it.......well your screwed, you'll pay it back, plus some.

Yes you can deduct other things as well. You can tell your accountant that you play poker professionaly online, with that said you can write off some of your house payment, electric, internet, ect.....for the fact that your "home office" is where you do your work. You can also deduct food you eat during that time, ect.

Somehow I doubt a trivial little technicality like "you aren't supposed to be able to transfer poker winnings into the US" is really going to matter to the IRS when in their mind you owe them money.

If hookers declare shouldn't poker players? As far as the IRS is concerned THAT IS!

I had never really seriously thought about this issue before..did a good bit of reading around various places tonight online. It's downright depressing and completely defies any trace of common sense it seems.

What defies any trace of common sense? Having to pay taxes?? Yeah it sucks, but that is America for you!

Can someone post cliff notes on when you pay and when you don't?

If Ron Paul becomes President then we don't have to worry about this.

Two books you want to buy your CPA for x-mas

1. How to Turn Your Poker Playing into A Business: Knowing What to Deduct to Improve your Odds With the IRS

2.Tax Help for Gamblers

Send them as early gifts, so your professional will be ready when you declare yourself as officially a poker pro!

I'll give you some free advice. While there is some good advice here I would get my advice from a tax accountant.

Check this out, I found this on pokernews from googling. Number 8 is the kicker:

10. The Tax Court recently made a very positive ruling for all gamblers. In Castagnetta v. Commissioner (T.C. Summary 2006-24), the Court held that non-professional gamblers can, in some instances, deduct other expenses incurred while gambling. These expenses include ATM fees, office supplies, and admission fees.

The Court also held that a professional gambler does not have to be solely engaged in gambling. That has been the position of the IRS in various appeals cases. Instead, the Tax Court said that gambling must be, "the intended livelihood source...[and pursued] for income or profit."

Unfortunately, this is a Summary Opinion and is not precedential. However, it does indicate how the Tax Court would likely rule in similar cases.

9. The IRS doesn't believe there's such a thing as a professional gambler. It's part of their mindset. Even though the US Supreme Court held that you can be a professional gambler in Commissioner v. Groetzinger (480 U.S. 23 (1987)), most of the personnel in the IRS still hold this view. It will take many years before this changes. That doesn't mean you shouldn't file as a professional; rather, you should be aware that filing as a professional increases your chance of audit.

8. You might pay more tax filing as a professional gambler than an amateur. Professional gamblers must pay self-employment tax (social security and Medicare) on their net profits while amateurs don't.

7. You can't switch back and forth between being a professional and an amateur every year. Once you become a professional, you've made a career decision. You can switch, but expect trouble (audits) if you switch back.

6. You can't net gambling wins with gambling losses unless you're a professional. This is straight from the Tax Code. The Tax Code is law (Title 26, U.S.C.), and can only be changed by Congress. If you net your gambling results and you're caught in an audit, expect to pay penalties and interest.

Why is this important? Gambling wins go on line 21 of Form 1040 (Other Income), and change Adjusted Gross Income (AGI). AGI is used to calculate limitations on many deductions, including student loan interest, medical deductions, and itemized deductions. Even if your net gambling income is $0, you could find your tax increase because you lose some deductions.

5. Live In the Right State. Not only do Americans have to pay federal income tax, most have to pay state income tax. Of course, if you live in Nevada, Florida, Texas, Alaska, South Dakota, or Wyoming you don't have to pay state income tax. New Hampshire and Tennessee tax only dividends and interest.

Some states have very high income tax rates, such as California and New York. If you live in one of these states, you're more likely to face the Alternative Minimum Tax (AMT). Other states have income taxes that do not allow deductions for gambling losses. These states include Connecticut, Illinois, Massachusetts, and Ohio. If you live in one of these states, you face a gross receipts tax on your gambling wins even if you're an overall loser. So if you are going to gamble, choose your state wisely.

4. You must report your gambling wins by session. That's the law. So, what is a session? You can find an article I've previously written on this topic here.

3. The rules that apply to gambling in brick and mortar casinos apply to gambling on the Internet. This means that when you win a bet from an offshore casino, it's income. If you try to tell the IRS that the money's in Gibraltar, expect a chuckle from the IRS agent you're dealing with. The United States taxes all income earned anywhere in the world. To prevent double taxation, you can deduct foreign taxes you pay (either as an itemized deduction on Schedule A or as a tax credit on line 47 of Form 1040).

2. If you have a Neteller or similar account with $10,000 or more at any time during 2005, you must report it to the government. You do this by checking a box on Schedule B of Form 1040 (and listing the country/ies) and by filing Form TD F 90.22-1 with the Department of the Treasury (not the IRS). It's almost certain that if you do this you will be audited. The $10,000 rule is based on all such accounts on any one date. At this time, it's unclear whether Internet cardrooms are reportable under this rule.

1. If you're going to file as a professional, or you have any complexities on your return, see a professional tax preparer (an Enrolled Agent (EA), Certified Public Accountant (CPA) who specializes in taxes, or a tax attorney). We're not that expensive, and if you're a professional, you'll likely be able to fully deduct the expense as an accounting/professional expense. Everyone's situation is different. What is right for one person may be wrong for another. Just because you can file as a professional gambler doesn't mean you should. A tax professional will look at the totality of your situation and give appropriate advice.

Anyone out there know the situation with regards to UK taxation rules / law?

Nice post crummy, that's what I was looking for more or less.

When I said it defied common sense earlier, I did not mean having to pay taxes on gambling income defied common sense. If you are going to have income taxes (which I oppose, but that's a whole other can of worms) then I fully expect to have to pay taxes on gambling winnings.

What makes absolutely no sense to me is how you have to report it, the records you are supposed to keep, how it can screw you over and how little/unclear all this is. I'd wager that an extremely large percent of recreational players who actually do report poker winnings don't do it correctly. Taxes shouldn't be anywhere near this complicated to figure out, hence my comment earlier.


I think the biggest reason though might be over the definition of a "session". I fail to see how online and B&M can realistically be treated the same. Especially with multi tabling being much more common online when it really isn't very practical/possible in an actual casino. My main point of contention though is simply the ambiguity and unwillingness to define things to make it easier to comply with what the law is. If I multi table 6 ring games for 4 hours, I really fail to see how you can call that "6 sessions" instead of 1 but apparently that's how the IRS sees it. In a B&M to me a session should be 1 buy in -> 1 cash out. I don't care if you play 36 hours straight in between or you do nothing but sit at a table by yourself and practice chip tricks. Online is a bit trickier for this...I'm rambling so I'll stop, but online really needs its own clearly defined set of rules.

It's my understanding the the UK doesn't tax gambling income at all. So if that's where you are lucky you!

Techinlly I dont think its illegal to play online poker,but it is illegal for visa/mastercard and any financial institution to do business with an online poker site.It actually states in the law that individual players cannot be charged for a crime.......if i am wrong..show me proof.but i read the law when it came out and thats how i interpreted it.PS ,If you play in person,you arent required to report it until march 08.I just read this last week somewhere..i can find it later tho.

Is atleast half true, being part of the EU means that the wins on gambling sites inside the European Economic Area are tax free.

The problem is however when playing on sites outside this area, such activity is atleast in Finland considered to be taxed under income tax, unless there is a treaty with the said country forefiting the need to pay tax.

Let me just say this about that.

THERE IS NO LAW ANYWHERE WHICH STATES THAT YOU MUST PAY INCOME TAX ON YOUR LABOR TO ANY ENTITY. PERIOD.

Two years ago 6 folks were found not guilty. Last year 38 found the same refuge within the courts. And this year we've got 227. Found NOT GUILTY by juries of their peers.

Be a patsy. I don't care. I think the gubermint calls them ATM's.

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Anything over $600.00 you have to claim lotto or gambling

I'd like to see the law that states they have a right to tax your wages.

So your saying that any of my professional services labor I provide to clients I don't have to pay on??? Damn the IRS owes me $$$$$$$$$$$$.

The old "no law says you have to pay an income tax" thing is that goobs on the internet who hate the government or are opposed to taxes like to repeat over and over again like some sort of mantra.

This is patently not true. They are wrong. They have all kinds of ridiculous arguments as to why it is not true, but every one of those arguments has been debunked and rejected in court numerous times.

For all the debunking and information you need from a serious law expert (rather than just a dabbler like me), follow this link:
http://docs.law.gwu.edu/facweb/jsieg.../IncomeTax.htm

U.S. Code Section 26

http://www.access.gpo.gov/uscode/title26/title26.html

Glad I could grant your request

Why would you ever declare you're a pro gambler then? Why not just be unemployed and you're an amateur gambler?