Guide to Paying Taxes as a Pro or Recreational Poker Player or Gambler in 2016

Filing As a Professional Poker Player/Gambler

Professional

Benefits:

The biggest benefit to filing as a professional gambler or online poker player is that you can deduct expenses related to your poker business. In 2010, the U.S. Tax Court issued Mayo v. Commissioner, holding that a professional gambler is able to deduct the "ordinary and necessary" business expenses above his net gambling winnings. So, if you profit $50K in tournaments, but you spend $20K on travel expenses and $5K on subscriptions to online training sites and other poker materials, you are only responsible for paying taxes on $25K of poker earnings.

Tips for Filing your Poker Taxes:

  • Make sure you save as much documentation as possible related to your business expenses. Most live poker players know that they need to save their tournament receipts because tournament losses can be deducted from tournament winnings at the end of the year, but there are TONS of other deductions available to a professional poker player for their tax returns.

  • Every time you travel, save receipts for flights, hotels, gas and restaurants.

  • For online poker players, if you spend money on a baller set up (e.g., 36" monitors, ergonomic chair, desk, RSA key, etc.), you can deduct all of that from your winnings if you save the receipts. It is best to be over-inclusive when deciding what receipts are worthy of bringing to your CPA or tax attorney because you may be surprised at some of the deductions the IRS allows.

  • For people who are primarily live cash players, it is imperative to keep a daily log of wins and losses if you want to be able to withstand an IRS audit. I recommend the iPhone app "Poker Journal" and the Droid app "Poker Income" to track your daily sessions.

  • Furthermore, if you have to withdraw from a casino ATM, be sure to get a receipt to back up a losing session. Make sure your log is thorough and current, because a last-minute thrown-together log is not going to look believable when facing an audit.

Filing as a Recreational Player (under an Alternate Profession)

Recreational

Benefits:

The biggest benefit to filing under an alternate profession, if you have a side business or some other source of income to report, is that you are less likely to be audited than if you file as a professional gambler. Professional poker players, online or live, are sometimes targeted for audits because, unlike most other occupations, poker players earn an erratic income from year to year. An internet poker player coming off of a huge tournament win may buy a mansion one year and then have to report a loss the following year. Besides just avoiding a potential audit, one might want to file under an alternate profession because there may be more valuable credits and deductions available for your other profession.

How do US poker taxes compare to other countries around the world?

When compared with other countries worldwide, the United States is one of the most stringent when it comes to taxing online poker players. Taxation on poker winnings is far more lenient in other countries around the world.

  • For example, the United Kingdom only taxes poker room operators, not players meaning UK online gamblers get their poker winnings tax free.

  • Other countries in Europe are equally lenient.

  • France and Italy also have a zero tax policy for online gamblers and even the most famous online poker players do not pay taxes on their winnings.

  • However, Canadian and Australian online poker players are taxed on their winnings but only if they are proven to be "carrying on a business of gambling".

For Canadian and Australian poker players there is no set limit on how much income you must make from gambling before you have to pay taxes, and there have only been a few cases in both countries that have ruled that an online poker player had to pay taxes on their winnings. Unfortunately as United States players, we pay more taxes and are more likely to be audited for our poker wins than most other countries around the world.

POKER TAX FAQ

Does it matter if I list my profession as Professional Poker Player or Professional Gambler?

No, you can list your profession as either, just record everything on Schedule C and the IRS will figure it out.

What qualifies a person as a professional poker player?

Are there specific things the IRS looks for to accept that as a person's occupation? If your primary source of income comes from poker, that is your profession. It is your choice how you file, and it is unlikely that the IRS will try to dispute your claim to be a professional poker player.

Is coaching an eligible deduction for poker players?

Yes, if you file as a professional, you can deduct costs of coaching and poker materials you buy to aid in your profession.

Can losses on other games like blackjack, roulette, slot machines etc be deducted from my poker winnings?

Yes, so make sure you obtain win/loss records from any casinos where you gamble. Some casinos like Harrahs and Borgata provide easy request forms online.

Would a calendar that lists daily wins and losses be accepted by the IRS as proof of my winnings/losses?

The IRS reviews your records case by case, so it's impossible to say exactly what will be "enough" proof. The best advice I can give is to be very specific and provide documentation to back up your records whenever you can (atm receipts, hotel/casino receipts, bank records of withdrawals prior to playing cash games).

What if I won $10k in a tournament but 50% of it was staked and I had to pay $5k out to others?

Do I have to pay taxes on the entire $10k? You need to send a 1099 form to your backer(s) so that they pay taxes on the money they received, and you pay taxes on only the money you actually received.

How long should I hang on to my records and receipts?

I would suggest storing them for at least 7 years. The IRS generally will not go back more than 3 years for a normal audit, but they can go back 7 years (sometimes more) if they suspect criminal activity or for other unique circumstances.

If I file as a recreational player will my winnings increase my federal tax even if my losses exceed my winnings?

No, you are only responsible to pay taxes on your NET poker winnings either way. You risk missing out on additional deductions mentioned in the article above related to playing online poker though.

Disclaimer: Information provided in this article is meant only as an introduction to understanding filing federal taxes as a professional poker player, and is not comprehensive. A tax professional should be consulted to go over the specifics of your return.

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