Front Page of the Jacksonville Paper Yesterday

[Talking Poker]

I don't believe this is true, barring some crazy example where the person wins $5 or something and owes more than that in taxes. Please elaborate, and feel free to start a new thread if you like, since I doubt this was discussed in Reel Deal's paper the other day.

Don't get me wrong - I know how terrible our tax laws are on this subject, but I didn't think this was possible.

In somewhat related news - does anyone else find it odd how the IRS will allow you to declare yourself a professional poker player and write off expenses related to poker playing (travel, etc), clearly implying that they understand it is a legitimate game of skill (you can't be a professional lottery player, for example), yet poker gets lumped in with all the game of chance games in this recent legislation... while the lottery is specifically carved out???

[Penguinfan]

It happens with high dollar slot machines every day.

You COULD relate it to poker when playing NL easily.

In horse racing anything over $599 on a single wager is taxable and anything over $5999 they take out 38% on the spot (numbers vary state to state I think).

I may have played 300 combinations at $2 each to hit that $600 winner and it doesn't matter, I only mention that because the law reads anything that pays over 300-1, but they only count the one wager that wins, not the wagers that lose (go figure). So now I am even on the race, but owe tax on $600 at the end of the year.


Whats to say they want to tax a single pot over $600 and you win 10-12 of these during a session, but lose a bunch more small ones and break about even on your session.

Now you owe taxes on all those big pots, but didn't make any money on the session.

[Talking Poker]

I don't follow. Why aren't you writing off your losses like I do?

[Penguinfan]

I'm assuming he meant we weren't able to write off losses. I do write off horse losses to offset the winnings, it 's a giant sized pain in the ass and I have to save all those tickets in boxes just in case I get audited.

Playing on-line you would think it would be easier to keep track of wins and losses, I know the on-line, legal, US-Based thoroughbred place I wager through sends me a statement every month as well as a cumulative one at the end of the year.

[Talking Poker]

I use Poker Tracker for all of my online play, and I am certain that will be more than enough to make any auditor happy. My accountant was impressed with the sample reports I printed for her. For my live play, I track everything in a spreadsheet. But yes, you HAVE to write off your losing sessions if you are going to claim all of your winning ones (as you are supposed to). You're not supposzed to just say, "Yeah, I netted $10,000 last year playing poker" and try to pay taxes on that. You're supposed to declare your $160,000 in winning sessions and your $150,000 in losing sessions (I'm making up numbers, but you get the point). This ends up causing some problems for OTHER deductions you may have been able to take (because they are based on your Total Gross Income (BEFORE deductions), which is now grossly inflated), but I still don't think you should ever owe more in taxes on your poker winnings than the winnings themselves.

[Penguinfan]

OK, how about this, you play high stakes PLO8, say $1000/$2000 and we are going by the $5999 figure us horse players go by. You raise pre-flop with one caller, you guys raise and re-raise and finally build a $14,000 pot, you split it and drag a pot worth $7,000 which you have to pay taxes on.

You wouldn't have any real losses to show, but be obligated to pay the tax on the pot you "won".

Now I admit I am reaching here, but it could happen.

[Talking Poker]

The more you write, the less I think you have any understanding of poker and taxes.

1. You don't pay taxes on "pots," and certainly not on the gross amount of money in each pot. You pay on the totals from all of your winning and losing "sessions." I mean, how would people even track it the other way? Do you think there is a Bellagio employee sitting at every high stakes table handing out 1099s for each and every pot played all night? LOL...

2. Poker is not the same as horse racing, so I have no idea why you are comparing the two.

3. If, somehow, you played just ONE POT for the entire year and then quit, as described above, you didn't win $14,000 - or $7000. You broke even (I'm not couting any blinds that may have been in the hand, because you didn't mention any). So, you would claim $0 on your taxes.

You haven't really been claiming the GROSS amount from every single POT you have ever won, have you??? I mean, that would be millions and millions of dollars, even for a medium stakes player. That's ridiculous.


I STRONGLY suggest you do a little bit of research on poker and taxes. We've had some good threads on the topic in this forum in the past, but I'm sure there are countless other threads/articles on the subject elsewhere on the net as well. At a bare minimum, please call an accountant and have a 5 minute conversation with them on the BASICS of how to claim poker/gambling related winnings.

[Kurn]

[quote=Talking Poker]I don't believe this is true, barring some crazy example where the person wins $5 or something and owes more than that in taxes. Please elaborate, and feel free to start a new thread if you like, since I doubt this was discussed in Reel Deal's paper the other day.

QUOTE]

here's the example. let's call him Joe.

Joe has a job, but plays poker for a 2nd income. During year X, Joe has a tough year, but ekes out a $3,000 profit from poker, based on $25,000 in winning sessions and $22,000 in losing sessions. Since IRS publication 529 specifically forbids reporting your net as gambling income, Joe follows the law and reorts $25,000 as *other income* on form 1040.

Let's now assume that Joe is a renter, thus he does not itemize deductions on his tax return, taking instead, the $6,600 standard deduction for a single guy. let's also just consider Joe's marginal income from poker, but, for sake of discussion, we'll assume Joe makes $40K per year from his day job. let's also assume that Joe contacts a tax accountant who is familiar with IRS practices who advises Joe, that the IRS will likely deny him the right to treat his poker income as self-employment income, so he can't uses schedule C*

So, now, Joe uses schedule A so he can deduct his $22,000 in losses. However, he is only getting to use $15,400 in losses since the rest makes up for his lost standard deuction.

That makes Joe's marginal net income from poker for tax purposes $9,600. At his income level, these marginal dollars will be taxed at about 30%, making his marginal tax liability $2,880. Now, let's assume Joe is a resident of the Commonwealth of Massachusetts. The Mass DOR does not allow netting, nor does it allow deduction of losses. Now Joe, on his State return, must pay 5.75% on the full $25,000 of winning sessions, or $$1,437.50 for a total marginal tax bill of $4,317.50 on his $3,000 of net poker income.

Contrived example, sure. But it is possible.

* - With respect to treating gambling income as self-employment. The IRS has repeatedly taken a stand that to file as a "professional" gambling must either be your primary source of income or you must demonstrate at least 3-years of prior profitability to demonstrate an expectation of profit. At least one taxpayer has challanged this and won the case, but the IRS has not changed its policy as far as I know.

[Penguinfan]

Actually TP, I was just kinda rambling there, looking for an obscure example that might be able to happen but probably wouldn't.

For the record I have claimed horse winnings two years in a row and have not paid more in taxes than I won, I too doubt it could happen that way.

[Kurn]

See my straw man above. In short, for that to happen, you'd have to have a marginally profitable year but have played a great deal, not normally itemize deductions on Federal, *and* live in a State that has a State income tax.

[Talking Poker]

Contrived, yes, but a perfectly legitimate example. This is exactly how people can get "screwed." My problem with this logic is how you (and everyone else) are looking at the "standard deduction." I'm convinced 90% of the public has no idea what this is for, or why the get it, and so on. The whole purpose of the standard decuction is to prevent Joe Blow (no relation to Joe) from having to itemize every little thing all year long. If you have MORE than $6000 in deductions, as Joe does, you itemize them. If you don't, you just take the standard deduction and be done with it.

Let's say for example you pay $6050 in morgage interest in a year, you give nothing to charity, you don't play poker, etc. That is your ONLY deduction. Well, you get to write off that entire $6050. It FEELS like you are only writing off an extra $50, and in reality you are, but you are still getting to claim the entire $6050. Looking at it as though you would have gotten to write off $6000 anyway, so you should be renting instead of owning (or drawing other unrelated conclusions) is just silly.

Also, back to Joe's example for a minute. As you said, he lives in Mass and they have stupid tax laws. Well, that's fine, but you can't use that in this example. Joe has the CHOICE to live in another state, like Florida, where there is no income tax. So you can't blame that on the IRS.

But back to the point - yes, you can make a case and manipulate the numbers like above, but for the most part, it's not THAT bad. My off the record advice to Joe and his $3000 in poker winnings: Don't even report it. Illegal, yes. But realistically, unless he's an idiot about it, there is no reason the IRS should ever know he even PLAYED poker last year.