Taxes for part-time poker players: Only declaring net winnings.

[Spaded]

Here's my situation: I'm a student and all I did for income was play poker in 2006. I owe no federal taxes because my standard deduction and "lifetime learning tuition tax credit" cut the taxes to zero. I'm about to graduate and get a full-time job, planning to play poker part-time. I had a 1040 booklet mailed to me and I noticed this line on the tax form:

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete."

The instructions for line 21 of the 1040, the "other income" line, state that you must declare gambling winnings. It states: "State your gambling winnings..., etc. For details on gambling losses, see Schedule A." There are schedule A instructions on the form mailed to me about gambling losses, stating "deduct gambling losses, but only to the extent of winnings on form 1040, line 21" If a part-time pro wins 50k but loses 30k, they go ahead and take care of that in the 1040+A as instructed. Nowhere did I read "you can only deduct gambling losses if you file as a gambling pro." According to the 1040 form the gambling part-timers have done it correctly.

Basically, they are reporting their total net income in good faith and to the best of their knowledge (at least the knowledge they learned from the instructions for gambling income on the tax form that they signed).

Of course, if an audit occurs and they point out that minor discrepancy, they are not in trouble, since the tax form that they signed stated to the best of my knowledge and belief, they are true, correct, and complete. And at the time they signed it, to the best of their knowledge, they believed that the instructions provided to them were complete.

[Sniper]

Why do you write silliness like this... please revisit ENGLISH 101, to properly learn how to enterpret a sentence fragment /images/graemlins/wink.gif

btw, just cause you think you did it right... doesn't remove your liability for interest and penalties, when they come after you years later...

[duh]

the problem is: under-reporting your gross income is a serious felony, but over representing your deductions is a non-jailable civil matter.

either way, the *proper* way to do it is report all your income, then make the deductions from loses. However, if you are audied and you don't have A DAILY LOG of all sessions for the year your deductions won't count.

Weather pro or part time, you must keep logs or your deductions are not legit.

Filing as a professional gamboler makes you liable for
FICA (15%) in addition to capital gains tax. You really only want to do that if you plan on having a loosing year so you can carry over your loss to the next year or previous year, or can come up with enough business deductions to make up for the added 15%.

You can choose to file either way, but its usually best to file capital gains and pay less tax..

[Spaded]

[ QUOTE ]
Why do you write silliness like this... please revisit ENGLISH 101, to properly learn how to interpret a sentence fragment /images/graemlins/wink.gif

[/ QUOTE ]

Sorry, I'm chem major here! /images/graemlins/grin.gif

So the unwitting part-time gambler ends up reporting their gross winnings (no felony here...), but accidentally over-reports their deductions, which is a less serious crime, but still an accidental crime if it WAS accidental.

[duh]

[ QUOTE ]
which is a less serious crime, but still an accidental crime if it WAS accidental.

[/ QUOTE ].

less serious meaning a monitary penalty = not to worry about!

and you are the only one who can say for sure that it was accidental, or that you didn't know or understand the tax code. unless you plan on telling on yourself there is nothing to worry about anyway.

[grizy]

You need to look into claiming poker as a second job. I worked as an investment banker while I played poker part time and the earnings were both taxed as income.

I proved it's more than a hobby with copies of bank statements (lots of pstars, neteller, and party's igm? something). It does not have to be your primary source of income, you simply have to prove you are playing it seriously for money on a consistent basis (aka... if you want to be professional, you better not have 2 months blank of no play). Losing money for a period of time is okay, as long as you prove you are serious about it and your aim is money, not recreation/addiction.

I am honestly not too sure about deductions. The only things I deducted was my bills at hotels, poker books, and a computer. I am told I could push it a bit more deducting at least part of car insurance, payments, and gas/parking but I never wanted to do the paper work.

Believe me, you do NOT want poker earnings to be taxed as gambling winnings. This gets your some really non-sensical paper work and some ridiculously high tax rates.

Almost forgot, be wary of trying for the capital gains route... I dont' remember why... but my CPA strongly recommended against it. Maybe it's just my specific situation but you should definitely consult a tax professional first.