Being a professional internet poker player and taxes

[Nepthu]

I have had some aspirations like many poker players to go professional. I was thinking about taxes. I hear there is an additional 15% self emloyment tax on top of all the other taxes you have to pay. That sounds pretty steep even though you can deduct what you pay for that tax off your income taxes I think.

So I was considering what would happen if you played your internet poker in another country. Would you still have to pay US income taxes on that income? Or would you actually have to renounce your US citizenship and get citizenship in that country to change what taxes you pay and to what country?

I think in Bermuda there are no income taxes! Besides cost of living is much lower in some other countries.

I not looking for professional advice here or anything. Just whatever you know, had heard, rumors etc. I'm just fantasizing about ways to legally reduce the amount of taxes I might have to pay. Even if that means moving to a different country /images/graemlins/wink.gif.

I have heard that some professional poker players have offshore accounts to avoid taxes. I wonder how many pay their actual fair share of taxes on all their income? I of course always follow the rules.

[iceman5]

If you dont want to break any laws, then yes you have to pay income tax even if you move outside the US unless you renounce your citizenship, but that would probably be the biggest mistake of your life.

[Nepthu]

Why would that be the biggest mistake of my life?

[Mike Jett]

[ QUOTE ]
but that would probably be the biggest mistake of your life.

[/ QUOTE ]

Doing this strictly for internet poker maybe be a mistake, but saying that just in general is quite unfair.

[RobGW]

You've benefitted from other taxpayers all your life and now you want to skip out on your portion?

[ceskylev]

1.) It's not an additional 15.3% It's an additional 7.5% since you're already paying 7.65% at a normal job (self employment tax = social security and medicare taxes) and your employer is paying the other 7.65%. If you are your own boss, you are employer and employee and must pay both. Everything you make above 90K is taxed at a much lower rate (for SE tax at least).

2.) It's very possible that you would be eligible for what's called a foreign exclusion of income if you live overseas. A US citizen working abroad can *often* (I didn't say always) exclude his first $80K of income from US taxes. You WILL have to pay income tax in your country of residence, and if you make more than 80K you'll owe something to Uncle Sammy.

So go to IRS.gov and search the publications for "foreign exclusion." I'm not an expert. I don't know the ins and outs. But this should get you started.

[betadecay]

Your first 80k made out of the country is tax free. You are required to pay taxes to said country however.

Edit: sorry, didn't realize this had already been mentioned.

[Quicksilvre]

[ QUOTE ]
that would probably be the biggest mistake of your life.

[/ QUOTE ]

That depends. Just doing it for internet poker probably isn't worth it, though there are circumstances where it would be.

[Nepthu]

No I don't want to jib anyone. Not any of the 'common' people.

But I don't like everything that the tax dollars go to anyway. Money controls washington, so that the corporations can buy legislation that protects or enhances their profit. Like the oil industry keeping the status quo with the new energy bill. Even if the consequence of that energy bill is that we need to invade more countries (like Iraq) to gain better control of their oil and set up a government that will serve our interests. Likely my tax dollars would just go to corporate wellfare anyhow. Supplementing some billionaire investors income or to fund the military for more US imperialism abroad. Or worse funds to support US setting up terror states (the public got a whiff of this with the iran-contra scandal) in south american countries because these tyrannnies suit foreign US business interests whereas a some form of populist government might hurt their profit. Not to mention US proxy wars where much more terrorism occurs than any 9/11.

Besides in a capitalist system someone does all the work and someone else gets all the profit i.e. that one that supplies the capital. Something about that just doesn't sit right with me.

You can see why I want to leave the country now /images/graemlins/smile.gif

[VinnyTheFish]

What type of records should I keep for deduction purposes?
The IRS requires you to “keep an accurate diary or similar record of your losses and winnings.” Your diary should contain at least the following information.

The date and type of your specific wager or wagering activity.

The name and address or location of the gambling establishment.

The names of other persons present with you at the gambling establishment.

The amount(s) you won or lost.

The number of the table at which you were playing.

Casino credit card data indicating whether the credit was issued in the pit or at the cashier's cage.
To substantiate your diary entires, the IRS requires supplemental records. These records are not to be submitted with your tax return, but you should keep them in case you get audited. These records include (1) Form W-2Gs; (2) wagering tickets or receipts; (3) canceled checks; (4) credit card records such as cash advances; (5) bank withdrawals, and (6) any receipts provided by the gambling establishment.

How would the IRS find out about my online winnings?
The reporting of online gambling income currently operates on the honor system. Most of the online poker rooms are licensed in foreign jurisdictions such as Costa Rica, Great Britain and Australia. These poker rooms fall outside of IRS jurisdiction and do not report your winnings to the IRS. Therefore, the only way the IRS can find out about your winnings is if you declare it on your tax return.

Many poker players get away with never declaring their online winnings. Without cooperation from the online poker rooms, the IRS has little recourse. The U.S. government looses millions of dollars each year due to this loophole. In order to recoup this lost revenue, several legislators and industry leaders have vocally called for the licensing of online gambling in the U.S.

"We believe that gaming on the Internet should be regulated and taxed," said Alan Feldman, a spokesman for MGM Mirage. "We cannot afford to put our heads in the sand."

** from the IRS Site
http://www.irs.gov/taxtopics/tc419.html

[RobDoral]

The IRS tax codes for gambling winnings are really hard to apply to online gambling because they are written for B&M establishments. We can play at multiple sites at once, at multiple tables, in multiple currencies with a lot of other variables thrown in (like bonuses, rakeback, deposite fees, etc.).

The interpretation I've chosen to make for tax purposes is a gambling session begins with a deposit at a poker site and ends with a withdrawal. This may mean that a single session lasts days, weeks, or even months (if nearing the end of the year you might want to shift all your funds to neteller temporarily to make a record of it), but this seems to most closely match a B&M session where a player buys chips from a single source and the cashes them back in when they're done.

Rather than tracking all kinds of numbers we have two simple numbers, how much we deposited and how much we withdrew. If we get audited we can print out a copy of our neteller transactions (or whatever funding method one uses) and our bank account statements.

The only sticky point might be funds left in our accounts that make up our bankroll. If you start with $50 and work up to a $1000 bankroll, you'd have to declare $1000 in winnings and $50 in losses even if you consider your bankroll a business expense. However it seems like you should only have to count this once if you leave it in neteller or a poker site from year to year (and if you increase your permanent bankroll, you count the extra money you add as income for that tax year)

Now I am not an accountant, lawyer, or anybody qualified to give tax advice but since the feds are forcing us to do this on our own, this seemed to most reasonable method imo.

[belgianbeerlover]

[ QUOTE ]
Therefore, the only way the IRS can find out about your winnings is if you declare it on your tax return.


[/ QUOTE ]

An audit? The transfers from your Neteller to your checking account will be on your bank records. I hear of people using Neteller debit cards to eliminate a paper trail. I am not advocating this, but does this mean Neteller will not comply with a request from the IRS?

[Nicodemus]

I have no dog in this fight (not being a US citizen), but the issue with using a Neteller debit card and compliance is rather beyond the point. If there is no paper trail, it is that much more difficult for the IRS to be aware of Neteller in the first place. (I am not advocating anything one way or other, I am just stating what should be obvious).

For the record, Neteller is domiciled in Canada.

Nicodemus.

[Nicodemus]

[ QUOTE ]
If you dont want to break any laws, then yes you have to pay income tax even if you move outside the US unless you renounce your citizenship, but that would probably be the biggest mistake of your life.

[/ QUOTE ]

**I AM NOT AN IMMIGRATION LAWYER**

There are *some* viable alternatives to this being the "biggest mistake of your life."

IIRC, Recent Supreme Court rulings in the USA have ruled that you CAN hold dual citizenship as an American citizen (it was prohibited for some time). I have some friends who have recently obtained dual citizenship in some South American countries while retaining their US citizenship.

For long-term professionals, it may be advisable to emigrate to a country such as Canada, where gambling revenue is not *normally* taxable. Upon immigration into Canada, apply for citizenship while holding down a regular part-time job for tax purposes (I know, this may be harder than it seems) - it will take about 2-3 years and you may travel abroad during this period (albeit with some restrictions when counting towards your time for citizenship).

Once you have obtained Canadian citizenship, THEN renounce your US citizenship. At this point, you will have basically all the same protections and travel capabilities you are used to as an American citizen. Upon securing Canadian citizenship, you are then free to live abroad without concern for taxation in Canada or the USA (in fact, you will not even have to file Canadian income tax returns if you are living abroad).

Obviously, this is a long-term plan, and you may wish to seek another country that offers better provisions such as Australia or the UK, but you really need to speak with an immigration lawyer about what other consequences you may face at some time for renouncing US citizenship. From my reading, there are (despite the hype), relatively little consequences if you have your situation structured properly (ie. you DO maintain citizenship in another 1st world country).

Nicodemus.