Just a question on taxes

[Colombo]

Move this to a different forum if this is the wrong one.

Anyway, I have been playing poker now for 3 years, and I've never paid taxes. In 2005/2006 I cashed out 30k (I can find exact total for each year) and in 07 60k.

Now heres my question. My dad talked to a CPA and the guy said that he wants proof of all my winnings and all of my losses. My dad is under the impression (from his research) that this means that I should have a record of every session I play, which would include about 1,000 sessions per year. This just doesn't seem right to me.

In my opinion, what needs to be taxed is simply what I've cashed out. I don't see it being any different. I mean, whatever I cash out is my winnings minus my losses (assuming I never lost $ before).

Another question we pondered was that say a person wins 100k in 2005 but doesn't cash out. Is the government going to want a piece of this? If so, what if he proceeds to lose all of that money in 2006. Does that mean that the government wants him to pay taxes on the 100k even though it never left his poker account?

In short - I just don't see why you can't say "I cashed out 'x' amount of money, tax it." Please educate me.

[Sniper]

Because you don't make the law.. and hopefully you use PokerTracker.

[Colombo]

[ QUOTE ]
Because you don't make the law.. and hopefully you use PokerTracker.

[/ QUOTE ]

Okay but what is the difference between Winnings-Losses and total profit? Nothing right? And since you can only cash out profits I don't see why I need all this extra info.

[TheEngineer]

[ QUOTE ]
what is the difference between Winnings-Losses and total profit?

[/ QUOTE ]

One is the way you want things to be. The other is the way they are.

[daedalus]

you're trying to apply logic here...big mistake. you're just scratching the surface, this gets uglier. Essentially it's illegal to "net" your poker results for any period more than 1 day. Enjoy.

[Colombo]

So does anybody have any tips on how to do this?

I can email pokerstars and get a history of all my tourneys, but theres no way I'll be able to shift through roughly 300 days of pokertracker info.

[Colombo]

And is it true that the government can tax you for your winnings in 2005, even if you never cash out, and if you lose all of that in 2006?

[TheEngineer]

[ QUOTE ]
And is it true that the government can tax you for your winnings in 2005, even if you never cash out, and if you lose all of that in 2006?

[/ QUOTE ]

Sure is.

[daedalus]

there's a link around here somewhere to tax tips, good luck columbo. bottomline, you need to make your best effort to pay the IRS. Right now your 'negligent'. If you paid them even a 'net' amount then you'd be doing at least some 'due diligence', which will keep you out of trouble but not necessarily avoid an audit. Make your best effort.

[Colombo]

Well I know for a fact that I can get very precise info on 2007 stats. I might just do that for 2007 and ignore 05 and 06 since 30k over 2 years isn't that much.

[cbloom]

If you had money in Neteller you need to fix this ASAP as the Neteller files are getting handed over to the DOJ this year.

[WhiteWolf]

Standard advice around here is to consult a CPA. I see you've already done that. I guess the second piece of advice would be to listen to what your CPA tells you....

- The Wolf

[Colombo]

[ QUOTE ]
If you had money in Neteller you need to fix this ASAP as the Neteller files are getting handed over to the DOJ this year.

[/ QUOTE ]

I've used neteller before, but my account was bone-dry about a month before the legislation.

[Colombo]

I just read somewhere that MA does not allow you to deduct losses when filing. This would mean that I need to pay taxes on ~$700,000? WTF, something must be wrong here...

[hotbacon]

Nothing's wrong here, except the archaic law that made me (like you'll have to) pay taxes on MUCH more income than I actually earned, here in the great state of Indiana.
So, yeah. You have to pay taxes just on what your "winnings" are, which are going to be drastically higher than whatever you actually made.
Unless MA isn't one of the states that does this. But I'm 99% sure it is.

[Colombo]

[ QUOTE ]
Nothing's wrong here, except the archaic law that made me (like you'll have to) pay taxes on MUCH more income than I actually earned, here in the great state of Indiana.
So, yeah. You have to pay taxes just on what your "winnings" are, which are going to be drastically higher than whatever you actually made.
Unless MA isn't one of the states that does this. But I'm 99% sure it is.

[/ QUOTE ]

So in other words, I'm going to be in debt about $150,000? lol

[Niediam]

[ QUOTE ]
[ QUOTE ]
Nothing's wrong here, except the archaic law that made me (like you'll have to) pay taxes on MUCH more income than I actually earned, here in the great state of Indiana.
So, yeah. You have to pay taxes just on what your "winnings" are, which are going to be drastically higher than whatever you actually made.
Unless MA isn't one of the states that does this. But I'm 99% sure it is.

[/ QUOTE ]

So in other words, I'm going to be in debt about $150,000? lol

[/ QUOTE ]

I doubt MA state tax is near that high.

[Colombo]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Nothing's wrong here, except the archaic law that made me (like you'll have to) pay taxes on MUCH more income than I actually earned, here in the great state of Indiana.
So, yeah. You have to pay taxes just on what your "winnings" are, which are going to be drastically higher than whatever you actually made.
Unless MA isn't one of the states that does this. But I'm 99% sure it is.

[/ QUOTE ]

So in other words, I'm going to be in debt about $150,000? lol

[/ QUOTE ]

I doubt MA state tax is near that high.

[/ QUOTE ]

Well bottom line is that my winnings are roughly $700,000 but my profit is only $100,000. So ya, it looks like I'll be in debt?

[TheEngineer]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Nothing's wrong here, except the archaic law that made me (like you'll have to) pay taxes on MUCH more income than I actually earned, here in the great state of Indiana.
So, yeah. You have to pay taxes just on what your "winnings" are, which are going to be drastically higher than whatever you actually made.
Unless MA isn't one of the states that does this. But I'm 99% sure it is.

[/ QUOTE ]

So in other words, I'm going to be in debt about $150,000? lol

[/ QUOTE ]

I doubt MA state tax is near that high.

[/ QUOTE ]

Well bottom line is that my winnings are roughly $700,000 but my profit is only $100,000. So ya, it looks like I'll be in debt?

[/ QUOTE ]

If the state marginal tax rate is 6%, you'd owe $42,000, so you'd still have a profit. Additionally, that tax is deductible from your federal taxes, yielding more reduction. Or, you can see if you can file as a professional. Then you can net your wins and losses.

Also, the definition of "session" seems to be loose. I figure it's the period where I'm playing in at least one game. If you lose that, rather than assuming a session is each time you sit at a table, you may see improvement. Perhaps I should build an auto-folding + blind posting bot for 0.05/0.10 play to run while I'm not actively playing, specifically for the purpose of keeping my calendar year one continuous session. /images/graemlins/wink.gif

[oldbookguy]

Then file the LONG FORM 1040 not a 1040A and the losses are deductable since they will greatly exceed the standard deduction allowed.
You have to document them in-case of an audit.

If your CPA does not know this, get a new one, lol.

obg

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Nothing's wrong here, except the archaic law that made me (like you'll have to) pay taxes on MUCH more income than I actually earned, here in the great state of Indiana.
So, yeah. You have to pay taxes just on what your "winnings" are, which are going to be drastically higher than whatever you actually made.
Unless MA isn't one of the states that does this. But I'm 99% sure it is.

[/ QUOTE ]

So in other words, I'm going to be in debt about $150,000? lol

[/ QUOTE ]

I doubt MA state tax is near that high.

[/ QUOTE ]

Well bottom line is that my winnings are roughly $700,000 but my profit is only $100,000. So ya, it looks like I'll be in debt?

[/ QUOTE ]

[Kurn, son of Mogh]

You need to break out your winning and losing sessions and report them separately. IRS Pub. 529 expressly forbids reporting the net of wins-losses as income.

[TheEngineer]

[ QUOTE ]

Then file the LONG FORM 1040 not a 1040A and the losses are deductable since they will greatly exceed the standard deduction allowed.
You have to document them in-case of an audit.

If your CPA does not know this, get a new one, lol.

obg

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Nothing's wrong here, except the archaic law that made me (like you'll have to) pay taxes on MUCH more income than I actually earned, here in the great state of Indiana.
So, yeah. You have to pay taxes just on what your "winnings" are, which are going to be drastically higher than whatever you actually made.
Unless MA isn't one of the states that does this. But I'm 99% sure it is.

[/ QUOTE ]

So in other words, I'm going to be in debt about $150,000? lol

[/ QUOTE ]

I doubt MA state tax is near that high.

[/ QUOTE ]

Well bottom line is that my winnings are roughly $700,000 but my profit is only $100,000. So ya, it looks like I'll be in debt?

[/ QUOTE ]

[/ QUOTE ]

He's talking about state taxes. Losses aren't deductible in Mass.

[Kurn, son of Mogh]

[ QUOTE ]
[ QUOTE ]

Then file the LONG FORM 1040 not a 1040A and the losses are deductable since they will greatly exceed the standard deduction allowed.
You have to document them in-case of an audit.

If your CPA does not know this, get a new one, lol.

obg

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Nothing's wrong here, except the archaic law that made me (like you'll have to) pay taxes on MUCH more income than I actually earned, here in the great state of Indiana.
So, yeah. You have to pay taxes just on what your "winnings" are, which are going to be drastically higher than whatever you actually made.
Unless MA isn't one of the states that does this. But I'm 99% sure it is.

[/ QUOTE ]

So in other words, I'm going to be in debt about $150,000? lol

[/ QUOTE ]

I doubt MA state tax is near that high.

[/ QUOTE ]

Well bottom line is that my winnings are roughly $700,000 but my profit is only $100,000. So ya, it looks like I'll be in debt?

[/ QUOTE ]

[/ QUOTE ]

He's talking about state taxes. Losses aren't deductible in Mass.

[/ QUOTE ]

That's because many states, like MA and RI, tax you on federal AGI which is before you subtract your itemized deductions (which is where you report losses).

[DavidNB]

[ QUOTE ]
And is it true that the government can tax you for your winnings in 2005, even if you never cash out, and if you lose all of that in 2006?

[/ QUOTE ]

In the eyes of the tax man, you cash out after everysession. Whether the money is in your account on line or at your bank account, it all the same.

[Backspin20]

Move to Sweeden

[Kurn, son of Mogh]

[ QUOTE ]
And is it true that the government can tax you for your winnings in 2005, even if you never cash out, and if you lose all of that in 2006?

[/ QUOTE ]

Income is taxable in the year it is earned. However, if you left it all on an offshore site, how would the IRS ever know you earned it?

[Niediam]

[ QUOTE ]
[ QUOTE ]
And is it true that the government can tax you for your winnings in 2005, even if you never cash out, and if you lose all of that in 2006?

[/ QUOTE ]

Income is taxable in the year it is earned. However, if you left it all on an offshore site, how would the IRS ever know you earned it?

[/ QUOTE ]

When Party Poker gives the IRS all it's reconds on American players in part of their agreement in 2011 to allow Party to have US customers? *shrug*

[oldbookguy]

Yep and you cannot average out win / loss.

Each MUST be reported as a stand alone on the tax form.

To deduct losses you must file an Itemized form, however, winnings go on ANY tax form.

Kinda, no it does suck.

obg

[Kurn, son of Mogh]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
And is it true that the government can tax you for your winnings in 2005, even if you never cash out, and if you lose all of that in 2006?

[/ QUOTE ]

Income is taxable in the year it is earned. However, if you left it all on an offshore site, how would the IRS ever know you earned it?

[/ QUOTE ]

When Party Poker gives the IRS all it's reconds on American players in part of their agreement in 2011 to allow Party to have US customers? *shrug*

[/ QUOTE ]

And we've just uncovered the downside of legalized, regulated online poker in the US.

On the other hand, if it takes until 2011, It'll be fun to see the IRS implode going over all those back results. /images/graemlins/cool.gif

[ginko]

Two choices:

1) You file as a pro. You pay like a straight % of NET winnings. Its around 30-35%. If you have state income tax thats extra.

2) You file as a hobby. You total up all of your winning sessions. You total up all of your losing sessions. Combine those two numbers and you get your net. But you do not use the net for your tax return.

You would for example have $500,000 in winning sessions. Then you would have $400,000 in losing sessions. Your income will be 500k with a deduction of 400k. You only have to pay tax's on 100k, which is cheaper than filing as a pro(usually).

Finding the total of your winning and losing sessions is simple. This is what I did(all play at pokerstars).

1) Buy pokertracker ($55)

2) Request all hand histories from the sites you have played at.

3) Split those files into smaller files. Open up the huge file and Cut/Paste 5k hands into another Note Pad document. Save often. PT can only handle about 5k hands per file or else it will crash. This is tedious but must be done as the files are like 20megs+ depending on how many HH's there are.

4) Upload all of those files into PT using the import HH feature. Usually this will take like 10 hours+ if you have a lot of hands, maybe more maybe less.

5) Download OpenOffice from openoffice.org. You can use any excel software but this program is free and easy to use so I recommend it.

6) Once you have all of your data in PT, tell it to only show data from each year. So start with 01/01/2004 through 12/31/2004. Or whatever year you started playing in.

7) Click the 'Sessions Notes' tab. Where it says "Session Details", click on the header that says "$Won". This is to sort the data from winning and losing sessions. To the left of 'Sessions Details', there is a small blue P. Click on that and then choose 'Export'.
Once there choose these options:

File type: Choose Excel

"Export?" Column : Unclick everything except "$won". If you need more details you can pick them but I just chose $won because thats the only info I need.

Browse: Click this to export the info and save the file. You will use this file to export into an excel spreadsheet where you can easily add up your total figures.

8) Open up your excel program and import the file. The amounts of money won and lost should already be sorted in column "A" from biggest winning session to biggest losing session. Click on the box with the biggest losing session (all the way on the bottom). Once the box has been clicked, scroll up to the smallest losing. Probably something like -.01 cents.

Hold down shift on the keyboard, and click on that box. It should highlight every losing session in the file. Now drag it over to column "B". There should be two columns now, a winning column and a losing column. For neatness, delete all of the empty box's using the shift technique, so all the losing sessions data is moved up.

Now in the program Open Office(I cant comment on other programs but Im sure the functionality exists), there should be a big blank space to type something in the upper middle part of the screen. To the left of it there are a few buttons.


Find an empty box(AKA cell) somewhere on the database. Highlight it. Then click the button to the left of that big empty space that says "SUM" when you hover over it. Click on it and something like =SUM() will show up in the cell you just highlighted.

Click on the biggest winning session number(Column A), scroll down to the small winning session number and use the shift technique while clicking on it. You should have all of them highlighted. Now press enter and you will have the sum of your winning sessions. Do the same thing for losing sessions, in a different cell (like in another column on the right of the screen).

Save.

You will have your total from winning sessions, and total from losing sessions. Now do the other years. Mark each save file for each year in case you need to quickly find these files.

This sounds difficult but its really not. The really tedious part is the splitting of the huge hand history files.

You will probably save a lot of K's doing it this way instead of just netting everything and filing as a pro. It will take about 4 hours of work, and maybe a day or two of waiting for PT to load all of the files(it will appear to be frozen but I assure you it is not as long as the NotePad files are no bigger than 5k hands per.

[ginko]

Also for clarification:

You must pay tax's on all poker winnings in the year it was earned. If you make 100k in 2007, and you only cash out 20k, you must pay tax's on all 100k.

You cannot cheat here because if you get audited you have to show the IRS your Poker Tracker database and they will see how much money you truly made in each year.

If you don't have poker tracker and think you can lie to the IRS when they audit you, with no records, you are SCREWED. As a poker player you are more likely to be audited than the Average Joe.

[ginko]

Filing as a pro, you are treated as a business:

+ You can net your winnings or loss's

+ You can deduct some expenses.

- You must pay 15% social security tax

+ If you have a losing year you don't have to pay tax's



Filing as hobby:

- You cannot deduct expenses.

+ You don't pay social security tax of 15%.

- You must add up all winning sessions, and report it as income, then deduct all losing sessions.

+ Generally cheaper than filing as a pro unless you have a ton of expenses. (Flights, Big tourney buyins, computers, laptops, hotel stays, these are all business expenditures from my understanding)



This is my BASIC knowledge from what I've gathered. Consult with your CPA. But for the most part I believe filing as a hobby is beneficial for an Online player compared to a Live tourney pro.

[Lottery Larry]

[ QUOTE ]
My dad talked to a CPA and the guy said that he wants proof of all my winnings and all of my losses.

In short - I just don't see why you can't say "I cashed out 'x' amount of money, tax it." Please educate me.

[/ QUOTE ]

The CPA answered your question already