Tax Filing Dilemma... does anybody do this?

[mistaken]

Hello all,

I am currently in the process of paying my taxes and have a question about filling them out. I originally thought that I just need to figure the difference between all of my winnings and losses and put it on line 21 of the 1040. However, the IRS is telling me now that I have to take my net winnings (every session that came out in the + combined) and my net losses (every session that came out in the - combined) and list these in 2 seperate locations.
Does anybody actually do this? I've got a record of all my sessions for the last few months, but not the whole year. Please help.

[Vern]

Use the search function, this has been covered ad nauseam

[Russ Fox]

Unless you're a professional, you are NOT supposed to net the results -- you must put your wins on line 21 (Other Income); your losses are an itemizable deduction (Schedule A). Those are the rules.

Of course, many non-professionals net the results. It's a fine method -- until you get caught.

-- Russ Fox, EA

[*TT*]

Russ:

My scenario:

1040 - Employed in the state on NY
Schedule C - Self employment income & poker as well as appropriate deductions - derived in the state of NJ
In addition I also am the soul member of an LLC which is a marketing company. The company is registered in the state on NY, I live in the state of NJ.

As a professional (technically), I have the ability to net the results on my Schedule C. I assume this would be included on the Other Income line? Anything else I should be on the lookout for? The LLC was incorporated in 2005, this is the first year I am filing (nothing but expenses, no income on the books until 2006).

Thanks in advance.... hope to see your writings submitted to the 2+2 magazine soon!

TT /images/graemlins/club.gif

[mistaken]

though the only difference between being a professional or not is claiming yourself as one on the form, correct? This can easily been done.

[Misfire]

[ QUOTE ]
though the only difference between being a professional or not is claiming yourself as one on the form, correct? This can easily been done.

[/ QUOTE ]

My understanding is that "professionals" in the IRS's eyes must be "full-time."

[Misfire]

[ QUOTE ]
Unless you're a professional, you are NOT supposed to net the results -- you must put your wins on line 21 (Other Income); your losses are an itemizable deduction (Schedule A). Those are the rules.


[/ QUOTE ]

Yes, and this really sucks if you can't itemize more than the standard deduction. The tax on my gambling winnings litterally ate up 100% of my net profit because my losing sessions didn't change the amount I could deduct. /images/graemlins/mad.gif

[Lottery Larry]

I do, and have done so for a while.

[Lottery Larry]

[ QUOTE ]
though the only difference between being a professional or not is claiming yourself as one on the form, correct? This can easily been done.

[/ QUOTE ]

If you don't include the self-employment tax and other responsibilites, SURE it's that simple

[Russ Fox]

Your situation -- with gambling and a sole-member LLC with multi-state issues -- is complex enough that you would be wise to spend the money to have a professional prepare your return. It's impossible for me to give professional advice on your situation without asking you a lot of detailed questions, seeing your 2004 returns, etc; a 2+2 forum is a place for basic questions, and basic answers; not complex questions and answers.

-- Russ Fox, EA

[AceFace]

[ QUOTE ]
Unless you're a professional, you are NOT supposed to net the results -- you must put your wins on line 21 (Other Income); your losses are an itemizable deduction (Schedule A). Those are the rules.

Of course, many non-professionals net the results. It's a fine method -- until you get caught.

-- Russ Fox, EA

[/ QUOTE ]

This is so baffling. What happens if you didn't keep a record of your sessions online, but you do have a "final tally" record of how much you were ahead by the end of the year?

Why can't you just declare what you know you won (your profit) and then pay the tax on that? After all, without exact records what else could you declare?

Are you saying one has to file as a professional as a result? Is that the only common sense alternative, assuming that one is completely honest and willing to pay the just amount owed in taxes?

[leehrat]

[ QUOTE ]
[ QUOTE ]
Unless you're a professional, you are NOT supposed to net the results -- you must put your wins on line 21 (Other Income); your losses are an itemizable deduction (Schedule A). Those are the rules.


[/ QUOTE ]

Yes, and this really sucks if you can't itemize more than the standard deduction. The tax on my gambling winnings litterally ate up 100% of my net profit because my losing sessions didn't change the amount I could deduct. /images/graemlins/mad.gif

[/ QUOTE ]

this is ridiculous. are you still playing poker?

[Wake up CALL]

[ QUOTE ]
This is so baffling. What happens if you didn't keep a record of your sessions online, but you do have a "final tally" record of how much you were ahead by the end of the year?


[/ QUOTE ]

Unless you get audited, nothing happens. If you do get audited the IRS will gladly tell you how much you won and suggest you prove otherwise. Just like running a red light, ignorance of the law is no defense.

[matt holland]

[ QUOTE ]
If you do get audited the IRS will gladly tell you how much you won and suggest you prove otherwise.

[/ QUOTE ]

I guess the question is, how do you, or anybody reading this expect the IRS is going to tell us how much we won? The only information I have tells me my net for the year (Neteller deposits and withdrawals). I do not play at PT supported sites.

[Misfire]

[ QUOTE ]
this is ridiculous

[/ QUOTE ]

Yes. Damn those rat-bastard commies.

[ QUOTE ]
are you still playing poker?

[/ QUOTE ]

Yes, because I still love playing, and no government agency is gonna change that. This coming year, though, I'm making sure I do enough things (business expenses, charitable gifts, etc.) so I exceed the standard deduction. Then my "losses" will actually count.

[Misfire]

[ QUOTE ]
This is so baffling. What happens if you didn't keep a record of your sessions online, but you do have a "final tally" record of how much you were ahead by the end of the year?

[/ QUOTE ]

The same reason you can't get another card after the river. It's the rules. Also, if you don't meet the standard deduction, the difference is huge.

[ QUOTE ]
After all, without exact records what else could you declare?

[/ QUOTE ]

That I have no idea, and you probably need to consult a tax attorney. I assume you'll have to try and figure out approximately what % of the time you win and lose and go from there.

[AceFace]

What do you mean by "if you don't meet the standard deduction" ?

[DING-DONG YO]

[ QUOTE ]
My understanding is that "professionals" in the IRS's eyes must be "full-time."

[/ QUOTE ]

I think you could easily argue that you are a professional even if you are not "full-time". Check this link http://forumserver.twoplustwo.com/showthreaded.php?Cat=0&Number=5057715

[ QUOTE ]
Use the search function, this has been covered ad nauseam

[/ QUOTE ]

Word

[LearnedfromTV]

[ QUOTE ]
[ QUOTE ]
This is so baffling. What happens if you didn't keep a record of your sessions online, but you do have a "final tally" record of how much you were ahead by the end of the year?


[/ QUOTE ]

Unless you get audited, nothing happens. If you do get audited the IRS will gladly tell you how much you won and suggest you prove otherwise. Just like running a red light, ignorance of the law is no defense.

[/ QUOTE ]

I apologize if this has been covered in an earlier thread, but this thread is near the top of the page.

Here is what I don't get:

If all I have are macro-level records (Neteller withdrawals, poker site account history, whatever), how specifically would an audit go badly for me?

Some round figures:

Let's say I won $20K, net. If I were to do it session by session, it would be +60K and -40K. But I don't know this, the IRS doesn't know this, and there's no record available that could show this. I didn't keep track. There *are*, however, records available that show I netted 20K. They are complete and detailed, but not on a session by session basis. I plan to add 20K to my income and pay taxes accordingly.

This can't end up with the IRS arguing that I won 60K (or any other "session wins number"), because there are no records that say this, just as there are no counterrecords itemizing the 40K that I would deduct for session losses if I had session records.

The above is basically my situation for 2005 (different figures). Now that I know the law, I am keeping session records and will have all needed data for 2006 and beyond. I don't understand what the repercussions of not having session records for 2005 would be. Will they take away my standard deduction (some sort of phantom itemization)? They can't just make up numbers that don't exist, can they?

I realize audits aren't likely, but I want to be prepared, especially because I am trying to do everything above board and don't want to get hit hard anyway.

[Wake up CALL]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
This is so baffling. What happens if you didn't keep a record of your sessions online, but you do have a "final tally" record of how much you were ahead by the end of the year?


[/ QUOTE ]

Unless you get audited, nothing happens. If you do get audited the IRS will gladly tell you how much you won and suggest you prove otherwise. Just like running a red light, ignorance of the law is no defense.

[/ QUOTE ]

I apologize if this has been covered in an earlier thread, but this thread is near the top of the page.

Here is what I don't get:

If all I have are macro-level records (Neteller withdrawals, poker site account history, whatever), how specifically would an audit go badly for me?

Some round figures:

Let's say I won $20K, net. If I were to do it session by session, it would be +60K and -40K. But I don't know this, the IRS doesn't know this, and there's no record available that could show this. I didn't keep track. There *are*, however, records available that show I netted 20K. They are complete and detailed, but not on a session by session basis. I plan to add 20K to my income and pay taxes accordingly.

This can't end up with the IRS arguing that I won 60K (or any other "session wins number"), because there are no records that say this, just as there are no counterrecords itemizing the 40K that I would deduct for session losses if I had session records.

The above is basically my situation for 2005 (different figures). Now that I know the law, I am keeping session records and will have all needed data for 2006 and beyond. I don't understand what the repercussions of not having session records for 2005 would be. Will they take away my standard deduction (some sort of phantom itemization)? They can't just make up numbers that don't exist, can they?

I realize audits aren't likely, but I want to be prepared, especially because I am trying to do everything above board and don't want to get hit hard anyway.

[/ QUOTE ]

I will address the statements I put in bold since they are the crux of your position:

BOLD #1: Yes they can, that is the point that you cannot grasp. If they choose to believe by using a formulae, intuition, voodoo or a ouija board they can unequivocably state you won X amount in order to win Y amount. The fact that you don't have records seems to make you think otherwise. If that was true why on earth would anyone keep records? The answer is because they can say your taxes are anything they compute them to be by any method they use and the burden of proof to prove otherwise is on you, not them. This is clearly the way the IRS regulations are written and enforced. With no records at all during an audit you will have no evidence to refute their contention. If you shlould suddenly appear with records after stating otherwise this would open you up to fraud which is punishable by excessive fines and jail time.

BOLD #2: See the answer above, after reading my initial response it appears I answered this as well in my original lenghty paragraph.

[LearnedfromTV]

Thanks. This is roughly what I expected.

It is not the case that I have no records, however. I am going to declare my net winnings and I have records that verify the net amount. What I don't have is records that split it into session wins/losses.

I guess my position is that the problem with my records isn't that they inaccurate; rather they just don't fit the proscribed accounting method. The IRS can verify my profit number and I will provide complete records that allow them to do this.

I think providing an accurate profit number with backup but being unable to do session breakdowns could (I hesitate to say should, because as you say this is about the letter of the law, not intent) be viewed differently by the IRS than someone who doesn't have any records but has unexplained sums in his bank account with a neteller trail that he doesn't disclose. After all, the main paper trail used to catch the real evaders is exactly what I am going to provide.

I guess I just want to believe the IRS would return my good faith, especially because I'm taking pains to do it perfectly for 2006. If this isn't the case, should I do the best I can to construct "sessions" based the time between withdrawals and work from that? I don't think it would change anything. Everything I have is firepay withdrawals which basically record profit only.

Thankfully, my fiancee is an attorney. We will at least have easy access to some negotiation help if it comes to that.

[Wake up CALL]

Unless you are audited you obviously will have no problem. Even if you are audited I expect your good faith in calculating your taxes correctly in subsequent years would go a long way in the eyes of any IRS auditor.

My lengthy post earlier was in rsponse to the implication you made as to whether or not they can do otherwise.

[bpcommish]

My tax accountant made it clear to me that I cannot deduct any losses unless I have receipts detailing buy ins, etc...since my winnings in 2005 were mostly from live tournaments, I get screwed.

[Misfire]

[ QUOTE ]
What do you mean by "if you don't meet the standard deduction" ?

[/ QUOTE ]

If my itemized deductions don't total more than the standard deduction ($5000), then I can't deduct my losing poker sessions (because they're supposedly already included in the standard deduction). The net result is for every $1 I gross my tax goes up.

Say my income from my dayjob for the year was $40,000, and my itemized deductions totaled $3000 (meaning I would just take the standard deduction). Now say that I won $2000 (gross) playing poker, but lost $1500 doing that. The tax code says I have to add this $1500 to my $3000 itemized deductions, which still doesn't exceed the standard deduction. So while my actual net income was $40,500, I will pay taxes on $42000--as if I hadn't lost anything playing poker. If my tax bracket is 25%, 100% of my poker winnings goes to the IRS, which is exactly what happened to me (with different numbers).

[MyTurn2Raise]

[ QUOTE ]
My tax accountant made it clear to me that I cannot deduct any losses unless I have receipts detailing buy ins, etc...since my winnings in 2005 were mostly from live tournaments, I get screwed.

[/ QUOTE ]

did you keep a journal? You don't need receipts for each tourney buy-in.