![]() |
#1
|
|||
|
|||
![]()
I am trying to get a feel for how most people handle their taxes and how many people actaully wind up getting audited.
Please answer truthfully. The assumptiuon is that if you don't report poker income at all, you have some sort of other income. |
#2
|
|||
|
|||
![]()
To the 14% who don't report and have never been audited. You are playing with fire.
Look at it from the IRS's standpoint. Let's say it costs the IRS a blended hourly rate of $40 per hour (a reasonable assumption, keep in mind this includes people at all levels, benefits, overhead, etc.) to audit you. Now, assume you made 20K from poker in 2005 that you are not reporting (conservate estimate, think about how much worse this example gets with the more you don't report). So, let's say this income is on top of what you already make and you're in the lowest bracket of 15% (another conservative estimate), so you owe $3,000 on your 10K of winnings. It would cost the IRS at least 80 hours of time (contacting you, requesting and examine your bank statements, credit card bills, etc) to audit you. 80*40 = $3,200. $3,200 > $3,000 so cost> benefit. It would cost them more money to audit you then they would collect from you. Now, keep doing this for another four years and YES, they can go back that far. I think it is at least 5, could be 7. Now you have underrported 80K and the IRS decides to come audit you. It will now take them at most 120 hours. So cost to them = $4,800. If they have been losing 5% APR interest (also conservative, they'll probably calculate more than that) on what you have not paid them for four years, that is something they will add onto your bill. So, now you owe them $13,253.72 total (12K principal and 1,253.72 interest) and that's just with the 5% interest. That doesn't even include penalties which they will assess as well. So, now 4,200<13,253.72 so it's an easy audit. I hope this illustrates that the longer you go without reporting this income, the worse shape you'll be in. Feel free to blow holes through my very broad example but remember, this example is extremely conservative. I would like to know how the 14% handle this. Is the poker additional income? If so, how significant is it compared to your real job? For those that are playing full time in this 14%, do you still file a tax return? |
#3
|
|||
|
|||
![]()
I'm 19 and in college.... I talked to my accountant about reporting and was laughed at. He said he wouldn't even worry about it since the chance of an audit is alot less than 1%. His words, not mine. I will be reporting anyway however.
|
#4
|
|||
|
|||
![]()
[ QUOTE ]
To the 14% who don't report and have never been audited. You are playing with fire. Look at it from the IRS's standpoint. Let's say it costs the IRS a blended hourly rate of $40 per hour (a reasonable assumption, keep in mind this includes people at all levels, benefits, overhead, etc.) to audit you. Now, assume you made 20K from poker in 2005 that you are not reporting (conservate estimate, think about how much worse this example gets with the more you don't report). So, let's say this income is on top of what you already make and you're in the lowest bracket of 15% (another conservative estimate), so you owe $3,000 on your 10K of winnings. It would cost the IRS at least 80 hours of time (contacting you, requesting and examine your bank statements, credit card bills, etc) to audit you. 80*40 = $3,200. $3,200 > $3,000 so cost> benefit. It would cost them more money to audit you then they would collect from you. Now, keep doing this for another four years and YES, they can go back that far. I think it is at least 5, could be 7. Now you have underrported 80K and the IRS decides to come audit you. It will now take them at most 120 hours. So cost to them = $4,800. If they have been losing 5% APR interest (also conservative, they'll probably calculate more than that) on what you have not paid them for four years, that is something they will add onto your bill. So, now you owe them $13,253.72 total (12K principal and 1,253.72 interest) and that's just with the 5% interest. That doesn't even include penalties which they will assess as well. So, now 4,200<13,253.72 so it's an easy audit. I hope this illustrates that the longer you go without reporting this income, the worse shape you'll be in. Feel free to blow holes through my very broad example but remember, this example is extremely conservative. I would like to know how the 14% handle this. Is the poker additional income? If so, how significant is it compared to your real job? For those that are playing full time in this 14%, do you still file a tax return? [/ QUOTE ] IF ($ of having to repay with interest) * (% of having to repay at all) > Paying, then pay. Add in whatever hassle or legal costs also associated. If not, then don't. Btw, there is a fatal logical flaw in your argument. You are presupposing that their auditors can accurately calculate how much you owe and make a cost-benefit analysis before calculating how much you owe (if anything at all). I don't see how they could do this. The more likely scenerio is this: they look over your tax return, and they potentially see "red flags." Such a red flag would be a big house purchase with no income. Based on the numbers of red flags they see, the more likely they will audit you. I think that for the "average" recreational poker player who does not make a significant percentage of his income from poker, the "absence of poker winnings being reported" will not itself raise a red flag (this is a joke). In other words, the IRS has no additional reason to "suspect" you of not paying taxes. |
#5
|
|||
|
|||
![]()
[ QUOTE ]
I'm 19 and in college.... I talked to my accountant about reporting and was laughed at. He said he wouldn't even worry about it since the chance of an audit is alot less than 1%. His words, not mine. I will be reporting anyway however. [/ QUOTE ] Get a new accountant dude. This guy could seriously [censored] you with that attitude. -James |
#6
|
|||
|
|||
![]()
[ QUOTE ]
IF ($ of having to repay with interest) * (% of having to repay at all) > Paying, then pay. Add in whatever hassle or legal costs also associated. If not, then don't. Btw, there is a fatal logical flaw in your argument. You are presupposing that their auditors can accurately calculate how much you owe and make a cost-benefit analysis before calculating how much you owe (if anything at all). I don't see how they could do this. The more likely scenerio is this: they look over your tax return, and they potentially see "red flags." Such a red flag would be a big house purchase with no income. Based on the numbers of red flags they see, the more likely they will audit you. I think that for the "average" recreational poker player who does not make a significant percentage of his income from poker, the "absence of poker winnings being reported" will not itself raise a red flag (this is a joke). In other words, the IRS has no additional reason to "suspect" you of not paying taxes. [/ QUOTE ] Two things. On your first point, you are very much incorrect. Granted, the IRS can't make this calculation accurately before they audit you. What they can do is make a very accurate <u>estimate</u> about how much you are underreporting before they audit you. Think about how much information is out there. Not hard to make a program that scans the activity in your credit report to your tax return and come up with a rough estimate of how much you are spending. Then the IRS would very accurattely be able to determine how much you owe IF they audit you. Don't assume they wouldn't be able to. They know alot more about hiding income than you do and with online poker winnings (as opposed to B&M), there is a trail for everything. For the second point, everything depends on how much you are making from poker in relation to total income. The more you are making (as a percentage), the more you have to worry about. |
#7
|
|||
|
|||
![]()
python: how much did you make? 10K or less?
|
#8
|
|||
|
|||
![]()
[ QUOTE ]
I'm 19 and in college.... I talked to my accountant about reporting and was laughed at. He said he wouldn't even worry about it since the chance of an audit is alot less than 1%. His words, not mine. I will be reporting anyway however. [/ QUOTE ] Smart, esp if you make a large amount. Remember, you don't want them coming back to you in 4-5 years and asking for all the taxes you didn't pay plus interest plus penalties. It happens, trust me. |
#9
|
|||
|
|||
![]()
[ QUOTE ]
python: how much did you make? 10K or less? [/ QUOTE ] More. |
#10
|
|||
|
|||
![]()
I am kind of surprised at the results so far. I had read that the IRS frowns on individuals that file as "pros" but also have day jobs. I thought that that group would have the most audits.
Can those people who have been audited please elaborate on their situations? I am curious as to what "red flags" led to the audit. What information were you asked for? |
![]() |
|
|