Ways of reporting poker winnings
 

Last year I filed a schedule C to claim about $5000 in net poker winnings ($25,000 in total winnings - $20,000 in total losses). This amount was subject to self employment tax of about $700.

I have heard that it's possible to report total poker winnings as "other income" (line 21 on form 1040) and total losses as a schedule A itemized deduction. If I can do it this way I wouldn't have to pay anything in self employment taxes, right?

Re: Ways of reporting poker winnings
 

Gambling losses are deductible to the extent of gambling winnings as a miscellaneous Itemized deduction not subject to the 2% limitation.

Unless poker was your main source of income, or you didn't receive a W-2 from anywhere, report the winnings as other income and the losses to the extent they don't exceed the winnings.

Re: Ways of reporting poker winnings
 

knght has it right, and you probably did it wrong last year.

Unless you listed your profession as "gambler" and get the lion's share of your income from gambling, the IRS doesn't want you to use schedule C. You are supposed to report all of your winnings on the 1040 Other Income form, and deduct any losses on schedule A.

Which is financially better will depend on your specific situation. If you don't itemize today, basically you get completely screwed. If you had 100 gambling "sessions" during the year and were profitable to the tune of $5K in 50 of them, but lost $5K in the other 50, you have an issue. IRS demands you report $5K of income. It's that simple...you do NOT get to offset profits and losses. You MUST report $5K of income. Now...about those losses... you put those on schedule A. If you don't want to itemize then you just report $5K of income and they expect you to pay income tax on $5K even though you broke even for the year.

The advantage of the normal approach is you don't have to pay self-employment taxes. And if you already itemize and don't make TOO much, it's often a better deal.

The advantage to claiming to be a pro is you get to deduct your losses up to the amount of your winnings regardless of schedule A, and you can deduct other expenses like travel and hotel costs and poker books and whatnot. But...

The IRS is supposedly not at all friendly about letting people claim gambling as a business unless they are really supporting themselves through gambling. If you have a job that pays $50K/yr and you got $5K of poker income, you are not a professional gambler and the IRS may come get you. Do a little googling and you'll find a number of websites that go into all these details and include horror stories of people being raped by the IRS and tax courts.

This system is extremely broken and insanely unfair. But it's the law as currently interpreted by the IRS and the tax courts.

Re: Ways of reporting poker winnings
 

I've brought this up before, but never got any satisfactory replies. Has anyone ever deducted their poker expenses under § 183 (i.e., the "hobby losses" section)?

Re: Ways of reporting poker winnings
 

I didn't make that much money in 2006 because I was in school for most of the year but my net poker winnings where more than what's on my W-2

Poker: $8300 ($33,500 winnings - $25,200 losses)
W-2: $4500

I did my taxes both ways last night and found that my tax liability increased by $819 when I used schedule C to report my poker winnings.

TL Schedule A way: $377
TL Schedule C way: $1196

Can someone point me to something from the IRS discussing how the poker income must be reported in my situation.

Re: Ways of reporting poker winnings
 

[ QUOTE ]
I didn't make that much money in 2006 because I was in school for most of the year but my net poker winnings where more than what's on my W-2

Poker: $8300 ($33,500 winnings - $25,200 losses)
W-2: $4500

I did my taxes both ways last night and found that my tax liability increased by $819 when I used schedule C to report my poker winnings.

TL Schedule A way: $377
TL Schedule C way: $1196

Can someone point me to something from the IRS discussing how the poker income must be reported in my situation.

[/ QUOTE ]

You may not have done this right. With the schedule C you will also get to take the standard deduction of ~$5,000. If you take the schedule A route, you will eat up the standard deduction.

Out of curiosity, what did you use to figure out your taxes?

Re: Ways of reporting poker winnings
 

[ QUOTE ]
You may not have done this right. With the schedule C you will also get to take the standard deduction of ~$5,000. If you take the schedule A route, you will eat up the standard deduction.

Out of curiosity, what did you use to figure out your taxes?

[/ QUOTE ]

Downloaded the forms and figured it myself by hand.

When using schedule C I did take the standard deduction of $5150 but SE taxes on my $8290 in schedule c (poker) income was $1171!

When I do it the schedule A way, I take an itemized deduction of $25,340 instead of the standard deduction and do not pay anything in SE taxes.

Re: Ways of reporting poker winnings
 

Sounds like you should do it the Schedule A way, then, fersure.

IRS docs: Pub17 is the catch-all, you can find references to gambling in various spots. Pub552 is about record keeping which tells ya 'xactly what the IRS expects you to be able to provide to back up your win/loss claims. Pub529 is about deductions and spells out gambling deductions.

And again, google for "professional gambler taxes" and you'll find a number of very useful and interesting articles.