Re: paying taxes
[ QUOTE ]
you guys pay quarterly tax estimates?
i just talked to a tax attorney today who says I will need to pay every 1/4 and that my wins/losses will offset previous payments so in the end of the year I will get a refund/owe more which seems kind of rediculous. isnt it just easier to pay it all in the end of the year? or will I get penalties for this?
also, how is the IRS supposed to know if I my "income/winnings" is still in the poker site?
[/ QUOTE ]
Talk to an accountant that understands taxes for gamblers as there are different rules depending on if you are pro or not. Also, many people may think they are 'pros', but aren't according to the IRS definition.
With any form of earning where you don't have taxes taken out of the income (e.g. consulting, 1099 earnings, gambling etc...) you should pay a quarterly tax estimate. If you don't, you are subject to penalty when you do your yearly filing.
Basically, the IRS doesn't want to give consultants and the like a free loan for the year by allowing them to pay their tax obligation all on April 15th w/o penalty while Johnny Punchclock has his money taken out every week. So, you should pay quarterly tax estimates. If you don’t, you will have to pay penalties that are going to be higher than the interest you may have made holding the money all year. Penalties are calculated based on when you earned the income. So if you decide not to pay estimates, you will pay a higher penalty if you were running hot in the first quarter than if you ran hot in the last.
At the end of the year, you do your tax return and figure out how much you owe. Then you get a refund/owe more depending on how your actual tax obligation compares to your estimated payments. Estimate high and you get a refund. Estimate low and you owe more. Calculate your tax obligation each quarter and pay that amount. This can be a little tricky if you don’t understand taxes very well because you’ll have to do things like prorate your non-gambling deductions (eg take ¼ of your mortgage interest payment), estimate what your tax rate will be for the year, include FICA deductions etc… Remember, unlike a W-2 employee, you are responsible for ALL your Social Security and Med payments (employers pay half for their W-2 employees.) Also, what deductions you are allowed regarding gambling expenses depends on if the IRS sees you as a pro or not (only pros can deduct gambling related expenses. E.g. A trip to Vegas can be deductible for a pro but not for an armature.)
An interesting note: you won’t get penalized as long as you pay in estimated taxes as much as you owed the previous tax year. So an easy way to do this is let’s say you paid 40,000 in taxes last year. This year, if you pay 10,000 each quarter in estimated tax payments, you won’t have to pay any penalties even if you end up owing 80,000 in taxes. Upside is you keep that $40k in an account earning you interest. Down side is you have to write a big check at the end of the year. Some people are not disciplined with their money enough to save what they need to pay off their taxes.
Pro status also determines how your calculate your AGI (for non-pros, all winning sessions are considered income for AGI and losing sessions are taken as a deduction. Pros calculate AGI as winning sessions less losing sessions. So non-pros have a higher AGI, which can hurt them if they take other non-gambling related deductions that are limited by AGI.)
I don’t believe the IRS cares if your winnings are in the Poker site or in your bank account. Personal income taxes are paid on a cash basis (as opposed to accrual.) So the instant the cash is available to you, you have earned it as far as they are concerned.
I know paying 50% of your earnings to Uncle Sam sucks, but join the club! We all do it. Between by business and personal taxes, I pay more than most people on this site earn each year. It’s sickening. One prominent economist once said if everyone was forced to pay estimated taxes instead of having it automatically taken out of their pay check, there would be a tax revolt in this country. The sheeple don’t notice their hard earned money being siphoned away as its taken out of their weekly checks. But if everyone got paid their gross wage then had to write a check each quarter to the IRS, they would freak.
Seek professional advice on all of the above, as I am not a tax pro just took a couple advanced tax MBA classes. I’ve just gotten so much good info from all your posts I wanted to give a little back. God knows I couldn’t offer you any useful poker advice!
|