Ed Miller's Tax Article

[tipperdog]

Pretty much yes. You must report your total winnings. However, you can deduct your total losses up to the amount of your total winnings, in most cases. What you CANNOT do is report a "net" win and leave it at that. You also cannot claim more losses than winnings.

For example, you play 1000 sessions and win $100 in 550 and lose $100 in 450, you must report total winnings of $55,000 and deduct total losses of $45,000. What you cannot do is simply report winnings of $10,000.

It is an enormous pain in the ass.

[Ed Miller]

[ QUOTE ]
Pretty much yes. You must report your total winnings. However, you can deduct your total losses up to the amount of your total winnings, in most cases. What you CANNOT do is report a "net" win and leave it at that. You also cannot claim more losses than winnings.

For example, you play 1000 sessions and win $100 in 550 and lose $100 in 450, you must report total winnings of $55,000 and deduct total losses of $45,000. What you cannot do is simply report winnings of $10,000.

It is an enormous pain in the ass.

[/ QUOTE ]

If you can prove that you approach poker as a business rather than as a hobby, you can file a Schedule C and treat poker winnings and losses slightly differently (as if they were business revenues and costs). That will often be the superior option for a serious player.

[tipperdog]

[ QUOTE ]

If you can prove that you approach poker as a business rather than as a hobby, you can file a Schedule C and treat poker winnings and losses slightly differently (as if they were business revenues and costs). That will often be the superior option for a serious player.

[/ QUOTE ]

This is absolutely correct and I should have mentioned it in my OP. I was not thinking of professional players.

However, anyone considering this route should be aware that the IRS imposes very high standards for filing as a professional gambler. You really ought to get professional advice before persuing this path.

[mmcd]

the IRS imposes very high standards...

Read my original post again. The IRS doesn't "impose" anything. They don't have the authority. They offer their interpretation of the law and do so in a light that is most favorable to them. Just because they say it doesn't make it so.

[Mr.K]

[ QUOTE ]
the IRS imposes very high standards...

Read my original post again. The IRS doesn't "impose" anything. They don't have the authority. They offer their interpretation of the law and do so in a light that is most favorable to them. Just because they say it doesn't make it so.

[/ QUOTE ]

Well, this is a very important question -- when using Schedule C is acceptable and when it is not. Ed, you commented that "if you treat poker as a business" Schedule C might be an option. My impression prior to your comment was that poker had to actually be your primary source of income to utilize Schedule C. Any chance you guys could delve further into where the line is drawn?

For those of us that approach poker as "a great part-time job" -- e.g. a business but not our primary enterprise -- I take it we might be out of luck on Schedule C.

Knowing what little I do about this, some considerations about whether a particular player approaches poker as a business or not:

- Does the player log long hours on weekends and weekdays playing? If the player plays only on weekends, that would hurt his/her ability to make the case, but perhaps not be fatal.

-If a player could show that they've dedicated 20 hours or more per week over a sustained period of time, I believe this would be a step in the direction of business and away from entertainment.

-The very fact that those of us who use PT (and have therefore PAID for PT) to collect careful records means we are taking a serious, profit-driven approach to the game rather than just flinging some chips around over beers with our pals.

- Has a player invested in improving his ability to win more money? Buying books/videos, or attending training sessions would bolster this argument, and in doing so further solidify the business argument.

- Does the player travel and incur other expenses in order to conduct his/her poker business? If you want to argue that playing live is important to 1.) your bottom line, and 2.) your continued improvement to win money while playing poker as a "business," you should save all receipts from trips to B&M casinos for parking, food, gas, room, etc. This will surely help show that you're treating the game as a business.

Hell, I could go on but there's really a lot of material to cover here.

The thing I keep going over and over in my mind that I just flat out don't get is why the US tax law makes almost every American that walks into a casino a tax evader. I have to say that there's just no way 95% of people who sit down and gamble a few hundred on their Vegas trip with friends know the law re: winning sessions. They sure as hell aren't keeping contemporaneous records with the table number, amount won, time and date. They aren't reporting the winning sessions, in part because most Americans lose when they play blackjack or whatever, they figure "hey, I lost money, what the hell do I owe taxes on?" if they think about the tax implications at all. The tax code badly needs a safe harbor for recreational players who have winnings under $5,000 in a year or something along those lines. Maybe $1,000 -- who knows. Point being, the rules should be clear and are not, and capture far more people than could reasonably have ever been intended by Congress.

[Ed Miller]

The IRS has their "standards," including a multi-year history of profit, but as mmcd said, they can say what they want, but ultimately they have to convince a tax court that they are right.

Basically, I would say that if you see poker as a "business" for you.. i.e., you study and play with the intention of sustained long-term profit.. then you should be eligible to file a Schedule C. That's the qualification. Having many postings on 2+2 should support your claim if it should come to that.

EDIT: I wanted it to be crystal clear that I am neither a CPA nor an attorney, and any opinions I express are my own and not intended to be legal advice.

[mmcd]

[ QUOTE ]
The IRS has their "standards," including a multi-year history of profit, but as mmcd said, they can say what they want, but ultimately they have to convince a tax court that they are right.

Basically, I would say that if you see poker as a "business" for you.. i.e., you study and play with the intention of sustained long-term profit.. then you should be eligible to file a Schedule C. That's the qualification. Having many postings on 2+2 should support your claim if it should come to that.

EDIT: I wanted it to be crystal clear that I am neither a CPA nor an attorney, and any opinions I express are my own and not intended to be legal advice.

[/ QUOTE ]

I also just like to note that there is a difference between what the IRS says their "standards" are and what they are willing to litigate. Especially in cases that don't have very large amounts of money at issue.

[Jim C]

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but ultimately they have to convince a tax court that they are right.

[/ QUOTE ]

According to the same lawyer friend of mine, this is not correct about tax law. According to him, tax law in the US places the burden of proof on the taxpayer. Of course, this is absurd and unconstitutional, like many of our laws.

In other words, you owe what the IRS says you owe, unless you are able to prove otherwise in tax court.

FWIW. I'm no lawyer, but this comes from a lawyer friend of mine.

Jim

[Russ Fox]

As Ed Miller and others pointed out on this thread, anyone who is considering filing as a professional gambler should discuss this with their tax professional. Here are some general answers to your questions:

- To file as a professional, the IRS believes (and has argued this position in court) that you must be a full-time gambler. If you are working at a job, and you also file a Schedule C as a professional gambler, there's a strong likelihood that the IRS will challenge you.

- You must include all of your income on your US tax return, be it from illegal sources, overseas income, etc. One client tried to convince me that because his gambling was on overseas sites and that he hadn't repatriated the money, it wasn't taxable. Wrong.

- Even a professional gambler who has a losing year can't use a tax-loss carryforward for his business (gambling). Courts have ruled that the Tax Code prohibits this.

- Keep a logbook for your live play. If you don't, and you're audited, you will lose all your gambling loss deductions that have no other back-up.

- Whoever said that the IRS can't share information with other law enforcement agencies is plain wrong. If you voluntarily disclose that you're (for example) a drug runner, the IRS absolutely can tell the FBI or the DEA. The prohibition is when you involuntarily disclose such information to the IRS. Be careful for what you put down as your profession on your tax return. There's a famous case of a bookmaker putting down his occupation as "bookmaker." The IRS told the FBI, and he ended up in jail and lost his appeal.

If you want to read more about the rules for online gamblers, I wrote a series about this on my tax blog at http://www.taxabletalk.com/posts/1123805977.shtml

-- Russ Fox, EA

The Tax Code is anything but fair to gamblers.

[oxymoron]

What about the "professional" gambler that also makes money from promotions, books and other areas. Because they have other means for money are they no longer a "professional"?

Also, where is the best place to find a CPA? I do not think I need one this year but I might need on next year. Rather than finding someone local I would prefer someone who has handled gambling issues already. Would it be a big deal to hire someone from NV when I am in WA? I have no idea how I would find someone local with experience in gambling tax issues.