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TheEngineer - sorry to be precise, but what does that mean: "net their income". I'm trying to learn more about this and understand it better, so if you can clarify I'd appreciate it.

My understanding is that if you meet the IRS criteria for filing as a professional, then you can use Schedule C and (for example) say you have $100k in gross winnings, $20k in "cost of goods", for a gross profit of $80k. You can then list your deductions/expenses (say $20k) and show a net profit of $60k.

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This is how it would work if you were a pro. If you were not a pro then not only would you not be able to make the expense deduction, your gross income would be exaggerated in the following way.

Your gross income would be the total amount won during winning sessions for the year. Each time you open up a table or tables and you win it would be considered gross income. However every time you had a losing session or left a table down money, it would not be counted.

So it is conceivable that as a "hobbiest" you could earn a gross 100K per year but actually the sum of your winning sessions would be 300K plus. That is the income that they would use to determine your AGI (ajusted gross income). Then later on they subtract the losses, but not before they have fixed your tax bracket based on all your winning sessions only.

That is why the tax law is so messed up. A hobbiest who plays moderately high stakes and has a normal income could be pushed way up into the stratosphere of tax brackets or be (as in my case) forced to pay the AMT for just a few thousand dollars of poker income because of the way your gross income is calculated and applied to your day job income.

This year I had to add 6K to my AGI even though I made a combined total of $235 for the year net. That is why I will never cash out again.

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