Taxes on Poker Income

[ajizzle]

I dont know anything much about taxes, and want to get an idea of what to expect when I get in touch with a cpa about filing then for 2007. Also, I suspect that people on 2p2 will have some more creative ways around the tax laws than your average cpa, which is why i'm coming here for advice first.

My salary is $34k per yr. At this rate, I will make about $6k playing poker. What are the tax implications of my poker income?

1) Can I contirbute my poker income into a tax-deferred retirement plan so that i only pay regular income tax on it when I take a distribution during my retirement?

2) Am i liable to be taxed on everything I make playing poker in 2007, or just the amount that I withdraw from my poker accounts. ie, like with stocks, is it considered an unrealized gain if i dont withdraw it from the poker account.

3) Are my poker earnings taxed as regular income, or at a much higher clip? Is there any way to get around this if it is taxed at a higher rate?

Thanks in advance.

[thing85]

[ QUOTE ]


1) Can I contirbute my poker income into a tax-deferred retirement plan so that i only pay regular income tax on it when I take a distribution during my retirement?

2) Am i liable to be taxed on everything I make playing poker in 2007, or just the amount that I withdraw from my poker accounts. ie, like with stocks, is it considered an unrealized gain if i dont withdraw it from the poker account.

3) Are my poker earnings taxed as regular income, or at a much higher clip? Is there any way to get around this if it is taxed at a higher rate?



[/ QUOTE ]

1) If you're talking about a Traditional IRA, you can contribute up to $4,000 this year and take the $4,000 as a deduction on your return. Since you don't specifically identify this contribution, it's assumed to be coming from your earned income (the salary). If you had no earned income (no salary), I don't believe you could make any tax-deferred contribution.

2) As soon as you earn the income and you have access to the money, it's taxable. Considering you have access to your poker accounts, the income is taxable as soon as you win it. Moving it around or not withdrawing, etc., does not change the tax implications.

3) Poker earnings are taxed at your marginal rate, just like any other ordinary income.

I'll add (and you may know this) that you have to report your winnings as other income on the front page of your 1040, but your losses have to be put into itemized deductions. In other words, you can't net your winnings and losses (I assumed your $6k figure is a NET figure) and report that amount. If you won $20k and lost $14k, you have to claim $20k of "other income" and then put the gambling losses ($14k) under itemized deductions.

Hope these answers help. Unfortunately, your set of facts are very basic and normal, so there is no room for "creativity." If you're thinking about tax evasion, well, you're on your own.