Ed Miller's Tax Article

[Jim C]

According to a lawyer friend of mine, part of the ridiculous "USA Patriot Act" requires financial institutions to report all transactions of $2000 or more. I don't know which agencies, etc. This is, it is claimed, to help them track "terrorist" monies. Naturally, it is also being used to catch tax evaders and in the equally absurd "War on Drugs".

Your money is very visible to the US Government. It is foolish to assume otherwise.

Jim

[Jim C]

[ QUOTE ]
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

[wheelz]

[ QUOTE ]
IF you want to be an Internet pro-gambler that badly, move to Canada. [img]/images/graemlins/grin.gif[/img]

[/ QUOTE ]

i know mostly everyone thinks you don't have to pay taxes on your winnings if you live in Canada, but unfortunately, if it's your main source of income, yes you do.

[Foghatlive]

[ 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 ]

I work seasonally for HR Block as a Tax Preparer. I've never heard of anyone pulling that off.

First, you've have to convince the IRS that gambling winnings aren't really gambling winnings. Second, and even harder, you' have to convince them that your gambling losses aren't really gambling losses.

There's no way the IRS can allow people to deduct gambling losses in excess of winnings, as doing so would reward bad gamblers.

"I lost all my money at the track. Well, at least I'll get all my federal withholding back."

I don't think so.

[Ed Miller]

[ QUOTE ]
[ 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 ]

I work seasonally for HR Block as a Tax Preparer. I've never heard of anyone pulling that off.

First, you've have to convince the IRS that gambling winnings aren't really gambling winnings. Second, and even harder, you' have to convince them that your gambling losses aren't really gambling losses.

There's no way the IRS can allow people to deduct gambling losses in excess of winnings, as doing so would reward bad gamblers.

"I lost all my money at the track. Well, at least I'll get all my federal withholding back."

I don't think so.

[/ QUOTE ]

No, you can't deduct losses in excess of winnings. But yes, you can file as a business on a Schedule C. The appropriate case is Commissioner v. Groetzinger (1987).

You can read a lay interpretation in a Card Player article.

[Foghatlive]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]


You can read a lay interpretation in a Card Player article.

[/ QUOTE ]

From what I can surmise, the ruling simply allowed the IRS to collect an employment tax on his gross winnings. It didn't allow him to deduct his excess losses. The ruling was made to take his money, not give it back. What good is being the business of gambling if you can't take a loss?

That ruling aside, Gambling winning are defined by the IRS as "other income" not business income. To allow Gambling to be considered a business, the IRS would have to change the definition.

You would know better than I would. Does Phil Ivey fill out a schedule C strictly for his poker winnings or does he enter them on line 21 of the 1040?

[broiler]

I don't know about Phil Ivey, but Barry Greenstein, Matthew Hilger and Phil Hellmuth have all stated in interviews that I have seen/read that they file a Schedule C for their gambling income.

I think you missed the important sentence in the first paragraph in the decision:

In redetermining respondent's tax deficiency, the Tax Court held that he was in the "trade or business" of gambling, so that no part of his gambling losses was an item of tax preference subjecting him to a minimum tax for 1978. The Court of Appeals affirmed.

The Supreme Court upheld the decision, therefore gambling can be a trade or business.

Self employment taxes would be calculated on the net. In this case, the IRS was not trying to collect SE tax. The goal here was to hit the taxpayer with AMT because of the gambling deductions.

[broiler]

I can tell you from being in tax court (as a CPA) that the process is more like arbitration. Each side explains their point and the judge comes up with a decision. The difference here is that the IRS assessment stands until they lose, which is why most people look at it as a guilty until proven innocent situation.

Tax court is not a taxpayer friendly place since you will find that most judges are former IRS attorneys or Department of Justice tax attorneys. The reason for this is that a good tax defense attorney would not take the substantial cut in pay to become a tax court judge.

[Shoe]

[ QUOTE ]
[ 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 ]

I work seasonally for HR Block as a Tax Preparer. I've never heard of anyone pulling that off.

First, you've have to convince the IRS that gambling winnings aren't really gambling winnings. Second, and even harder, you' have to convince them that your gambling losses aren't really gambling losses.

There's no way the IRS can allow people to deduct gambling losses in excess of winnings, as doing so would reward bad gamblers.

"I lost all my money at the track. Well, at least I'll get all my federal withholding back."

I don't think so.

[/ QUOTE ]

That's why we suggest finding a real CPA that knows the tax law and is familar with the gambling laws, as opposed to going to some random at HR Block that knows less about the tax code than many of us on here.

[Mr.K]

[ QUOTE ]
That's why we suggest finding a real CPA that knows the tax law and is familar with the gambling laws, as opposed to going to some random at HR Block that knows less about the tax code than many of us on here.

[/ QUOTE ]

Point well taken. Is there a directory of gambling-savvy CPAs? If not, there should be (e.g. there's a market for this service!). Additionally, I wonder if you all might be able to speculate as to how much a player needs to be making in a year to justify hiring a qualified CPA and going the sched C route. I am seriously considering trying to set this up for CY2006, while paying taxes on my poker income as a recreational player in CY2005. If I'm only making a few thousand a year playing (lets surmise $8K), then is the Schedule C setup worth the cost of hiring a CPA?