Filing as a "pro" - minimum number of hours required?

[AZplayer]

Just had a mid-year checkin with tax advisor who has been doing a bit of research on filing as a pro vs. as a hobbyist. For the most part, I was on track with the requirements from an IRS perspective (documentation/tracking, goal to produce a livelihood, etc.)

One thing I had NOT heard before was that one of the tests the IRS uses is whether you are doing it "full-time", which in their book equates to an average of 35 hours per week. (Obligatory self-deprecating comment: Fortunately, they can't measure poker skill otherwise they'd have pity on me and send me a big fat refund.)

So far this year I only have about 900 documented hours AT THE TABLES, but I could document several hundred other hours in a variety of "legitimate poker business-related activities" to get up to the threshold.

Do any of you who have previously filed as a pro know more about this? TIA

[+EV]

AZ,

So you don't have a 9-5 job? That is the thing that keeps me from filing. I don't derive the main source of income from poker. I meet every other requirement.

I think that the IRS uses their "guidelines" but that if you meet the majority they will not usually hassle you. But they definately care if you make more money doing something else. I don't understand why they don't allow for "part time" work that is not hobby related.

+EV

[AZplayer]

Correct, no 9-5 job. 18+ years of corporate life is enough, TYVM.

As is often the case with IRS regulations, whether we agree with them or not, or whether they make sense to us, matters little unfortunately. :-(

[+EV]

[ QUOTE ]
Correct, no 9-5 job. 18+ years of corporate life is enough, TYVM.

As is often the case with IRS regulations, whether we agree with them or not, or whether they make sense to us, matters little unfortunately. :-(

[/ QUOTE ]

Congrats on getting out of the corporate world! Are you "retired" then? I am working at a 9-5 and hope to quit it to invest in real estate full time. I also am considering going back to school for an MBA. Either way though, it seems like being a "pro" is not an available option for me, since it seems like doing anything at all that makes money other than playing poker, you can not file as a pro.

It does suck that I meet every requirement other than having a day job though. I would love to net my poker income!

Regards,
+EV

[AZplayer]

Um, I am NOT an expert at all in taxes, and obviously if you follow any advice on an internet board without follow up you deserve what you get.

That having been said, my understand is that no one can "net" their poker income. You report "hobby earnings" on one part of your return, and then, possibly, depending on your individual circumstances, you can add your losses to your itemized deductions UP TO the amount of your gambling earnings. That has nothing to do with whether you meet the requirements of a professional poker player.

[TheEngineer]

Pro filers net their income.

[+EV]

[ QUOTE ]
Pro filers net their income.

[/ QUOTE ]

And they can deduct expenses!!!! It would be so sweet.

+EV

[AZplayer]

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.

[+EV]

[ QUOTE ]
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.

[/ QUOTE ]

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.

+EV

[oldbookguy]

[ QUOTE ]
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.

[/ QUOTE ]

Actually, even as a hobbyist with this difference, 200K, you would file itemized and deduct the 200 k losses as anyone can who has losses enough to make itemizing greater than a standard deduction.

Difference between this and a pro are:
No 'expenses (hotel, computers, travel, ect) may be deducted.
On the flip side, no SS owed either.

obg