Awkward tax situation.

[mike0292]

I started playing poker November 2005 when I was 17. I deposited $50 and between 11/05 and 8/06 I made approx $50k. I withdrew all the money to my dad's bank account before I went off to school. When I turned 18 in October, I created my own bank account and he transferred most of the money back to me. I also started playing poker legally again.

Now the question is, $50k is a little too much to ignore. My dad talked to an accountant and he said our options were for my dad to claim that he won the $50k and then I claim what I have won from October on. Only problem with that is my father makes >$150k a year so he is in a higher tax bracket and the taxes are something ridiculous like 20k off the 50 or something like that.

The other option is to just claim that I made all the money last year even though I was 17 for most of it, basically admitting I was playing underage. I will be able to save quite a bit off taxes.

Well anyway, what's my play?

[I_C_ALL]

You should always declare ALL of your income. Not declaring income is considered tax evasion, which to my understanding is fraud.

You may have "deductions" disallowed. When this happens, the IRS simply says you can't deduct that and removes the item. I believe this was called tax avoidance, which isn't illegal.

btw, your losses are considered "deductions". Go find some

[aceupthepants]

[ QUOTE ]
You should always declare ALL of your income. Not declaring income is considered tax evasion, which to my understanding is fraud.

You may have "deductions" disallowed. When this happens, the IRS simply says you can't deduct that and removes the item. I believe this was called tax avoidance, which isn't illegal.

btw, your losses are considered "deductions". Go find some

[/ QUOTE ]

really stupid answer.

[Zele]

I don't understand the problem. The IRS doesn't care that you violated a poker site's T&C.

[mike0292]

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I don't understand the problem. The IRS doesn't care that you violated a poker site's T&C.

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ok this is more of the advice I was looking for. Thanks. So just report everything like it is all normal?

[Leader]

[ QUOTE ]
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I don't understand the problem. The IRS doesn't care that you violated a poker site's T&C.

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ok this is more of the advice I was looking for. Thanks. So just report everything like it is all normal?

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Yes. Even if the government was looking for underage internet gamblers, which they really couldn't careless about, it's illegal for the IRS to turn you in and the government would need a court order to get your tax records.

[vituzzo]

u turned $50 into 50k in less than a year? after u get your tax issue taken care of, you should write a book on making money in poker. [img]/images/graemlins/laugh.gif[/img]

[Billman]

It's sort of like asking whether or not you should report your profit on crack sales because you were 17 at the time. The US gov feels online gambling is illegal regardless of your age. However, legally you have to report all revenue even if it is derived from an illegal source.

I'm not an accountant but my advice would be to just declare the income like a thousand other people on this message board do and your legal exposure should be no greater or less than their's.

[CHAx]

The only issue I forsee is if his Dad were to get audited. How will he explain the transfers of cash and I think they would want an explanation why he didn't report ~50k of income.

Nonetheless, I would report it myself as my own income, not my Dad's. Here is why: You will be paying your Dad's income tax bracket PLUS your own when he gifts the remainder money to you (minus the 12,000/yr gift tax exclusion). By the way, I am not a tax professional, I only know enough to be dangerous. [img]/images/graemlins/smile.gif[/img]

[phish]

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My dad talked to an accountant and he said our options were for my dad to claim that he won the $50k and then I claim what I have won from October on.

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If that's the advice your accountant gave you, then he is truly incompetent and dishonest to boot. Because not only is he advising your father to lie on his taxes, but to lie in such a way as to incurred additional unnecessary tax liability.

Nobody in the Federal Government cares that you played poker underage. Declare it as your income and be done with it.

And as for explaining the 50K transfer from your father's account to yours in the event he gets audited: well, surprise of surprises, the truth is the only thing you need to tell to explain that.