Q: Why does the definition of a "session" matter for tax purposes??

[nevadaJACK]

Alright, I'm not all that dumb a guy, but this is something I've just never quite understood. Much ink has been spilled arguing about just what constitutes a "session" for the purposes of reporting one's poker winnings.

From what I've gathered, the most technically correct way to do it is to count each session individually (literally each time you get up from an online table counts as its own session), and you're supposed to sum the amounts from all your winning 'sessions' and list them as "other income", and sum the amount from your losing sessions and list that as an itemized deduction. Is that right so far?

Well fine, but I still don't get WHY it matters -- I mean, some people seem to just want to add up all their wins and losses for the entire year and report that as their income. And this, from what I gather, is a big no-no...? But just what's the difference whether I report a single +$30,000 NET from poker, as compared with whether I dutifully report $270,000 in winnings and then deduct my $240,000 in losses. Why won't you end up owing the same amount of tax at the end of the day in either case.

I'm sure there must be an easy answer to this, and appreciate your tolerance in answering.

[nhtool]

you owe more tax when you don't net your winnings. therefore the government gets more money. therefore that's the law.

[holdin2]

Well, some states like mine, don't let you itemize your gambling losses.

Not netting can bump you into a higher tax bracket or bring you income level up so you have to pay that wonderful Alternative Minimum Tax.

[Nephro]

My accountant says that you can only deduct a portion of your losses. I have about $100 K in winnings but $90K in losses. It is kinda of embarrassing. Oh well.

[nevadaJACK]

[ QUOTE ]
you owe more tax when you don't net your winnings.


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Alright, explain this to me.
Use specific numbers / examples if necessary.

[bcubed72]

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you owe more tax when you don't net your winnings. therefore the government gets more money. therefore that's the law.

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Don't believe everything the IRS tells you.

Nowhere is "session" clearly defined. The IRS advises a very narrow definition, one that most benefits them. Go figure...

I would argue that a session could be defined as time spent continually playing--like 4 hrs, for example. It would be up to a court to decide, and I doubt you'd get treated as a tax evader, as the definition was open to interpretation.

But consult a pro, not internet posters, before filing.

[jively]

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you owe more tax when you don't net your winnings.

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Alright, explain this to me.
Use specific numbers / examples if necessary.

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For all, assume you are single, have no dependents, and no one can claim you as a dependent.

Example 1: You have $30,000 of wages, and no other income and no deductions. Your AGI is $30,000. The standard deduction is $5,100 and your personal exemption is $3,300. Thus taxable income is $21,550. The federal income tax is $2,859.

Note here: You are eligible to make a traditional IRA or Roth IRA contribution for the year.

Example 2: You have $30,000 of gambling income, no other income and no deductions. (For example, you bought a $1 lottery ticket and won $30,001.) AGI, exemption, deduction, taxable income, tax is exactly the same as example 1. ($30K gambling income and no deductions is the same as if you incorrectly say poker winnings of $30K is one long session.)

Note here: You are NOT eligible to make a traditional IRA or Roth IRA contribution for the year.

Example 3: You have $270,000 total gambling income, and $240,000 total gabling losses. You have no other income and no deductions. Your AGI is now $270,000. Your itemized deductions are $240,000 - they not reduced at all. (Note: you do not get the standard deduction.) Also, your personal exemption is reduced to $1,188. Thus, your taxable income is now $28,812. Taxable income is $7,262 more. Federal tax due is $3,946, or $1,087 greater.

Note here: Again you are not eligible to make a traditional IRA or Roth IRA contribution for the year.


Example 1A: You have $30,000 of wages, and no other income. However, you were really sick and have $10,000 of medical expenses for the year. You paid $2,000 in state income taxes or sales tax. You gave $3,000 to charity.

Your AGI is $30,000, so 7.5% of your AGI is $2,250. $7,750 of your medical expenses are deductibe as an itemized dedction. So is your $2,000 of state tax paid and $3,000 of charity. Total itemized deductions are $12,750. The personal exemption is still $3,300, so taxable income is $13,950. Federal tax due is $1,719.

Example 2A: $30,000 gambling income, same situation as Example 1A - all the numbers are the same as 1A.

Example 3A: You have $270,000 total gambling income, and $240,000 total gabling losses. You have no other income, but your other deductions are the same as example 1A. ]

Your AGI is $270,000, so 7.5% of your AGI is $20,250. None of your medical expenses are deductible.

The $240,000 of gambling losses are still deductible and not reduced. However, the $2,000 of state tax paid and $3,000 of charitable deductions are reduced to only $2,610. Thus itemized deductions are only $242,610. The exemption is still reduced to $1,188. Taxable income is now $26,202. This is $12,252 more than in example 1A. Federal tax due is $3,556, which is $1,837 more than in example 1A.

More to come.

-Tom

[jively]

In example 1 with $30,000 of wages, you were eligible to make a Roth IRA contribution. In example 2 with only gambling income, you were not.

In example 4, if you have $30,000 of wages, and $30,000 of gambling income, your AGI is $60,000. You can still make a Roth IRA contribution.

In example 5, if you have $30,000 of wages, $270,000 of gambling income, and $240,000 of gambling losses, your AGI is $300,000. You are not eligible to make a Roth IRA contribution.

So, by correctly splitting your winning and losing sessions, even with the same net income, your ability to save for retirement is reduced.

-Tom

[jively]

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Nowhere is "session" clearly defined. The IRS advises a very narrow definition, one that most benefits them. Go figure...

I would argue that a session could be defined as time spent continually playing--like 4 hrs, for example. It would be up to a court to decide, and I doubt you'd get treated as a tax evader, as the definition was open to interpretation.

[/ QUOTE ]

This article is really excellent regarding gambling sessions and recordkeeping. The experts' opinion: If you go to a casino, play $3/6 Omaha/8, then switch and play $6/12 Omaha/8, that can be considered one session. You were at one place, playing one game continually. If you play $4/8 hold'em, then switch to Omaha/8, that is 2 different sessions.

My opinion: If you go to the casino and play, then take a 4 hour break, then go back to playing the same game, that's 2 sessions. If you take only a 30 minute break for food, that's the same session.

So, extrapolate for online. If you log in to the poker site, you are 4-tabling NL50 for an hour an a half, and end up playing on 5 different tables, that can be combined into 1 session. If some of the tables were NL50 and others NL100, you can still combine them. If some were hold'em and others were Omaha/8, they are different sessions.

If you take a 30 minute break and go back to playing the same game, you can combine to the same session. If you take a 4 hour break, it's a different session.

Thus you can not break down all of your play by calendar day. A morning session, afternoon session, and evening session are probably 3 different sessions.

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But consult a pro, not internet posters, before filing.

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QFT

-Tom

[RonMexico]

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If some of the tables were NL50 and others NL100, you can still combine them.

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No. These games are not the same stake. That's why almost all posts in this forum regarding tax advice are completely worthless. Even the "experts" commonly contradict each other on very fundamental issues in this debate.