taxes and 'passive income'

[agencia1]

just met w my accountant today and he said that i could declare my poker income for 2006 as 'passive income' under gambling income. about 30k actually shows up in my bank account. i was a bit surprised at this but signed off on it. i was under the impression that 'passive income' was generally rent income, interest, etc. systems that had been already set up and didnt require extra labor other than more or less collecting the money.

i was thinking i would have to pay self emplyment tax but he said it wasnt necessary.

if anyone has experience with this i would like to hear.



[img]/images/graemlins/confused.gif[/img]

[Yoshi63]

what is the point/benefit of passive income? i have never heard of this

[TheMetetron]

Your accountant likely just screwed you, but you haven't provided enough details.

[agencia1]

can you please explain what youre thinking then?

[agencia1]

ok from what i heard today, passive income is different than if i filed as a professional gambler. i.e. not needing to pay self-employment tax as i understand. i cant make deductions though, i.e. any poker related expenses. if anyone knows more about this, im all ears. he explained that for example, lottery ticket winnings can be filed as 'passive income'.

[agencia1]

ok the details so for 2006, the net amount actually entering my bank account was about $30k. about 35k going in and about 5k going out to set up various accounts. poker was my only source of income. the majority played online. and in the end the accountant said i needed to pay about 4k in federal and 1k state taxes. which to me seems v low.

[TheMetetron]

[ QUOTE ]
ok the details so for 2006, the net amount actually entering my bank account was about $30k. about 35k going in and about 5k going out to set up various accounts. poker was my only source of income. the majority played online. and in the end the accountant said i needed to pay about 4k in federal and 1k state taxes. which to me seems v low.

[/ QUOTE ]

Especially because you haven't counted winnings that are still online. You need to file as a pro unless there is some more relevant information you left out.

[George Rice]

[ QUOTE ]
ok the details so for 2006, the net amount actually entering my bank account was about $30k. about 35k going in and about 5k going out to set up various accounts. poker was my only source of income. the majority played online. and in the end the accountant said i needed to pay about 4k in federal and 1k state taxes. which to me seems v low.

[/ QUOTE ]

Passive income? You stated, "the majority played online." That playing might be considered working.

If poker was you only income then you are a professional gambler. You will be able to deduct your expenses, which is good. Hotel stays and travel, dedicated computers, etc. You may also have other benefits. But for the average Joe who gambles in addition to working, the taxes are figured pretty much as is stated below.

If you won 30K your gross income from gambling isn't 30K. Your gambling income is the total of all your winning sessions. You can't subtract your loses. I suppose your income is actually somewhere between 100K and 200K, much higher if you were playing full time.

You then itemize away your losses, which is the total of all your losing sessions. So if you show 200K in winnings and 170K in losses, you will be paying taxes on 30K. Actually a bit higher as your exemption will not be the full amount because of your high gross income. Taxes suck for a gambler.

By the way, a session will normally be one sitting and might look something like for a hypothetical player:

4/3/07 3:00 Stars 2/5 NL +390
4/3/07 1:40 Stars 5/10 NL -120
4/4/07 2:00 Stars 2/5 NL -310
4/5/07 5:30 Stars 2/5 NL +1240
4/5/07 2:00 Stars 2 NL +230

And so on. Notice that is shows the date, how long he played, where he played, what he played, and the results. There were two sessions on 4/5. Perhaps that player played 5 1/2 hours in the afternoon and a couple of hours before going to bed.

Notice also that for those sessions his gross winnings are +1860 and his gross loses are -430. And that's the way he would figure his taxes.

Notice also, if he otherwise had no itemized deductions, the first amount up to the standard deduction amount is going to be eaten by him. The standard deduction in 2006 for filling single was $5150. So his first 5150 in losses isn’t going to increase his deduction, even if he had a losing year.

Also, he was supposed to pay estimated taxes on his income quarterly. If he sends them the taxes on 30K on April 15th, here going to be hit with interest and penalties.

If you are self employed (a professional gambler) then the situation is different. I'm not and am not familiar with the specifics. But you do have to keep records of your sessions. You also have to pay estimated taxes quarterly. I’m not sure how you report your winnings and losses, though.

[iceman5]

In summary......your accountant doesnt know what hes talking about.