Don't Go Pro....for Tax Purposes.

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10. The Tax Court recently made a very positive ruling for all gamblers. In Castagnetta v. Commissioner (T.C. Summary 2006-24), the Court held that non-professional gamblers can, in some instances, deduct other expenses incurred while gambling. These expenses include ATM fees, office supplies, and admission fees. The Court also held that a professional gambler does not have to be solely engaged in gambling. That has been the position of the IRS in various appeals cases. Instead, the Tax Court said that gambling must be, "the intended livelihood source...[and pursued] for income or profit." Unfortunately, this is a Summary Opinion and is not precedential. However, it does indicate how the Tax Court would likely rule in similar cases. 9. The IRS doesn't believe there's such a thing as a professional gambler. It's part of their mindset. Even though the US Supreme Court held that you can be a professional gambler in Commissioner v. Groetzinger (480 U.S. 23 (1987)), most of the personnel in the IRS still hold this view. It will take many years before this changes. That doesn't mean you shouldn't file as a professional; rather, you should be aware that filing as a professional increases your chance of audit. 8. You might pay more tax filing as a professional gambler than an amateur. Professional gamblers must pay self-employment tax (social security and Medicare) on their net profits while amateurs don't. 7. You can't switch back and forth between being a professional and an amateur every year. Once you become a professional, you've made a career decision. You can switch, but expect trouble (audits) if you switch back. 6. You can't net gambling wins with gambling losses unless you're a professional. This is straight from the Tax Code. The Tax Code is law (Title 26, U.S.C.), and can only be changed by Congress. If you net your gambling results and you're caught in an audit, expect to pay penalties and interest. Why is this important? Gambling wins go on line 21 of Form 1040 (Other Income), and change Adjusted Gross Income (AGI). AGI is used to calculate limitations on many deductions, including student loan interest, medical deductions, and itemized deductions. Even if your net gambling income is $0, you could find your tax increase because you lose some deductions. 5. Live In the Right State. Not only do Americans have to pay federal income tax, most have to pay state income tax. Of course, if you live in Nevada, Florida, Texas, Alaska, South Dakota, or Wyoming you don't have to pay state income tax. New Hampshire and Tennessee tax only dividends and interest. Some states have very high income tax rates, such as California and New York. If you live in one of these states, you're more likely to face the Alternative Minimum Tax (AMT). Other states have income taxes that do not allow deductions for gambling losses. These states include Connecticut, Illinois, Massachusetts, and Ohio. If you live in one of these states, you face a gross receipts tax on your gambling wins even if you're an overall loser. So if you are going to gamble, choose your state wisely. 4. You must report your gambling wins by session. 3. The rules that apply to gambling in brick and mortar casinos apply to gambling on the Internet. This means that when you win a bet from an offshore casino, it's income. If you try to tell the IRS that the money's in Gibraltar, expect a chuckle from the IRS agent you're dealing with. The United States taxes all income earned anywhere in the world. To prevent double taxation, you can deduct foreign taxes you pay (either as an itemized deduction on Schedule A or as a tax credit on line 47 of Form 1040). 2. If you have a Neteller or similar account with $10,000 or more at any time during 2005, you must report it to the government. You do this by checking a box on Schedule B of Form 1040 (and listing the country/ies) and by filing Form TD F 90.22-1 with the Department of the Treasury (not the IRS). It's almost certain that if you do this you will be audited. The $10,000 rule is based on all such accounts on any one date. At this time, it's unclear whether Internet cardrooms are reportable under this rule. 1. If you're going to file as a professional, or you have any complexities on your return, see a professional tax preparer (an Enrolled Agent (EA), Certified Public Accountant (CPA) who specializes in taxes, or a tax attorney). We're not that expensive, and if you're a professional, you'll likely be able to fully deduct the expense as an accounting/professional expense. Everyone's situation is different. What is right for one person may be wrong for another. Just because you can file as a professional gambler doesn't mean you should. A tax professional will look at the totality of your situation and give appropriate advice.

[Randy Reed 0]

Oh great, now it's SA/MMMStay Amatuer/Make More Millions I suppose?

[Mercury69 3]

I just don't understand why the government won't allow vast amounts of cash to float around unmonitored and untaxed. WON'T SOMEONE PLEASE TELL ME!?!?!

[DunkinDonuts 0]

I just don't understand why the government won't allow vast amounts of cash to float around unmonitored and untaxed. WON'T SOMEONE PLEASE TELL ME!?!?!

You could avoid this problem entirely by playing to break even, like me. This way, I write off money deposited into online accounts as entertainment expenses, and slowly siphon it off. Anytime I hit a decent payday, it usually brings me roughly even with my initial buy-in, but since I've already written it off, it feels like Christmas.Appropriately enough, this is the same principle I apply to income tax refunds, since I still file the 1040EZ as an impoverished student.

[hudday48 0]

Good post.Sounds wonderful, I mean getting anally probed by the IRS because of a lifestyle choice. Just for consideration what does tax evasion cost? What would the penalties be if you didn't report a 10k neteller account.

[Naked_Cowboy 0]

Reporting wins by session is truly absurd (especially online, where a "session" could have any number of definitions), as is making hundreds of thousands of casual players sweat an audit because they netted out a few hundred bucks over a year.

[joker12676 0]

Good post.Sounds wonderful, I mean getting anally probed by the IRS because of a lifestyle choice. Just for consideration what does tax evasion cost? What would the penalties be if you didn't report a 10k neteller account.

If your serious. Tax evasion is fraud a felony were talking jail time is a possibility. See Al Capone

[silkyjonson 1]

move to canada and gamble to your hearts content, and dont pay taxes, just another reason why Canada is superior to the United States.....

[joker12676 0]

Reporting wins by session is truly absurd (especially online, where a "session" could have any number of definitions), as is making hundreds of thousands of casual players sweat an audit because they netted out a few hundred bucks over a year.

Unfortunately the tax laws and how they are enforced are truly absurd at times. Sessions having a number of definitions is not how the irs will see it. If you are not running large sums of money through your accounts to win or lose a couple hundred dollars the irs will not audit you, not that you may technically be wrong in you reporting but the bottom line isn't worth it.

[suitedinc 0]

Phone your congress rep and House reps. Tell them you demand that the "Fair Tax" be brought before the masses for a vote. We need to do away with audits and the irs and tax evasion. I would love to put an end to social security but am a realist and know that won't happen. Anyway, read Neil Bortz's book on Fair Tax and push with your reps.

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Phone your congress rep and House reps. Tell them you demand that the "Fair Tax" be brought before the masses for a vote. We need to do away with audits and the irs and tax evasion. I would love to put an end to social security but am a realist and know that won't happen. Anyway, read Neil Bortz's book on Fair Tax and push with your reps.

Ya, Enron was just a blip on the radar. The IRS is so last season. Corporate governance is highly overrated. Join suitedinc in his effort to consolidate wealth and power for the few. The best thing about Bortz's bookis that he makes Michael Moore look as objective as a judge.

[suitedinc 0]

Are you kidding me??????You enjoy spending $80 Billion a year on the IRS?You enjoy that a vast majority of tax payers are not paying taxes, forcing you to pay more?You enjoy that 12% of everything you buy is already paying for "big biz" accounting departments?Get your head out of the sand, this has nothing do with bringing wealth and power to the few. Based on your comments, I'm not sure you even read the book.Making taxes linked to your spending in no way helps the Enrons of the world....In fact, it makes sure that everyone pays their share. There is no tax evasion anymore, unless you never buy anything.What are you talking about????

[econ_tim 0]

I would love to put an end to social security.

why?

[ShakeZuma 585]

why?

he probably hates old peoplejust like me

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Are you kidding me??????You enjoy spending $80 Billion a year on the IRS?You enjoy that a vast majority of tax payers are not paying taxes, forcing you to pay more?You enjoy that 12% of everything you buy is already paying for "big biz" accounting departmeGet your head out of the sand, this has nothing do with bringing wealth and power to the few. Based on your comments, I'm not sure you even read the book.Making taxes linked to your spending in no way helps the Enrons of the world....In fact, it makes sure that everyone pays their share. There is no tax evasion anymore, unless you never buy anything.What are you talking about????

Sorry I won't get drawn into this.Traditionally sales and consumption taxes are the most regressive. The Poor: Generally the working poor pay very little (if any) income tax. However everybody needs to consume to survive. The poor get hit twice under such a scheme. Currently the poor pay little tax, where now they'll have to pay taxes on their consumption, so their total tax bill will rise dramatically. The poor also spend a larger proportion of their income on consumption goods to survive, so they'll pay a larger percentage of their income in taxes than wealthier individuals. The FairTax advocates realize this, so their plan includes sending each American family a rebate or "pre-bate" check each month to cover the necessities of life. The size of the checks will be designed so that a family right at the poverty line would not pay a cent in taxes. Of course, the higher the allowance made for the poor, the higher the tax rate everyone else will pay in order to cover federal spending.Economist William G. Gale at the Brookings Institute has determined that most low income families will pay more taxes. "Under the Americans for Fair Taxation proposal, taxes would rise for households in the bottom 90 percent of the income distribution, while households in the top 1 percent would receive an average tax cut of over $75,000." Families: Currently the income tax has all sorts of deductions for small families such as earned income credits and child care credits. These would disappear with the elimination of the income tax. A sales tax, other than for purposes of the rebate, would not distinguish between families and individuals. Gale states that the "enactment of a broad-based, flat-rate consumption tax like the sales tax ... would hurt families with incomes less than $200,000, because of the loss of tax preferences, but would help families with income above $200,000, due to the dramatic reduction in the top tax rate." Given that the rebates are given based on the poverty line, and the poverty line does not dramatically increase between a one-person and two-person family, this is not surprising.