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Online Poker And Income Taxes


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I've often figured that once I made a certain amount of money playing poker online that I would feel obligated to pay my "fair share" of income tax. But when I started to read about it, it may be completely ridiculous to truly be honest.For example:Let's say that I'm a medium-stakes SnG grinder, and I multi-table the $50 SnG's on Pokerstars and have a 10% ROI. Last year, say I made $20,000. Yay me! Let's also figure that I'm single and that I make $40,000/year at my real job.So, I go to do my taxes, I plug in all of the numbers for my real job and I don't have much to itemize, so I take the standard deduction of about $5,000. Ok, now let's pay the tax on that $20,000 that I made in poker. Well, I'm in the 25% tax bracket, so I need to pay roughly $5,000. Right? WRONG!!! WRONG!!! WRONG!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!My total poker winnings for last year were $220,000. Add in the $40,000 that I made at my real job, and my total income for last year was $260,000. For crying out loud! I'm RICH!!! I need to pay MY FAIR SHARE!!! I can't claim $200,000 in deductions, because I'm obviously rich and I'm trying to avoid paying MY FAIR SHARE.Because I'm rich, I now have to pay the alternative minimum tax, so there is only so much that I'm allowed to deduct at all. In the end, I'm probably going to end up paying the entire $20,000 to the IRS and then some more."But wait... You can file as a professional." Filing as a professional is basically like saying that you are running a business. If you run a business, you must report your income every year, not just some years that it does or does not do well. Additionally, running a business also entails a lot of overhead tax-expenses, like a "self-employment tax" (15%). Plus, then it will raise all kinds of red flags if I don't file as a professional every single year. But yes, I can file as a professional, and I'd probably keep some of the $20,000 that I earned, so if I wanted to be "honest", that would probably be the preferred route.Consider that the US is considering legislation to make online gambling legal. I would imagine that the IRS would want to know who's making money and how much, similar to the way it is done with online trading of stocks. If so, fine, but then treat it like stocks. If you own stocks, you aren't paying income tax every time it goes up and then deducting every time it goes down. You report when you buy and sell. How about something similar for online poker? How about we simply report when we deposit and when we withdraw?In Chris Ferguson's challenge, he turned $0 into $10,000. If he reported that to the IRS properly, his "income" from the challenge was probably about $50,000, and his losses $40,000. The problem with this is that it sounds like Chris had $40,000 to piddle away. He never did. He had $0, and now he has $10,000. He never had more than $10,000 at any particular time, and if he never "spent" any (on losses) he would have had $0. It's like giving $1,000 to a friend every other day, and on the other days, he gives you $1,000. Did you both have "incomes" of about $182,000? Not by any serious measure.Personally, I believe there should be a national sales tax only (no income tax at all). If you save all the money you make, good for you! If you buy something, you pay a tax. But that's way beyond the scope of this discussion, and it will never, ever happen in the US, so let's not start discussing things that cannot happen.

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1st: Never trust information on taxes from internet sites.2md: Hire a tax professional3rd: Expect to get hosed4th: Prepare for shock when you realize how much taxes you really pay over the year.5th: Join the republican party

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1st: Never trust information on taxes from internet sites.2md: Hire a tax professional3rd: Expect to get hosed4th: Prepare for shock when you realize how much taxes you really pay over the year.5th: Join the republican party
3-5 already taken care of.What I have wondered about, if I report $20,000 on my income taxes from "gambling" and I provide no proof of any losses or where the income came from, how the heck could the IRS ever find out? Realistically, it would be quite difficult for them (at best), since no reporting is done by the major online sites. Obviously, if you're JohnnyBax or something, it'd be much easier for them to figure it out.Let's vote to keep it illegal.
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I'm not a tax professional.
The hell you say!
I can't claim $200,000 in deductions, because I'm obviously rich and I'm trying to avoid paying MY FAIR SHARE.
I don't get this statement.
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I don't get this statement.
The Alternative Minimum Tax (AMT) was created to force "rich" people to pay a certain percentage of taxes on their incomes, because it was generally believed (perhaps rightfully so) that many rich people had so many deductions on their returns, that they were actually paying less tax than some folks who made 1/10 of their income. So, the federal government limited the deductions.What I did while playing around, was to open Turbo Tax with last years return, then enter:I won $2,000 gambling with $0 in losses. I had to pay tax on $2,000 at 25%. Then I entered that I made $12,000 in gambling with $10,000 in losses. I had to pay a lot more than 25%, because now I could no longer claim the standard deduction, so I had to have enough "losses" to put me over the top, which actually caused me to get taxed on about $3,500 on the total $12,000 in winnings.Then I entered that I made $102,000 gambling with $100,000 in losses. WHOOOOWEEE!!! I owed the IRS a butt-load of money. I think it was around $5,000 (and I initially had a refund of about $1,500). Plus, my state income taxes went through the roof, because, generally speaking, you can't deduct losses on your state return. I think I owed the state a few thousand more. I didn't try it with $220,000 in gambling winnings and $200,000 in losses, but I'm pretty sure I'd lose the whole $20,000 and then some.
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The Alternative Minimum Tax (AMT) was created to force "rich" people to pay a certain percentage of taxes on their incomes, because it was generally believed (perhaps rightfully so) that many rich people had so many deductions on their returns, that they were actually paying less tax than some folks who made 1/10 of their income. So, the federal government limited the deductions.
I don't think you're entering your gambling losses correctly. It should be on line 28 of Schedule A, not line 27. Line 27 is an add-back for AMT. Line 28 is not.
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are you saying you have to pay taxes on your gross winnings, not the net of you winnings and losses?
For most state taxes, yes. For federal taxes, no, but for many tax-payers, it may not be a simple net calculation, as it may severely impact your income. Your "income" is the sum total of all money that was paid to you. You are taxed on your income, with certain rules coming into effect that allow you to make deductions from your income.
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3-5 already taken care of.What I have wondered about, if I report $20,000 on my income taxes from "gambling" and I provide no proof of any losses or where the income came from, how the heck could the IRS ever find out? Realistically, it would be quite difficult for them (at best), since no reporting is done by the major online sites. Obviously, if you're JohnnyBax or something, it'd be much easier for them to figure it out.Let's vote to keep it illegal.
The IRS doesn't care where you made the money, they care that you pay taxes on the money.If they find out later that you made more, then they got ripped off. this makes them mad.Don't make them mad.The IRS has a slow methodical bureaucratic method of finding the truth. Once they find the truth, it is up to you to prove it is not true.Much better to stay off their radar and pay your taxes.But I agree, the end result of 'legalizing' online poker is that people are going to have their winning's reported to the IRS, and unless they can prove what they actually won/loss, then they are going to pay taxes on what the IRS says they won.
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For most state taxes, yes. For federal taxes, no, but for many tax-payers, it may not be a simple net calculation, as it may severely impact your income. Your "income" is the sum total of all money that was paid to you. You are taxed on your income, with certain rules coming into effect that allow you to make deductions from your income.
well, true or not, that's pretty retarded. i only skimmed the link you provided but it did say something to the effect that hobbyists cannot claim expenses, but also defined expenses as travel, food, etc. not buyins/losses.
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my favorite part of this thread was the OP explaining AMT to a tax accountant.
Why? I have to explain how to think to vb all the time.
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my favorite part of this thread was the OP explaining AMT to a tax accountant.
Wasn't aware he was a tax accountant, but regardless, I'd be happy if he could explain why I'm wrong. I've read several articles on this matter, and they all basically say the same thing. I'll try to provide some links, when I'm not playing 6 tables... hehe
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Wasn't aware he was a tax accountant, but regardless, I'd be happy if he could explain why I'm wrong. I've read several articles on this matter, and they all basically say the same thing. I'll try to provide some links, when I'm not playing 6 tables... hehe
I'm not, don't worry about that.But go right to the source:Here is the AMT form. You'll notice there is no adjustment for gambling losses. I suspect the error comes from line 5 where it says you have to add back miscellaneous deductions from line 27 of Schedule A.Let's take a look at Schedule A.Hmm, that's not very helpful; it doesn't mention gambling losses.Better check the instructions.Ah, there it is, page 12. Gambling losses go on line 28. Go back to the AMT form; is there anything about line 28? Nope.The IRS even has an AMT Assistant.Plug in the information you provided ($40k wages, $220k gross winnings, $200k gross losses) and the IRS says you are not required to pay the Alternative Minimum Tax .
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I'm not, don't worry about that.But go right to the source:Here is the AMT form. You'll notice there is no adjustment for gambling losses. I suspect the error comes from line 5 where it says you have to add back miscellaneous deductions from line 27 of Schedule A.Let's take a look at Schedule A.Hmm, that's not very helpful; it doesn't mention gambling losses.Better check the instructions.Ah, there it is, page 12. Gambling losses go on line 28. Go back to the AMT form; is there anything about line 28? Nope.The IRS even has an AMT Assistant.Plug in the information you provided ($40k wages, $220k gross winnings, $200k gross losses) and the IRS says you are not required to pay the Alternative Minimum Tax .
Ok, I was wrong about the AMT being the culprit. That was just a guess as to the culprit. Regardless, you can only offset your losses so much, unless I'm also using turbo tax wrong (that's certainly possible).
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Russ Fox is pretty much the authority on US Taxes and Gambling.Lots of reading if you want.http://www.gambling-law-us.com/Articles-No...ambling-tax.htmhttp://www.taxabletalk.com/category/gambling/
Yep, Russel Fox seems to have the best information, and he also mentions triggering the AMT (and that gambling losses are not deductible under the AMT).The fact remains that the gambling tax laws are essentially set up for people who "win it big", playing slots, lottery, etc. The laws do not even consider the person that gambles for a living, or even for a hobby income, who makes a meager existence. The fact that Billy Baxter had to get a court decision to modify this perception (http://en.wikipedia.org/wiki/William_E._Baxter_Jr._vs._the_United_States) further makes the point. He made it possible to file as a professional.Furthermore, the laws do not seem to acknowledge that the $10,000 that someone might have in their poker account (their 'roll) is more of a tool of the trade. Honestly, it's truly like paying tax on a stock that you have not even sold, just because it went up in value, then you have to sell some of the stock, just to pay the tax. That's the best analogy I can make. And then there is the fact that poker is a zero-sum game. Nothing is produced. All of the money that goes into the prize pool has already been taxed. It's simply being redistributed. The same is true for slot machines, and Powerball, etc. We're taxing taxes. And in the case of the grinder making $20,000/year with $220,000 in winnings, we're counting the same pennies hundreds of times over, every time they change hands. 100 pennies could conceivably result in 1,000 pennies of taxation if they changed hands enough.Canada seems to have this right. Although I'm not a big fan of their "compounded tax" in Quebec, unless they've fixed all of that now too. (They would charge PST on the GST, thus making the PST percentage seem smaller than it truly was [because politicians think their constituents are too stupid to figure it out, I guess]), but alas, I digress even further...
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The Alternative Minimum Tax (AMT) was created to force "rich" people to pay a certain percentage of taxes on their incomes, because it was generally believed (perhaps rightfully so) that many rich people had so many deductions on their returns, that they were actually paying less tax than some folks who made 1/10 of their income. So, the federal government limited the deductions.What I did while playing around, was to open Turbo Tax with last years return, then enter:I won $2,000 gambling with $0 in losses. I had to pay tax on $2,000 at 25%. Then I entered that I made $12,000 in gambling with $10,000 in losses. I had to pay a lot more than 25%, because now I could no longer claim the standard deduction, so I had to have enough "losses" to put me over the top, which actually caused me to get taxed on about $3,500 on the total $12,000 in winnings.Then I entered that I made $102,000 gambling with $100,000 in losses. WHOOOOWEEE!!! I owed the IRS a butt-load of money. I think it was around $5,000 (and I initially had a refund of about $1,500). Plus, my state income taxes went through the roof, because, generally speaking, you can't deduct losses on your state return. I think I owed the state a few thousand more. I didn't try it with $220,000 in gambling winnings and $200,000 in losses, but I'm pretty sure I'd lose the whole $20,000 and then some.
I had that part wrong. It was about $500, but yes, it keeps going up the higher your income goes, even though you net the same. And there is no "net" for my state.
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Your main point about gambling being treated in an unfair way in the US when compared to other things is for sure true.One of the things that the PPA is trying to lobby for will be that any reported poker wins with regulated online poker is only the net amount since reported gross wins and losses is treated in such an unfair manner.

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It's like giving $1,000 to a friend every other day, and on the other days, he gives you $1,000. Did you both have "incomes" of about $182,000? Not by any serious measure.
Yes you did have an income of $182,500 in a year & the exact same expenses. My advice to you, just stop paying back your friend after a while and hope he doesn't notice.
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So, anyway... The bottom line is the fact that you cannot truly "net" your gambling income can really make a big difference on your taxes. On just your federal return alone, you could lose all of your gambling income in taxes, or possibly more. Depending on whether or not your state allows gambling deductions, you could then end up paying out much, much more.But only if you're honest. If you decide "screw it", and simply net your income, now you open yourself up to an easy catch if they DO audit you, because now you've made them aware .Well, I've never made more than a few thousand dollars since I started playing in 2005, so I'm really not too concerned about myself (yet). For now, I'm sure I can fly under the radar pretty easily.

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