Uncovering Common Mistakes in Poker Tax Reporting and How to Avoid Them
In the poker world, where the excitement of the game meets money matters, players sometimes struggle with understanding how taxes work. As the cards are dealt and the stakes rise, it becomes crucial for individual poker players—from casual enthusiasts to seasoned professionals—to comprehend their reporting obligations. Behind the scenes, overseeing this fiscal arena are various tax authorities, wielding the power to shape the financial landscape of players.
The very casinos and card rooms that host the poker games play a significant role, impacting tax reporting through mechanisms like the withholding of taxes on substantial winnings. Amidst the strategic moves on the poker table, players must also consider the financial tactics, including potential tax deductions and credits. Join us on as we work through the intersection of poker and taxes, where understanding these key concepts is the first step to navigating the tax maze with confidence.
Highlighting the Importance of Keeping Accurate Records
Poker winnings are taxable in the United States. It’s an inescapable fact of life. As the old saying goes from Benjamin Franklin, “In this world, nothing can be said to be certain except death and taxes.”
Anyone who earns money from any form of gambling, including poker, must claim it on an annual tax return and pay the applicable tax. There are minimums, so if you win $100, you don’t need to tell the government about it. However, there are amounts at which a tax is mandatory.
First, take a look at this overview of poker player taxation. It explains the basics of reporting and paying taxes in the world of poker and gambling.
Next, determine your requirement to pay taxes. Officially, anyone who wins $5K or more in a poker tournament, $1,200 or more on a slot machine or in bingo games, $1,500 or more playing keno, and $600 or more on horseracing must report the sum to the government on a Form W-2G and pay the calculated tax.
Professional gamblers must report their poker winnings altogether – wins and losses – just as in any other taxable profession. Professionals must report their cash game and tournament winnings for live and online poker.
Common Mistakes in Poker Tax Reporting
Poker players must report all income, including non-cash prizes and gifts. Of course, those “earnings” must have a substantial cash value. For example, a television or computer, a vacation or tournament buy-in must be claimed at a fair market value. On the other hand, something like a $100 gift card need not be claimed.
Online poker winnings are also taxable, even if playing on a poker site not registered in the United States. While this type of income may not be obvious if omitted on a tax form, any type of audit would show withdrawals from online poker operators that should have been taxed. Omitting that income in the first place only sets a person up for an audit and penalties on unpaid taxes.
Deductions
Another common mistake in poker tax reporting is one that could benefit more players. Deductions are vital in balancing winnings with expenses. Players can deduct everything from tournament fees to tips, from travel to meals, and anything else that is an essential part of poker travel and activity. The best way to know for certain if something is deductible or not is to ask a tax professional.
Finally, all poker tax calculations depend upon the person’s status when filing tax forms. A professional poker player will claim all wins and losses as income and expenses, as one would do for any career. Amateur poker players will handle poker winnings as “other income,” which may calculate at a different rate.
Amateur players will likely not have a detailed record of every expense, while pro poker players should keep a running spreadsheet or notebook of every expense related to their job. Career players will have many more expenses to deduct.
Note that the ability to claim poker as a career involves more than simply wanting it to be so. If a person claiming poker player as a full-time job is ever audited, they must show records of hours spent in the business of poker, organized receipts and records, and a profitable year every now and then. Showing proof of improving their skills as a player – a form of education – is also a plus.
Navigating the Complexities of Poker Losses
Poker players often dismiss losses or fail to record multiple entries into tournaments. But recording losses are as important as recording winnings. It balances the bottom line of earnings and the final amount upon which they will pay tax.
It is important not to report more losses than wins. If a person ends a year with $50,000 in poker winnings but $70,000 in losses, they can only report up to $50,000 in losses. The other $20,000 in losses is simply a loss that he or she will need to live with. It can’t be used to offset winnings in that year or carried over into any other year.
Note that two people filing a joint tax return can combine gambling wins and losses. This is an added benefit to filing a return as a couple.
Calculating Losses
How to calculate losses is a very detailed process. To establish every expense that is a deduction and at what percentage, a person should use an automated tax reporting program or consult with a tax expert. With that said, the bottom line is that it is vital to keep records of every single expense, just in case they would be beneficial on your tax return. Some of the most commonly unrecorded expenses are:
- Tournament fees and tips (receipts are typically provided by cashiers)
- Cash game tips to dealers and wait staff (no receipts but a person must keep a paper or digital notebook with a running list of those expenses, even if just $1 here or there)
- Backing arrangements (try to save or print confirmation of doing or receiving the backing)
- Consulting and coaching (record consulting given or received, as it is something of value)
- Auto expenses, such as fuel and miles driven to poker-related activities
In addition to keeping a written or digital record of all expenses, it’s important to note the date, time, location, and circumstances of each one.
Tools and Resources for Accurate Poker Tax Reporting
The most commonly used software program for reporting taxes in the United States is Turbo Tax. It does walk the user through the tax forms, answers questions, and provides an option to pay an extra fee to ask questions of experts and for someone to audit the return before submitting it to the IRS.
There are several poker apps that can help track expenses, such as Poker Bankroll Tracker and Poker Manager Bankroll Tracker, Poker Income Tracker and Poker Income Ultimate, Poker Analytics, Pokerbase, and Poker Stack.
Tax consultants and specialists sometimes list gambling and/or poker as areas of expertise. While Russell Fox of Clayton Financial and Tax is one and the firm of Kondler & Associates is another, there are more people and agencies that can help. The best way to find the one that is right for each player is to ask on social media or on a poker forum for recommendations.
If there is any question about expenses, professional status, or complicated tax questions, it is best to consult a certified public accountant (CPA), federally-licensed tax professional, or tax attorney. Most often, amateur players do not need these services unless their lottery or slot machine win is significant.
Cryptocurrency and Tax Reporting
Many online poker players now use some form of cryptocurrency for deposits and withdrawals, as well as player-to-player transactions. Even live pros who back other players, swap pieces, or simply engage in loans do so with crypto transactions. This creates complications.
The most recent announcement from the IRS about crypto tax filings came in January 2024. It is a proposal that digital assets not be required on tax forms if the amount is valued at less than $10,000. There is no official change to the tax code yet, however.
However, if a person’s crypto transactions comprise a significant portion of wins or losses in poker or any form of gambling, it is probably a smart move to consult a professional. The government, including tax authorities, are slow to deal with the cryptocurrency world.
Ultimately, consulting professionals is a good idea. This article, for example, should not serve as professional tax advice of any kind. And tax laws are always changing. Lawyers and accountants familiar with poker and gambling are the best to handle any and all tax questions and filings.
