Poker Taxes

First, a few notes. (1) The information on this page is related to US taxes. (2) I am not a tax professional. (3) If you need help, talk to a tax professional. Don't ask me.

Introduction

The subject of paying taxes on poker is one that affects millions of poker players. It's a subject that almost no one thinks about until tax time gets close though. Some of the questions related to poker taxes have clear answers, while others don't. Some of the more contemporary issues relating to poker playing require analysis and interpretation since there may be no expressly-stated rules by the IRS about how they should be handled. This lag in the development of the tax law is natural whenever any unconventional activity suddenly becomes popular as a career. It is similar to at-home stock-traders in the 1990s.

IRS Tax Forms

Here are links to some of the IRS forms:

• Publication 334 - About small business expenses.
  
• Publication 463 - The rules about certain expenses such as travel and entertainment (for professionals).
  
• Publication 529 - Miscellaneous Deductions (more information about documentation for profits and losses)
  
• Publication 535 - Business Expenses (for professional players looking at expenses)
  
• Publication 552 - Record-keeping (for notes on what kind of records you need to keep)
  
• Schedule A - Itemized Deductions (for amateur players to see where to file their gross losses to offset their gross winnings)
  
• Schedule C - Business Income (for professional players to file their net poker profits as income)
  

Questions - Taxes Owed

• Do I have to pay taxes on gambling winnings? Yes, gambling winnings are fully taxable.

• Do I have to pay taxes on the income since it came from overseas? Yes. U.S. residents are required to pay tax on all worldwide income, from anywhere in the world. It is possible to lower your taxes if you qualify for a "foreign earned income exclusion". You may also get a credit on your US taxes for any foreign taxes paid so you won't get double-taxed.

• Do I have to pay taxes if online gambling is considered illegal? Putting aside the issue of whether online gambling is illegal, you are still required to pay taxes on illegally-earned income.

• Is it considered income if I haven't withdrawn the profits from the poker site? Yes. Your gambling winnings become taxable when the money is credited to your poker account - not when the money is transferred to your bank account. This principal that guides this is called "constructive receipt". It basically says that the money is considered income as soon as you have control over it. If poker players were only taxed when the money was withdrawn, they could defer any taxes owed on the money by waiting until January 1st of the New Year to make a withdrawal. A possible exception to this rule is the frozen money at sites like Full Tilt Poker. It could be argued that because your money was not held in segregated funds, and that you couldn't get it paid out, that you didn't have control over it.

• Could I move outside the U.S. to avoid paying taxes? No, a US citizen is required to file a US tax return even if he lives outside the US. You do have the option of giving up your citizenship to avoid paying US taxes in the future, but this is obviously an extreme option.

Questions - Filing

• Do I actually need to file my taxes? Although any amount of poker winnings is taxable income (even $1), you aren't required to file a return if you don't have enough total income (from all sources) to owe taxes.

• Will the IRS even know that I have poker income? If it comes from offline, the IRS would only know if they were sent a W-2G by the casino, which they wouldn't do unless you won a large amount of money in a tournament. If the income is from online poker, then the IRS won't know because the online poker sites are not required to send the IRS a W-2. It is possible, although unlikely, that the online poker sites will report players' winnings to the IRS years later when they enter the US market legally. Regardless, you are still required to pay taxes on any taxable income even if it isn't reported to the IRS.

• What if I am worried about filing my taxes because I might get busted for playing online poker? You can simply describe your poker winnings as "gambling winnings". They won't know your winnings came specifically from online poker. Besides that, the IRS is not particularly interested in making sure the law is enforced. They are interested in collecting taxes.

• I didn't report my poker income for prior years on my taxes, but now I want to. What do I do now? You need to file an "Amended Return" (Form 1040X). Try to put together your records as best as you can.

• Do I have to make quarterly tax payments? Yes, see Form 1040-ES for details.

Questions - Home Games

• Are winnings in a home poker game taxable? Yes. It would still be considered income.

• How would the IRS know about income I made from a home poker game? Realistically speaking, they would never know.

• Do people actually pay taxes on a small profit they made from a home poker game I doubt anyone ever has, but you are still technically required to pay. The situation is similar to running a lemonade stand. No one ever pays taxes on a small profit they make on a lemonade stand.

Questions - Help Preparing Taxes

• Can I use TurboTax to do my poker taxes? If your situation is simple (i.e. you are a non-professional gambler with simple winnings) then you can do your taxes on your own (or with tax software) if you are comfortable doing a little self-research. If your situation is complicated (i.e. you are a full-time gambler) then don't expect any off-the-shelf software to do the job. In that case, you need to talk to a tax professional that specializes in gambling taxes.

• Where do I find a tax person who knows about gambling? The best place to look, by far, is the internet. The 3 logical ways to find one: (1) a Google search (for "gambling tax preparers", etc.) (2) references from other full-time gamblers (3) posting on a popular poker forums asking for a reference. If you have simple gambling winnings, then a regular tax professional should be able to handle your return. If your situation is complicated (i.e. you are a full-time poker player) then do not look in the yellow pages for a tax preparer because none of them will specialize in gambling income. This are extremely specialized area which would require a considerable amount of thought and research, even for a average professional tax person. You cannot expect an average tax preparer to give you accurate advice about the taxable implications of your confiscated FullTilt funds. Most tax professionals simply won't be knowledgeable enough in the area - and they also might think you are just being a pain-in-the ass for having a difficult return. You would be better off finding a tax preparer somewhere else in the country that specializes in gambling income (and professional poker income). The downside to this is that the preparer may not be knowledgeable about the state tax laws that relate to you (if there are any).

Questions - Advanced

• Do I report only my net winnings for the year? No. You need to separately keep track of your winning and losing sessions.

  • For amateur poker players, the total of your winning sessions is reported as gambling income on Form 1040. The total of your losing sessions, up to a maximum of your total winning sessions, are reported as an itemized deduction on your Schedule A as gambling losses.
    
    
  • For professional players, both your profits and losses are reported on a Schedule C as business income, and the net profit or loss, including other poker-related expenses, is copied over to Form 1040 as income from a business.

• Do I need to keep track of my playing? Yes, you cannot simply state a final profit and loss for the year without giving details. The IRS requires you to keep an accurate log of your gambling winnings and losses.

• How should I keep track of my play?

  • For offline play, you need to maintain a journal, and it needs to be handwritten. It should state: the profit and loss for each session, where you played (name and address), and when you played (the date and time that you started and ended), and the table number, if possible. You should keep any other documentation (such as losing tickets, or proof of a poker tournament entry).
    
    
  • For online play, you can use poker software to keep track of your online play. If you don't want to use poker software, then you can use Excel, or make it handwritten. You should keep your hand histories if you can. Screenshots of your cashier page may also help.

• Do I have to pay taxes on rakeback and bonuses? Yes. Your poker profits are the amount of profit you make after the fee to the casino for playing (i.e. the rake). Hence, getting a rakeback simply means you are paying less of a fee, and are getting more in profits.

• Can I use other losses from other types of gambling to offset my poker winnings? Yes. For tax purposes, poker winnings are not different (or segregated in any way) from other forms of gambling income.

• Do I have to report my poker accounts to the Treasury (FBAR - Form 90-22.1) if the balance is over $10,000? It is generally recognized that poker accounts do not qualify as foreign bank accounts for the purposes of the FBAR, but e-wallet accounts (Neteller, etc.) do count. Although you need to reference the FBAR within your tax return, the FBAR is not actually filed with the return - it is a separate filing.

• Are FPPs (Frequent Player Points) considered taxable? Yes. FPP are basically the equivalent to the comps you get in a B&M casino - and comps are taxable.

• Can I deduct the rake I paid? No. The rake is already accounted for in your poker winnings. For tournaments though, you can subtract the entry fee.

• Can I deduct poker-related expenses such as the cost of software, books, etc.? If you file as an amateur player, you can't deduct any of these costs. If you file as a professional poker player, you can deduct any poker-related expenses since you are considered a business.

• What happens if I have a net loss for the year?

  • For an amateur player, you are not allowed to deduct gambling losses in excess of your gambling winnings. This means that you cannot use your gambling loss to offset other income or a carryover the loss to use in future years.
    
    
  • For professional players, they also cannot offset other income with their net gambling loss, but they are able to carry forward the net operating loss to use in a future year.

• Is there any disadvantage of filing as a professional? As with all self-employed people, professional poker players have to pay the self-employment tax, which, by itself, is about 15.3% tax rate. See IRS Schedule SE.

• If I file as a professional, what are some of my possible expenses? Your internet connection, your computer if you play online, a home office deduction if you play at home, travel expenses to and from a casino for B&M sessions.

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