[GUEST POST: Continuation of CPA Brian's Guest Post on taxes from last week. And he also had a blog on my blog links]
Are you a Pro?
A pro is entitled to write off certain expenses that a non-pro (hobbyist) is not permitted to write off. In addition, the specific forms you will use will be dictated by your answer to that question. While there is no specific formula for answering that question a little logic will help.
- How much do you play?
- Do you rely on the poker income to support yourself?
- Are you engaged in other professional activities that take up more time than poker?
If you come to the conclusion that you are a pro and not merely playing as a hobby, you will present your poker winnings on Schedule C. You also will be permitted to deduct certain “ordinary and necessary” business expenses against that income. These expenses might include travel to live events, training, subscriptions, some computer related expenses, certain software, etc. And, of course, you will be entitled to offset your poker winnings with poker losses.
All taxpayers regardless of profession that utilize Schedule C will pay Self-Employment Tax of 15.3% on the net income from Schedule C. This represents the employer portion AND employee portion of the social security and medicare taxes. Finally, if you are deemed a pro you will have the ability to deduct health insurance premiums and make more aggressive retirement plan contributions (poker players planning for the future???).
If poker is a hobby, then your poker winnings will be presented as gambling income and gambling losses may be deducted to the extent of your winnings on Schedule A.
A few tips for you to help you prepare for taxes on a year round basis:
- Keep track of your poker wins and losses contemporaneous with your play. On-line this is easy with Holdem Manager or Poker Tracker. Live it has gotten easier as well as multiple providers are offering apps for smart phones like the one I use: Poker Journal for I phone. Five minutes at the end of each session and then all of your information is at your fingertips. Nothing is worse for you or an accountant than having to recreate a whole year of play in order to prepare an accurate return.
- Along these lines, save all of your tournament tickets for the year as this is support for your losing tournament sessions.
- Don’t be stupid: Taxes are a cost of doing business. You should certainly do all allowable by law to minimize your liability but completely ignoring them or filing fraudulent returns is a terrible idea that may jeopardize your ability to work entirely.
- If you are really overwhelmed by all of this contact a CPA who has experience dealing with gambling/poker issues. I suspect anyone in Las Vegas could have experience in these areas but professionals in other areas may not have that same experience. Ask your friends, contact your state’s CPA society or search on-line but make sure the person you are talking with understands the issues unique to your chosen profession.
- Thank the man below if you see him at the World Series of Poker. His IRS fight in the 80’s legitimized professional poker as a profession in the eyes of the IRS. But if he invites you to join a 2-7 lowball game you may want to run away fast!
These two parts are merely a drive by summary of the issues poker players face with regard to income tax. There are a lot of other issues to be hashed out before you file. I urge you to reach out to a professional. Do not stick your head in the sand and avoid filing and paying your taxes. You are welcome to find me on my blog or through 2p2 under my screenname bwslim69. There also is a great 2p2 sticky thread that has a lot of great links and resources and can be found here http://forumserver.twoplustwo.com/57/poker-legislation/u-s-taxes-u-s-bank-accounts-poker-site-deposits-faq-740589/