October 27, 2010

taxdood Debut: Intro to Poker and Taxes

Greetings pokerverse,

My name is Brad and I am a tax attorney who represents taxpayers under audit by the IRS and NYS.  Krantz and I have been close friends since sixth grade.  Great guy.  We’ve done a lot of talking recently about the poker boom, specifically how there are many players out there who are simply uneducated when it comes to handling their financial matters properly.  This is particularly understandable for someone without previous exposure to earning large sums of money in short time.

Consider this true story.  In 2005, player X finished fifth at the World Poker Tour’s Jack Binion World Poker Open and won the WPT’s L.A. Poker Classic less than a month later.  These two finishes alone earned player X over $2 mil.  In fact, player X has more than $7 mil in tournament earnings in his career.  Fast-forward to this year.  In May, the IRS filed a tax lien against player X to collect on $339,000 of back taxes owed from 2005 to 2007 (a lien essentially gives the IRS a superior right to the equity in player X’s properties to collect on the back taxes).  This lien resulted in two foreclosed homes and a very big headache for him and his family.  With proper guidance and smart planning, player X could have put some of his earnings aside to keep current with tax obligations and not have to face these consequences.

Today’s Takeaway:  Gambling winnings are taxable.  You are required by federal and state laws to report these earnings and pay the associated taxes.

Unfortunately, I see situations similar to player X’s too often.  Each time I find myself thinking, where did this client go wrong?  Sometimes the client consciously tries to cheat the government.  Sometimes it’s indifference.  Sometimes it’s lack of knowledge. 

With this blog, I will make weekly posts highlighting a point or two the casual or full-time poker player should be aware of.  The law pertaining to poker is cloudy and complex, and the taxation of poker earnings is no exception.  Considering there are players all over the globe, the rules simply are not the same for each player, as each country’s tax system is different.  By giving each of these issues some attention, however, I am confident the picture as it applies to each reader will become much clearer.

If you have any general inquiries, don’t hesitate to drop a comment.  I’ll either hit you back there or, if it raises an important point, I’ll discuss in a future post.  I’ve also created a twitter account (@taxdood) through which I will mention important news, such as filing deadlines.

Until next time,

taxdood

Posted By taxdood at 02:50 PM

4 Comments

4 Comments:

DJ Sensei posted on October 27, 2010 at 20:23 PM

Unicorn1

This blog has exciting implications! Glad to have you on board, taxdood.


delcrossb posted on October 27, 2010 at 22:12 PM

Delcrossb

A few points:

1. I'd be seriously surprised if player X's identity was a mystery to anyone and even if it was, listing the tournament he won sort of kills that anonymity.
2. Someone should move this over to the pro blogs.
3. I am wondering if you could talk about how coaching income would relate to overall taxable income, and whether or not it needs to be reported? Are there monetary thresholds that needs to be reached (ie if I make less than $3000 per year coaching it doesn't need to be disclosed)?
4. How do we separate gambling winnings and losses in terms of a session by session or hand by hand basis? I've never understood what sort of time frame to look at when consider my gambling wins and losses. What about if I kill a live game but then go blast it all off in the pit? Do we lump them together or consider them separately since they are different games? If it is the case that they are the same can I deduct my winnings with losses that I can substantiate at other gambling endeavors?
5. Where does rakeback fall into the whole gambling wins/losses? Is that actually gambling wins or does it count as something different since it isn't really the product of a wager?

Welcome to DC, hope that wasn't too much given you just started posting here. All the best!


BaxtersBack posted on October 28, 2010 at 01:10 AM

Avatar

Nice.
And ditto to #4, above - My whole life is one big gamble.


taxdood posted on October 28, 2010 at 13:14 PM

Gavelguy

@delcrossb: Not too much at all. In fact, I had already planned to focus the next couple of posts on the treatment of gambling losses. The rules are not the same for every player. As a preview, you first have to determine the "type" of player you are.

I'll also dedicate at least one post to income from coaching. Thanks for bringing that up that issue; I'm sure you are not the only one who is curious.


 

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