Ignorance is NOT an excuse!

So today, I'd like to discuss a topic that surely excites all of you. Taxes. Ok, so I guess I just lost most of my audience right there. Well, I want to talk about taxes as it relates to poker. Why now? Well... interestingly enough, maybe this should have been discussed earlier. But like they say, better late than never. Now what am I talking about? I am sure you are all aware but you know that you have to pay taxes on your poker winnings right? Well, you also do know that the government is out to screw you anyways, right? What do I mean by that? Well, let me clarify two main points in regards to reporting your poker winnings:

1) You must report your gross winnings, not your net winnings, as other income. You may then deduct all your losses UP TO the amount of the winnings but you can only report them under itemized deductions.

2) You must keep a detailed record of your "sessions" in order to report the correct amount of your gross income.

Ok, what did that just mean? Well, you're not gonna like what you are about to hear. But let's say for example that you are NOT a winning player. Sure. You scored a few wins here and there. Maybe took down a big MTT for a nice score. But let's also say that you played in enough tournaments that by the end of the year you broke even... or maybe even lost some money. Does that mean you don't have to report any gambling income? No. According to the rules, you are supposed to report your winnings. Let me reiterate that. Let's say you played in $100 tournament. Let's say you play in one every week and that's the only game you play. So, you spend $5200 in one year on tournaments. Let's say that during that time, you've won one for $3k and cashed a few times for another $2k, bringing your total winnings to $5k, for a net loss of $200 in one year. If you think you don't have to report anything, you are wrong. According to the rules, you are supposed to report $5000 in gambling winnings under other income. Then, you can put $5,000 under itemized deductions (not $5,200 - remember, you can deduct only UP TO your winnings) to at least ease the pain.

Now let's just say that you're single, living in an apartment, and so you don't itemize your taxes. In other words, you just do your standard deduction and that's it. What happens? Well, this is where you get screwed. Again, according to the letter of the law, you're supposed to report your winnings but now, all the losses can't even be used to offset the winnings. You think I'm making this up to make your already miserable Monday morning even worse? Check out this article.

And this one section I thought was very interesting:

"The government has no way of tracking how much I win, so I'm not going to report it, and they'll never find out." If you're not audited for some other reason, the government is not likely to find out. However, if for whatever reason you are audited, and you have unreported income that the government finds out about, you will, at a minimum, pay tax, penalties and interest. If the IRS determines that you willfully evaded taxes, you could even be subject to imprisonment.

So in other words, sure, most of you will probably not be audited. But IF you do, you can be in some serious shit. And "I didn't know" excuse doesn't get you out of taxes and penalty.

Well, how did all this come about? I was just curious so I asked a former coworker of mine who works in the tax department to do some research for me. And that's how I got the link to the above. Well, as a CPA, even though I did not do any taxes, I knew that part. (For those of you that immediately thought, oh, CPA = taxes, consider this... you won't go to a divorce attorney to defend you if you're a murder suspect right? I mean they're both lawyers. You'd rather see a cardiologist if you have heart problems instead of a podiatrist, right? They're both doctors. All this is to say that taxes aren't the only thing CPAs do and I, for one, clearly did not do any tax work).

Anyways, I digress. Well, the above example with tournaments were easy... the question I then had was what about for a guy like me who plays in cash games online? I play on multiple tables at the same time and I could potentially jump into a table, just to see that 15 minutes later, the table breaks and so I close that table down but reopen another one, etc. Do I have to keep a detailed record of EVERY SINGLE one???? Unless you use some sort of a software to keep track of those things, it would be nearly impossible to keep track of? Well, when I posed that question, my friend came back with another great article.

A simplified summary of that article would be this:

When you are playing 3 tables at the same time, and they are all Texas hold'em, then they are considered one session and you log the total win or loss. But if you are playing hold'em and blackjack at the same time then those are two separate sessions, and you must log a total for hold'em and a total for blackjack. Also, if you play for an hour and then logout, and later that day you play again, those are also two separate sessions as well.

You might not enjoy reading tax related articles and believe me, I don't either. But I found these two articles to be fairly entertaining, mainly because it pertains to what I do.

For those of you that are killing the game, you might want to consider declaring yourself a professional poker player and claiming self employment... At the very least, it's worth consulting a tax professional to see what saves you more in terms of taxes. Of course, these only pertain to US taxpayers. And it's probably very unlikely that you get audited by the IRS. But IF you do, you better be prepared. Because an "I didn't know" excuse won't get you out of it.