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  • Is it considered income if I haven't withdrawn the profits from the poker site?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.

COMMENTS:

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Wow, a lot of nonsense on this site. If you are a US citizen, every $1 in gambling winnings (less legitimate deductions) is taxable income, no matter where you win it. SOMETIMES there is a treaty which allows you to pay taxes only in the country where you earn the income, but no such treaties exist where most of the offshore betting goes on. Winnings are taxable the moment they go into your account and you are able to get your hands on them, not when you actually withdraw them. Dodging taxes can land you in jail. The IRS has lots of ways of finding out.

taxlawyerindc on February 2, 2006

Do I have to pay taxes for money earned on Ultimate Bet, a non US gambling site?

heff2020 on January 2, 2006

how do i become a pro poker player so i can right off all my expenses connected with my new occupation?

instantfuture on December 20, 2005

Hi all, my name is Tim and I just found this message board and started to read some of the posts. I play online about 25 hours a week and make about $400 a week, but have yet to cash anything out. How can the IRS track deposits to your account if you keep them fairly small? Also, I believe the "Party" site will deliver checks to your house, could this be a way to avoid paying 30% of your hard earned money?Any help would be greatly appreciated,Thanks

Timo1124 on November 11, 2005

CRIS-If you make $75,000 a year and don't report 15K, yeah, the IRS probably won't find out, because you've already payed a healthy amount of taxes.If you are 18 years old, with a $5 an hour job, and go buy a lot of new stuff with that$7500, yes, they MAY find out. How do you think the IRS guys find cases? They have little snitches out there. Their little snitch is at the titty bar, who just saw you blow a grand, and leave in a Limo, guess what? Local IRS guy finds out. BUT, it's only $7500, so I don't think they will be too worried about you, unless their caseload is light, and they had a bad day when they caught wind of all your spending with the lack of income. Good day

master tilter on October 16, 2005

Won over 15K online gambilng from gibraltor.... I am gonna request 2 seperate checks... 7500... .IRS won't find out. Correct?? becuz gibratlor doesnt report.... HOW would the IRS find out??? only if I am truthful.. CORRECT? please hit me back

cris_carter on October 10, 2005

Yes and if you are not a total selfish unresponsible leech on your community, than pay your taxes. Whether we are overtaxed or not, it does go towards some benefits that you are probally currently leeching off of.If you dont like the country you are living in, enough that you are going to drop your citizenship, then you should LEAVE! There are plenty of other places you could go, you can probally have a better time at playing online poker there anyway.

Patriot on September 25, 2005

It's simple. If you are serious about playing poker to make a living and not paying anyone a cent of it, give up US citizenship for starters.A good guide for become tax-free is here:http://www.sovereignlife.com/essays/27-09-04.html. Only do it if you are serious about this and/or if you really disagree with a certain country's ethics, systems, etc as I do.

simple on August 27, 2005

how can the irs get involved with my winnings on ultimate bet? what is the best way to keep track of my losses and winnings?

peaveys on August 12, 2005

I play poker on partypoker.com and i play at casinos and I play amongst friends. The withdrawals from my partypoker account to my bank account exceeds thatt of $40k last year so I was wondering what happens if I don't report taxes?

keeping on August 11, 2005

A few years ago i cashed out twice from an online poker site and received 2 seperate checks and deposited both of them. They totaled about 700 dollars. Now i didn't bother to report that as income in any way. Should i have? What about if i cash out and receive checks this year? Do i report it as poker winnings and how do i determine poker losses? Basically can you get away with depositing checks from one of these sites without getting audited down the road and having to pay tax on it?

kllackus on August 2, 2005

It used to be the case that anything less than 10k being wired into the country would not raise an IRS flag. Now, especially post 9/11, consistent deposits of money form outside the country could be problematic. My husband is a pro, and for online we use Neteller. This way, you can look back at what you have sent to your bank account by EFT for the whole year, add it up, and that's your income. And for those who were wondering, it doesn't really count until you get it OUT somehow--so the money you have on your PokerStars account, for example, is not taxable. It's not income until it is actual, spendable money. Cause at that point, you could still lose everything you've won before it even gets into your hot little hand, see? So all you have to do is use the same intermediary service (like Neteller) and look at your EFTs. This has been effective for us at least. Might be a good idea to put aside 1/3 of your winnings as well, if you don't want a nasty surprise come tax time. If you are strict about it, you may get a "refund" in that you might not have to use all 33%. But that's a good rule of thumb.

underwaterblueAThotmailDOTcom on July 25, 2005

I live in TX, which does not have a state income tax. I am currently a college student, and my only source of income comes from online poker, where ive made about 4 thousand this year. I have not kept track of every session like i think your suppose to. But how should i go about filing for taxes? and would i be classified as a pro, since its basicly like a job to me, and no other source of income. And also how much would i have to pay to the IRS for federal income tax. ty

bigballerguy on June 27, 2005

Hey guys, don't ppost your real email address on the net and then ask about dodging taxes.Not SMART!!

anonymous on April 16, 2005

I'm doing my son's taxes - he's a student and plays online poker. I want to make sure he pays taxes on his winnings, so any advice anyone can give me is great. The site he plays on hasn't sent him any info on how much he won in 2004. Should he just track it the best he can and use that figure?Does he need to report how much he bet vs. how much he won or is it enough just to have the amount he won?By the way - before anyone lectures me on this, I'm far less than thrilled that he does this, but let's pretend a college student listens to his mother for two seconds.Thanks for any help.nancy

nancywoho on April 13, 2005

if i declare myself as a professional poker player, arent the taxes less compared to someone who works a regular job, and earns a little money gambling.im talking about 200-250 K a year.im not sure how to declare myself as a pro poker player.

don yeu on March 25, 2005

Its not true that all income made outside the U.S. is taxable. I work and live overseas and none of my income is taxable, except what is made over 88k.The other catch is if you pay taxes in another country, then you are exempt from U.S. tax.

illwilly on February 22, 2005

I guess I'm screwed because I dont think I'm going to pay ANY taxes from my online winnings... OH WELL!

losinmoney on January 21, 2005

I have been playing poker tournaments at the casino's in Louisiana. They have been withholding the 6% tax for the state. Is this refundable? I have been told that since I do not reside in LA that I can get this back? Any help? Thanks.

moondogie on January 9, 2005

Im from England,UK and I heard that if a brit were for example to win the WSOP main event they wouldn't have to pay any tax on the winnings,due to a tax treaty between the US and UK.Is this correct?and if so...more pro American players should try and get British citizenship??!!

kenko on January 6, 2005

Say I win $3,500 playing online, $500 in home games, and lose $500 at the casinos. Must I itemize the $500 loss and report $4,000 in income, or can I simply report $3,500 in net income and absorb the losses into that figure?

WildBill on November 27, 2004

Can one deduct expenses (books, travel, etc) related to one's poker winnings? If so, does one simply count expenses as a loss or allocate them to sessions?

bob on November 19, 2004

any amount you make is taxable income, period. There are no shortcuts, or removing in small amounts. These will all catch up to you eventually.

Jonathen aka the tax man on November 9, 2004

for online, can't you just withdraw in small amounts (say $500) at a time) and avoid taxes altogether?

slickterp on September 23, 2004

yes, if you live in the United States then any money you make is taxable - no matter where you make it.

OWNER on September 19, 2004

If I win the Aruba Classic, hosted by Ultimate Bet in Aruba (outside of US) and Ultimate Bet is not a US company, would I have to pay taxes on my winnings? Right now 1st place is guaranteed at $1M.

mario66 on September 15, 2004

keeping a log is a good idea. It will show the IRS that you keep track of how much you made.

OWNER on September 11, 2004

Hello, I am inquiring paying taxes on Online Poker winnings. I was if being an internet player I am suppose to keep a log?

crittercage on August 28, 2004

What's the tax effect of winning a seat in a satellite, but not placing in the money? Is the value of the seat counted as income at fair market value, or--I would have to think--both income and an expense, since you're actually using it to gain entry for the real tournament?

Brigid O SF on July 30, 2004

ok, say in a few years i become an online pro poker player, say i make exactly 100 thousand in a year, while following the tax rules, what is the BEST way to pay the least amount of money in taxes, what numbers am i looking at? make 100 thousand and keep 75 thousand of it? i would GREATLY appreciate an email back with a detailed answer explaining everything. Thx

penguinman1950 on May 1, 2004

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