It’s quite challenging to get excited about taxes. But for poker players, this week’s podcast has something to be excited about: A clear breakdown of how to pay taxes as a poker player.
If you Google for the answer, you’ll get lots of conflicting and jumbled advice from a variety of experts and amateurs. It’s enough to leave you wishing you could sit down one-on-one with a tax attorney who has experience doing taxes for poker players.
Luckily for our listeners, coach Doug Hull’s associate Ray Kondler from Kondler & Associates CPAs is a poker accountant extraordinaire. He’s been doing our taxes here at Red Chip, as well as Hull’s personal taxes, for many years. His firm is known as one of the leading tax processors for poker players across the country. He was kind enough to sit down with us and discuss the ins and outs of what the government needs to hold from your hold ’em profits.
Ray discusses the pro vs. recreational concept as it relates to taxes, US Taxes for non-US players, and other important details that every poker player should know.
How Do I Record My Results?
The easiest way to record your online poker results is with tracking software like PokerTracker 4 or Holdem Manager 3. For live poker players (cash and tournaments), we recommend using the Poker Stack app.
Simply take your results directly to your accountant at the end of the year and don’t sweat it.
How Do I Report My Winnings & Losses?
An amateur who doesn’t play poker for a living will generally file as an amateur under 1040, meaning they show their gambling winnings on the ‘Other Income’ line of the 1040 form, and then, as an itemized deduction, deduct their gambling losses against their winnings.
Remember that the IRS and the casino share information about W2-Gs that are issued (mostly to jackpot winners), so while you can claim gambling losses against these wins, make sure to include all your wins on your tax forms. Otherwise you’ll get a notice from the IRS in the mail, as they do check to see you’ve included major wins.
If you’re a professional poker player doing it for a living, your process will be different than the amateur. You’ll file a Schedule C to report your income as a self-employed individual. Whereas an amateur can only count gambling losses against wins, the self-employed professional can deduct a great deal more expenses: office expense, meals, travel, poker training memberships, and books, etc. If you are winning a lot playing poker, and you find yourself racking up expenses like these, it’s the best way to reduce your tax liabilities. The downside is that self-employed individuals are liable for Social Security (whereas amateurs are not). So you always have to weigh that additional liability vs. income earned.
The other important consideration is how long you play poker. Kondler notes that 15-20 hours of play per week can be enough to qualify as “professional poker player”.
Mortgages & Loans
Every year, Kondler’s firm runs a booth at the World Series of Poker, and every year, multiple players ask him how to get their taxes handled properly in order to qualify for a mortgage or loan. It’s not uncommon for a player to have a bad year, file as an amateur, and then have a great year, and want to invest that money. Unfortunately, unless you’ve been reporting as self-employed for a while, you will find a tough time convincing a bank you’re good for it. So it’s important to plan for all future possibilities, and file your taxes according to long-term goals as well as your short-term performance.
Kondler is increasingly forming Corporations for pro poker players to offset some of the Social Security liability. Up-front, it’s more complicated to set up, and more complex to administer, but long-term, this structure can offer significant savings. Otherwise, you’ll likely be filing as a sole proprietor like most self-employed people. Additionally, sole proprietor Schedule C filings tend to get audited more than filings from a corporation.
A lot of people don’t think about taxes until they bink a big tournament. Then, all of the sudden, they are looking at 15.3% Social Security tax. You can see how this situation can be tricky to say the least, whether or not you have 100% of your own action. Also, if you swap action, make sure to take copious notes so you are prepared for tax season.
Recordkeeping for Poker Players
Kondler urges professional players to keep a daily log of all their poker activities and related expenses. He notes that according to the IRS, every time you sit down at a poker table is counted as an individual session, and you are required to have a record of every session you played.
Now, we hope you’re not making the age-old mistake of squandering your poker profits at table games. But if you are, you should be keeping a close record of the table games too — remember, you can count those losses against your poker wins.
Keep your tournament receipts, ATM receipts… anything that shows you were where you claim you were at the time you claim you were there will count as “support” for the IRS in the case your claims are questioned in an audit.
Foreign Winners on US Soil
If you win in the US, you will be liable for taxes no matter where you’re from. Kondler notes about 30 countries have treaties with the US specifically dealing with this scenario.
If you win over $5,000 from a country without a treaty, 30% of the gross winnings will be withheld for taxes.
Kondler details a few other hassles with foreigners paying taxes in the US. Hull points out that this is useful info when playing versus foreigners in a casino, because if they understand the tax liability and hassle, they may settle for a prize under $5,000 just to simplify matters.
If you’re a New York resident that ships the Main Event in Las Vegas, you will still have to pay New York state income taxes. That is no small issue when you realize Nevada has no state income tax. Thus, if you’re going to win big, Kondler suggests looking into getting a condo, time share or other legal residence in one of the 7 states with no income tax. Kondler mentions a few more wrenches states can throw into the mix — for example, Massachusetts does not allow losses to be deducted (for amateurs), and California will take a small percentage of winnings from your gross and make you file to get it returned.
If you want more information, Kondler invites you to contact him to learn more at RKondler@kondlercpa.com