If you’re considering playing poker for a living, you must fully understand the tax system. After all, gambling professionally is a job like any other, whether you’re playing online poker or betting on sports.
In this article, you’ll learn how to calculate the tax due from your poker winnings. More importantly, you’ll also find a step-by-step guide to filing a tax return with the IRS.
Should You Pay Taxes on Poker Winnings?
In the USA, all gambling is taxed. The only distinction you need to make is whether or not you’re gambling professionally. If your poker earnings make up most of your income for the year, you’re considered a professional.
In that case, you should use Form 1040 — the U.S. Individual Income Tax Return — to file your taxes. However, if you’re an amateur player who just happens to have made a profit, submit your taxes using Form W-2 G, entitled Certain Gambling Winnings.
Tax Rates
The federal gambling tax percentage is 24%. Luckily, that’s a flat rate, regardless of whether you win a multi-million dollar lottery jackpot or make $100 playing bingo. But when it comes to paying gambling taxes, poker is certainly not exempt.
However, if you’re living the life of a professional poker player, you’ll pay income tax on your winnings instead of the standard gambling tax. As such, you’ll need to consider the current income tax brackets, which range from 10% to 37%, depending on how much you earn.
Don’t forget that most states levy their own taxes, too, so be sure to look up your local rate. If you live in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming, there’s good news: you don’t need to pay gambling taxes.
What Constitutes Winnings in Poker?
To work out your taxes, you’ll first need to understand what is meant by “winnings” from gambling. When playing cash games or poker tournaments, keep a log of your prize money, but don’t forget to subtract your buy-ins. You’ll only pay tax on your profits, not the cash spent to sit in a game.
If you win non-cash prizes, like a holiday or a car, this is also taxable. You must find a fair market price and apply the tax rate accordingly.
Are Gambling Losses Deductible?
Tax deductions can only be made on winning amounts. For instance, if you earned $1,000 from a tournament but spent $100 in the process, you can write off the $100.
However, losses over the winning sum may not be deducted. So, if you’d spent $1,200 to win that same amount, you could only write off $1,000.
Reporting Your Taxes to the IRS
Whenever you win more than $5,000 from a land-based casino or poker room, you should receive a Form W-2G. The relevant tax will automatically be withheld at the standard 24% rate. Keep the documentation for your records.
For online poker earnings and other profits, you’ll need to submit a tax return to the IRS before April 18th. You’ll be penalized for submitting it late, so don’t delay. Keeping detailed records throughout the year will help you stay on top of things and submit a timely tax return.
Here’s a step-by-step guide to filing your IRS return.
Collect Your Documents
First of all, you’ll need to gather all of your documents from the past year. Any time you took a payment from a casino or poker room, you should’ve also received paperwork. In addition, you may be required to submit bank statements to back up your tax return, so have these to hand.
Estimated Quarterly Taxes
Look into the concept of estimated quarterly taxes. This allows you to spread the tax burden over an entire year, mitigating against surprises. Given the volatility involved in playing poker for a living, this might be something you want to do.
Calculate Profits
The most challenging but crucial step of paying your taxes is determining your net profits. You’ll need to go through every single tournament or cash game session you’ve played and total up the profits and losses. Land-based venues will provide a W-2G as you go along, but transactions at online gambling sites must be manually collated.
Since that is a cumbersome task, it makes sense to invest in poker-tracking software to assist you. Keeping detailed records as you go makes life much easier than trying to figure out a whole year’s worth of play in April.
In addition, if you earn a lot from poker, you may wish to consider hiring an accountant to help you out. One simple mistake could result in a huge and unexpected tax bill if you’re earning sums of six or more figures.
Determine Deductions
Once you’ve figured out your profits, it’s time to consider tax-deductible expenses. Any reasonable and necessary cost can be deducted. For instance, if you’re playing online and your chosen casino payment methods apply transaction fees, you can reasonably deduct these from your tax bill.
Other examples of business-related expenses for a professional player include:
- Travel to and from the casino
- Purchasing materials like cards, chips, or a poker table
- Tournament buy-ins
- Food and drink during games
A point of debate is whether or not tips for casino dealers are tax-deductible expenses. The courts have examined several cases, concluding that all ordinary and necessary expenditures can be deducted. Since tips are expected throughout the United States, this is an expected and necessary expense. Therefore, it isn’t unreasonable to remove tips from your tax bill.
File Your Return
Now that you have everything you need, all that remains is to submit the form. Make sure you do so before the deadline to avoid penalties. It may also be worth investing in specialist software like PokerTaxPro or TurboTax to help you with the submission process.
Eligible taxpayers can use IRS Free File to complete their forms online. This uses guided tax preparation software that’s both helpful and free.
Poker Doesn’t Have To Be Taxing
If you want to play at an online casino for real money, whether it’s poker, slots, or table games, things don’t have to be taxing. Simply register at Borgata Online and enjoy a hassle-free gaming experience that makes life nice and easy.
From the quick signup process to the site’s intuitive and user-friendly design, this casino won’t hurt your head the way filing can. Enjoy dozens of daily tournaments and play cash games at various stakes — not to mention hundreds of the latest video slots, including progressive jackpots.