Poker Tax | How to Do Your Taxes as a Poker Player
Every poker player respects the top professionals such as Phil Ivey, Daniel Negreanu or Justin Bonomo. But the taxman is the most important player at any table, and knowing what you need to pay and when as a poker player is vital. Tax on poker winnings varies by state, so understanding it is crucial for maximizing financial gains from the game.
In this article, we’ll discuss what counts as taxable income, how to keep records of your real money online poker sessions for tax purposes and how to calculate your net winnings. We’ll also cover deductions, expenses and the tax forms that you’ll need to use, as well as breaking down what to pay in each U.S. state. We’ll then provide you with a brief summary of everything you need to do to calculate and pay your taxes as a poker player, keeping you on the best side of Uncle Sam at the poker felt.
What We Will Cover on This Page
Explaining Poker and Taxation
Even gamblers have to pay tax and avoiding it is illegal. You must report gambling profits or losses on your tax return, whether you win or lose, and you can choose from various forms. If you’re a non-resident, then the form you’ll need is a 1040-NR, with gambling income generally taxed at around 30%. This is different if you’re from Canada, where an exception is provided after a special agreement between the United States and Mexico, also known as a tax treaty. If you’re Canadian, then U.S. poker taxation means that you’ll generally be able to deduct your gambling losses, which we’ll come to later.
The U.S. taxes not only poker but also other forms of gambling. Casino games, slot machines, lotteries, sweepstakes, betting pools and bingo all feature as gambling pursuits that are taxed, and the form is usually the same one a poker player will need, a W-2G form or 1040 depending on how much you earned. You can request either of these online and your chosen form should be sent to you by January 31st of the year following that in which you earned your gambling income. Even if you don’t receive a form, you’re still obliged by law to report all gambling winnings, and a flat tax rate of 24% is typical. This, however, changes in different states, and you can locate a map of the different states and tax bands that are applicable here.
Poker Tax Applies to More Than You Think
As a general rule, if you make over $5,000 by playing poker, you’ll need to fill out a W-2G form for big wins or Form 1040, where you should use Schedule 1, including the total amount on line 8. Federal income tax withholding can apply to your winnings. Therefore, make sure that you check the right area for where you reside and follow the legislation explicitly. Taxation applies to more than cash prizes, including both live and online winnings. If you win a spot prize or a major prize that comes instead of a cash amount, such as a holiday or flat screen television, then you’ll need to add the value of that non-cash prize into your calculations.
Once you’ve filled in your Form W-2G for Certain Gambling Winnings, it will need returning by April 18th of the year you’re due to hand it in. There are penalties for late-filed returns, so keep on top of your tax throughout the year and keep detailed records, including expenses and deductions, which we’ll discuss in a bit more detail later in this article.
What Counts as Taxable Income for Poker Players?
Taxable income doesn’t just refer to online or live earnings from poker. It refers to everything. Any winnings from live cash games and tournaments, or online poker in any form count. This means you should keep accurate records of your poker winnings and losses. It’s highly recommended that you consistently do this, rather than letting anything build up.
Doing that might tempt you to overlook losses or prioritize winnings at a certain game level, forgetting past high buy-in attempts. Be sure that the IRS will not forget and are sure to be across all your poker wins and losses, especially given how co-operative the poker sites such as PokerStars or GGPoker are in an online poker climate now a dozen years past the Full Tilt Poker scandal. That closed down poker for a decade until state-by-state, America could start to re-open its boundaries to online players.
Accuracy is Paramount
It is important to be accurate in filling out each form. Where it asks for how much money you have invested in poker, and how much you have earned, be sure to include every buy-in, as well as re-entries, add-ons, top ups to your account during cash game sessions and anything else in-between. The IRS requires you to itemise the dates, type of game, names and addresses of the establishment and amounts of profits and losses.
Other poker players can easily track online poker winnings. So, don’t doubt that the IRS have access to the numbers too. Be sure to know that if you declare yourself as self-employed – which doesn’t apply to most poker players – it is considered regular earned income and taxed at the usual rate, as if you were running any other business. You can deduct gambling losses as expenses in this case.
If you’re filling out a W-2G form for big winnings, then you should also know that gambling losses are deducted on Schedule A as a “miscellaneous deduction”, so are not limited to 2% of your gross earnings. Essentially, this means that you can deduct all losses up to the amount of your winnings. Rather than only the amount over 2% of your adjusted gross income.
Withholding Tax Payments
Withholding tax is based on the assumption that you won’t earn the same in the next tax period. In a regular profession, this could mean winning a big freelance contract that you may not achieve for another year or two. You wouldn’t pay tax on the next period that equates to the amount due on the money you’ve made because you are not projecting the same level of financial gain in the period to come.
When you apply that principal to poker winnings, you’re saying that the money you just won – perhaps a big tournament win or a successful shot at higher stakes than usual at the cash game tables – will not likely come again so easily. This is almost always the case, of course. Even the most successful poker players in the world have downswings as well as fertile periods. So, if you win a large amount of money which steps way outside your expected profit, you can withhold a tax payment on that understanding.
Its not only poker players who can withhold taxes, however. Casinos can withhold winnings if federal agents or tax representatives instruct them to do so for players with tax debts. As a general rule, a rate of 24% on winnings over $5,000 are usual.
Deductions Due to Expenses
A poker professional can deduct a variety of monies from the gross amount of tax owed. These deductions include travel expenses, tournament fees, and other related costs associated with playing poker, not limited to those.
Any player who fills in a Schedule C form can claim expenses, with a standard mileage expense of 65.5 cents per mile in 2023. There are a lot of other expenses you can claim. From a computer you use to play online poker to travel expenses and overnight stays if you run deep in a multi-day tournament.
When it comes to claiming expenses, the important thing is to always keep receipts. There are a wealth of expenses that can be claimed to deduct big numbers from your gross taxable total, but you will need to prove these numbers if the IRS come calling.
Hiring a Professional
You wouldn’t fix your own electrical circuits if the house started shorting out, so why would you do your own taxes when there are qualified professionals out there who can go through your tax return with a fine-tooth comb? Tax professionals are valuable for breaking down taxable winnings, deducting losses, and filing accurate tax returns promptly.
You can work with an enrolled agent (EA) or – more commonly – a certified public accountant (CPA) to work out your taxes, but make sure that you don’t leave it until the last minute. They’ll be booked up close to the tax deadline, so approach tax professionals ahead of time and make sure you’re not chasing a last-minute return.
Tax professionals won’t just help you arrange your payment. They’ll sort out the tax code you need to use, the forms you need to fill in and break down any hidden areas where you could save money that you may not have considered. Poker players who hire tax professionals often save more money than the cost of hiring the help initially.
A Poker Player’s Tax Checklist
Below are a half a dozen reminders of what you need to do as a poker player when it comes to paying your taxes.
1. Establish Your Tax Location
Checking your location is paramount, because different states have different rules for paying tax on your poker winnings.
2. Make Notes of Your Profits and Losses
Keeping a notebook is very old-school but certainly helps to keep a physical copy of your results or sessions. You can use an app, with Poker Income Pro one of the most popular ways of tracking everything you need to, including expenses, profits, losses and deductions. Regularly back up your digital device and maintain a precise mileage log for poker tournament travel.
3. Prove Expenses
Collecting receipts for all expenses is time-consuming, but only if you leave it to the last minute. When it comes to online or bricks-and-mortar poker venues, proving what you can claim is the essential point to remember.
4. Fill in the Correct Forms
Every poker player has a responsibility to make sure that they use the right form. Consult a tax professional if unsure and submit the forms well ahead of approaching deadlines.
5. File Your Tax Return on Time
Check when your tax return is due in your region and make sure that you stick to it. There are punishments for late payments, so be mindful of when and where you are required to post your return.
6. If in Doubt, Hire Help
Hiring a tax professional is highly recommended for any poker player. Determining your due amount is complex and if you feel like you need assistance, then look at bringing in an EA or CPA for help. There is no shame in seeking tax return support, whether for one year or the future.
While we’ve researched this advice, it serves as an informative tool to assist poker players and should not replace professional tax help. Tax attorneys regularly help poker players file their taxes. Before filing, consult a specialist if you’ve won money gambling to ensure an acccurate tax return.