It’s a scene many poker players dream about. One lucky player has outlasted thousands of others and now sits in front of a mountain of poker chips as his friends gather around posing for pictures and celebrating a six-figure score. Champagne will flow and the smiles will go on for hours. Clubs and bars might be visited on Sin City’s famous strip as the celebration continues.

If you win more than $5k you couldn't get away with it because the casino notifies the IRS of your winnings. You can move to another country if they will let you live there - but if it is after you. If you win in a poker tournament in the USA, you have to pay 30% tax on the net profit. As an American, you can get all or part of the $3,000 back if you file for a tax return with the IRS and all of your receipts are sent with it. At least, you will only end up being taxed 30% on your net profit.

But the most important visit for a poker player coming off a big score might be to an accountant, as the tax implications from a win like this can hurt if not handled properly.

The card-playing world is rife with overnight millionaires — young savants who win it big on the poker felt or grind away at cash games earning a nice living. Unfortunately, there are just as many players who see their fortunes plunge after living the high life. In the poker world, the cash can come easy, but keeping it is a different story. With the U.S. tax filing deadline on April 18, PokerNews takes a look at the unique challenges facing gamblers and the best ways to plan for the future.

THE TAX MAN

It’s another scorching day in the Las Vegas desert, but cool inside the Rio as thousands of players battle it out. In the halls of the Rio convention space, CPA Ray Kondler mans a small booth as a couple players ask him questions about their tax liabilities and how best to prepare. Kondler has been in the same location for the last six years — working with players and promoting his firm and its specialization in helping poker players and gamblers. Plenty of players utilize his service and expertise in all tax-related poker matters.

“I love it – it’s so much fun being here. We have a ball,” Kondler says of his time at the WSOP each summer. “We meet so many people. It’s an interesting niche because they’re an interesting group. They’re all the nicest guys, they just need some education. People come up to us and want some free advice and that’s what we’re here for.”

After graduating from Seton Hall and working at Arthur Andersen, Kondler began his own firm 26 years ago in New Jersey working with businesses and individuals. Kondler then bought a practice in Las Vegas, which already had some gambling clients. A poker player himself, Kondler saw the explosion in the game’s popularity in the 2000s and saw an opportunity to grow his firm and help players.

“I play poker and in some World Series of Poker events and realized that there was a good need for a good taxation guy in poker and gambling,” Kondler says. “Now every year it just keeps expanding.”

His firm now boasts several major winners including the Main Event (the most famous tournament in poker) winners and numerous players who have won $4-5 million. The practice, which now also has offices in Las Vegas and San Diego, now also serves as the auditor for seven Las Vegas-area casinos. The firm serves hundreds of professional gamblers (including sports bettors and daily fantasy sports players) that range from $2-5 cash game grinders to WSOP bracelet winners to high-stakes online players.

First and foremost, Kondler’s role is to educate players. Most don’t realize all the opportunities within the tax code to help them in reporting. They don’t know how to keep records, Kondler says, and don’t know which forms to use and when to file. Many players are more focused on their winnings and their next stop on the poker tournament scene than how best to prepare for filing with the IRS.

“Sooner or later, they’re going to need somebody,” Kondler says. “Even the people that cashed today for $2,000. They won’t get a W2G, but because they do have $2,000 in winnings they’ll have to report. But anything over $5,000 they’ll get a W2G, so then they come to us and say, ‘What do we do?’ We also get the random guy who says, ‘I started a business, what do I do?’ so it’s pretty interesting.”

Randy Cowdery is president of Thoroughbred Tax Service and has been a tax accountant in Las Vegas for 15 years. Crowdery also brings a unique insight into the industry. When he was 18 in the mid-1970s, he started counting cards playing blackjack to earn spending money in college. After graduating he only played recreationally, but became a full-time advantaged video poker player for three years after moving to Vegas in 1999. He then decided to put his accounting minor in college to use and become a tax accountant in 2004.

“From the beginning I specialized in gamblers’ tax returns and I now have clients throughout the country and still a few internationally that left the U.S. because of Black Friday (the day in the U.S. when the feds shut down online poker),” he says. “My recreational and professional gamblers include poker and video poker players, horse bettors, sports bettors, and blackjack players. Professional poker player returns have increased slightly in recent years.”

Cowdery says the IRS has never looked favorably at gamblers and they face some unique disadvantages. Because recreational players cannot write off expenses and professional players have to pay self-employment tax, he says, the IRS would like to see losers file as recreational players and winners file as professional gamblers.

“The tax code treats recreational and professional players less than fairly in my opinion,” he says. “Recreational players are supposed to report all their winnings as income before considering losses. The losses are then reported as an itemized deduction on Schedule A. This means their adjusted gross income is artificially high on their tax return. For filers that do not normally itemize they can lose part or all of their standard deduction. If your gambling winnings push your income high enough, you can pay additional Medicare tax and the net investment tax along with having exemptions and deductions phased out.”

Cowdery says all of these “taxes” were meant for households with income above $250,000, but recreational players with income far below that threshold and who actually lost money gambling can be subject to them. Additionally, those on Medicare can see their premiums go up more than triple the standard rate even when they’ve actually lost money gambling.

Professional gamblers are also not treated like all other businesses due to gambling losses — they cannot show a business loss on their tax return.

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“So where Donald Trump can write off his billion-dollar loss over 20 years of tax returns, if a professional gambler loses a million dollars one year and wins a million dollars the next he has to pay taxes on that million dollars without consideration that he lost that the year before,” he says. “What many professional gamblers and even many tax professionals do not know is that the IRS will allow a loss on the Schedule C for business expenses. Just be sure losses do not exceed wins.”

MAKING A PLAN

'In order to be a successful gambler you have to have a complete disregard for money.'

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While that saying by 10-time WSOP winner Doyle Brunson is fitting for many players at the tables, it also describes many players’ spending habits away from the casino and mental approach to taxes and record keeping.

Sadly, stories of players hitting it big and then going broke are common and many somewhat view “going broke” as a rite of passage in the world of poker. In recent years, stories in the news have included WSOP champions selling bracelets or big-name players owing other players hundreds of thousands of dollars. No doubt, being in arrears to the IRS is a problem some may also face, and some simple planning could helps players avoid some major headaches.

Brunson, who now lives in Las Vegas and has only had two losing years in 61 years playing poker, still plays at some of the biggest buy-in cash games in the world even at age 83. Brunson has made tax preparation and financial management a key part of his life in the game. Many players are extremely leery about discussing taxes, finances, and the IRS, but Brunson offered his general philosophy on the matter to The Accountant.

“The best advice was given to me by Johnny Moss,” he says, referencing another famous Texas poker player who won the first two WSOP Main Events. “Moss said: ‘pay your taxes and invest a small part of your bankroll. Money sitting in lockboxes does you no good, so bite the bullet and pay your taxes.’ That is sound advice and I recommend the same thing. Good luck!”

For poker players and other gamblers, Kondler offers two main points of advice to his clients. First, track everything and leave a paper trail. Whether it’s tournament buy-ins receipts, cash game log books, ATM receipts, or credit card purchases, a player must make sure he or she can prove losses and expenses because it is extremely difficult to piece together an entire year two or three years later in a potential audit.

Second, Kondler notes a bit of common sense — that taxes do not go away. If someone owes money to the IRS, state, or international tax agency, that burden will not go away if ignored. Players must properly plan each year to ensure they can make the necessary payments if necessary.

“Documentation is the main issue faced by players,” Kondler says. “Many of our new gambling clients come to us and have very little in the form of documentation for wins, losses, expenses, money they lent out, et cetera. It is challenging to address IRS notices or even potential audits without proof that any of these things occurred. It is critical to document your play in order to prevent any future hassle.”

Cowdery agrees and notes that it is important for professional gamblers to keep track of every expense and expenditure. Players must treat their “action” more like a business to satisfy taxing agencies in case of an audit or inquiry.

“The biggest problem with gamblers during audits is not having logs,” he says. “The IRS loves logs. They want mileage logs and gambling logs. A mileage log is the best method for a professional gambler to substantiate those miles related to gambling. They also want your mileage for the whole year, so jotting down your odometer at the beginning of every year is important. Of course maintaining a mileage log can be a real pain which is why so many people don’t keep one.”

A gambling log is the primary record that the IRS considers when determining wins and losses. For taxes, this log is important for both recreational and professional gamblers. The log should be contemporaneous – meaning it is updated it at least daily when gambling – and should show date, time, place, wins, losses, and any other information such as a person’s name, machine, or table number to substantiate the log. Cowdery notes that ATM receipts, markers, and win/loss statements are good secondary items.

Another obstacle faced by professional gamblers is that the IRS says mileage to a player’s first location and from his or her last location is considered commuting miles and not deductible.

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“There is a way to get around that for professional gamblers,” Cowdery says. “When a taxpayer does not have a regular business location, and typically gamblers do not, then if the taxpayer has a home office that qualifies as your principal place of business and all mileage to and from business locations, casinos, become deductible. But be careful, the IRS considers a home office as a place that is used both regularly and exclusively for business.”

Some players also have unique income possibilities exclusive to poker. Many players often “back” other players in tournaments and even in cash games by buying a percentage of their action. Any winnings derived from the other players’ performance must be included in tax filings. Other considerations include sponsorships and other new types of betting income such as daily fantasy sports, which has become more popular in the U.S. and in other countries.

Beyond tax filing and documentation, Kondler attempts to do more for players by helping them establish long-term saving goals through traditional savings and investment accounts. He also helps highly successful players set up corporations to better work within the tax system. The firm also determines if a player is a player is a pro or an amateur to best file the player’s tax return.

“We try different strategies with players. I have all my investor licenses so we have millions of dollars that we manage every day in the stock market,” he says. “I try to get the guys into 401(k)s and pension plans and things like that. A lot of players win and they don’t keep the money, they go and buy into other guys. We tell them, ‘Hey, I can put the money away for you and manage it.’ A lot guys who theoretically make a lot of money, when we ask them to pay taxes, they don’t have it anymore. Anybody can do a tax return, but our job as a CPA is to teach them other things like how to save money for the future.”

GLOBAL CHALLENGES

Poker is a global game now, and the 2016 WSOP featured players from 107 countries looking for their chance at poker glory. But winning big money can turn into a tax nightmare for some foreign-born players.

A foreign player who cashes in an event will receive an IRS 1042-S, which is used to report money paid to foreigners in the U.S. that are subject to income tax withholding. The form must be filed even if nothing is deducted and withheld from the payment because of a treaty or if any amount withheld was repaid to the payee.

The problem, Kondler notes, is that U.S. tax treatment for players from other countries completely depends on the country of residence/citizenship. The U.S. has tax treaties with certain European countries that state gambling winnings won in the U.S. are immune from U.S. taxation. The money won must be claimed in the country of residence/citizenship, but no taxes are due in the U.S. However, there are only 28 countries worldwide that benefit from gambling-based tax treaties with the U.S., so the rest of the world will automatically have 30 percent withheld from their winnings, and many do not know how to get those refunds returned.

“This is where we can provide assistance to players,” Kondler says. “We can prepare U.S. tax returns for players that net their total winnings against their total losses. For instance, if a player wins $100,000 in a tournament they will automatically have $30,000 withheld by the U.S. government.

“However, let’s say the same player actually had $50,000 of U.S.-based tournament buy-ins, losses, or expenses in the same year. We will file a return that shows the correct net win of $50,000 and the player is only taxed on that amount at the applicable U.S. tax rate, instead of being taxed on the entire $100,000 win. The player is then sent a refund in the form of a check when the process is completed.”

Many players may not realize that this is an option to get back some of those withheld funds. And with so many players making their way to Las Vegas from other countries (last summer’s WSOP featured more than 107,000 entries), this is a tax situation affecting more and more players.

Planning and keeping records are so important for players, Kondler says. A bit of preparation can not only help save money that should not be going to taxing authorities, but save some headaches.

“Do your research,” he says. “Reach out to a tax professional if you have any questions about your tax situation. Do not wait until the end of the year because there are things you can be doing now that will end up saving you money in the long run.”

Sean Chaffin is a freelance writer in Crandall, Texas, and writes frequently about gambling and poker. If you have any story ideas, please email him at [email protected] or follow him @PokerTraditions. His poker book is RAISING THE STAKES: True Tales of Gambling, Wagering & Poker Faces and available on Amazon.com.

Contents

Gambling Winnings Subject to Tax?

With all sports betting, casino, poker, daily fantasy, and state lotteries, is the government entitled to a fair share? The most accurate answer is, you can bet on it. While that fair share might cause you to grumble under your breath, the fact is gambling winnings are taxed.

Now, you might wonder if you can use your losses at the table or on the ballgame as a write-off. Here is a detailed guide that addresses all your questions about taxes on gambling. We’ll discuss how winnings are taxed, some state and federal requirements, plus which forms you need to use to report gambling income.

How Are Gambling Winnings Taxed

Answering the question about how gambling winnings are taxed involves looking at different situations. Of course, the guidelines for the federal income tax process are standard across the country.

States have various tax structures, so you need to inquire about those for the state in which you file your state taxes. Here is an overview of both federal and state guidelines for how gambling winnings are taxed.

The first thing to know is the difference in how you generated your winnings. If you win over $600 at the horse track, $1,200 on a slot machine or in a bingo game, $1,500at keno, or $5,000 or more at a poker table, you must report these winning to Uncle Sam.

For this reason, most tracks and casinos require your Social Security number before you’re paid out on any big cash win. You also must complete an IRS Form W2-G, and report the amount you won on this form.

You might immediately think this is all overkill because, in most instances, a casino is going to deduct 25% before they pay out your winnings. You’ll get a receipt, of course, since these monies will be earmarked for the US Government Treasury.

Now, what if you win an amount of money gambling that is less than those previously listed? According to the IRS, you are legally obligated to report these winnings as income on your federal taxes.

To be on the safe side, always report the money you win gambling, whether it’s on a horse, a puppy, a spill out from a slot machine, or big pot when you’re holding a royal flush. Gambling income is taxed federally.

Many states with an income tax will also require you to report winnings, especially those where casinos and sportsbooks are becoming legal. Of special note, the only state for years where casino gambling was legal, Nevada, did not tax gambling income. Check with your state to determine whether you need to report your winnings.

There are often questions about how any money you win gambling online can be taxed. Online gambling taxes do have a few gray areas. Many of the current gambling venues are striving to offer online sportsbooks, so this type of gambling and how taxes apply is important.

What the IRS does is specify what is taxable and what is non-taxable income. In the world of daily fantasy sports, there are players who essentially earn their living by playing DFS contests. In these instances, you should take precautionary steps when it comes to taxes and your winnings.

Same concept will apply if you are in a state that eventually allows online sports betting through a sportsbook. IRS Publication 525 explains in detail what constitutes taxable and what is deemed non-taxable income.

Gambling Winnings will rarely fall under the category of non-taxable, so be prepared to treat online winnings from any type of gambling in the same manner you handle any money you win at a physical casino or sportsbook.

But, How Will They Know I Won?

One of the huge motivating factors behind states’ eagerness to legalize sports betting is the lucrative potential of such operations. Every state that allows casino gambling, or promotes a statewide lottery, has these same financial aspirations.

To risk that the IRS or state government won’t find out about your gambling profits is taking a gamble bigger than the risk you take to bet in the first place. Obviously, the state is going to know about every ticket that wins in their own lottery. Be confident that the federal government is going to get word of those winners as well.

When it comes to gambling, each state has some form of a gaming commission that oversees all operations. One of the stipulations to get a licensed casino is that all winners will be reported. To think that you might somehow circumvent this reporting process is naive.

If you do ignore gambling winnings when filing your taxes, you could be pursued for tax evasion. The consequences of being found guilty of tax evasion for failure to report gambling or lottery winnings is the same as if you attempted to evade paying taxes on any other earned income.

Report your winnings, because you won’t like the consequences of not reporting them. Casual gamblers can get by with a few receipts. One disadvantage of keeping limited records will befall you if you get lucky and win big.

Without strong receipts for previous losses, you will be unable to document these as deductions to offset the taxes leveled against your winnings. For anyone who takes pleasure in gambling frequently, keep your receipts and maintain at least a basic ledger of your gambling activity.

You don’t need to account for every nickel pumped into every slot machine, but documentation of total wins and losses will prove helpful when submitting your tax documents. Here are two of the basic IRS forms used to report winnings from gambling, including the standard personal income tax form.

• U.S. Individual Tax Return 1040
• IRS Form W-G2 Certain Gambling Winnings

Maintaining good records of your gambling activity will allow you to itemize your losses and deduct them from your final tax bill. However, you can also apply the same tax withholding structure for your gambling winnings that you apply to other types of income.

The income tax rate is 24% on all types of gambling profits, but there are certain sources of these winnings that are automatically subject to withholding tax. Follow the IRS guidelines to have a preset percentage taken out of your winnings.

This will not only help you avoid mistakes due to lapse in memory but can also eliminate being hit with a huge tax number at the end of the year. Here are some more frequently asked questions about gambling winnings and paying taxes on them.

Frequently Asked Questions About Gambling Winnings and Taxes

Here are some frequently asked questions in relation to gambling winnings and taxes.

1. Are you required to pay taxes if you win gambling at a physical casino?

The short answer is yes. A lengthier explanation simply involves the previous example discussed in how gambling winners are taxed. The law specifies that you must report all income from gambling games of all types.

While the guidelines on when that income becomes taxable are different for various games, the rules read that you must report all winnings. That will include any money you win at a physical casino, including an online sportsbook. Remember, you can always counter winnings by reporting losses as well. Keep your records organized.

2. Do you have to pay taxes on the money you win gambling online?

Again, the blunt answer is yes. Since the federal government, and many state governments for that matter, deem winnings from lotteries or gambling to be more than just good fortune. They are income that you generated by actively trying to obtain that money.

The IRS doesn’t care that you open up your handheld device to play a slot machine trying to dispense some extra change in your account. If the online slot machine produces a winner, they want their cut.

3. Do you owe taxes if you win playing daily fantasy sports games?

Not to sound redundant, but the answer again is yes. Be mindful, that to comply with federal law, daily fantasy sports providers are going to document your winnings. Any attempt to try to evade paying taxes on DFS winnings might land you in hot water with the IRS.

As with all other types of gambling, report your DFS winnings as well. DFS websites such as DraftKings and Fanduel will report winnings, especially big-ticket tournament winners. Again, federal law mandates reporting all income, including DFS prizes. Check with your state government for reporting requirements there.

4. Do you have to pay taxes on gambling winnings even if you’re not a resident of the United States?

While this question involves a little wider degree of supposition, the answer is still an emphatic yes. Even nonresidents who win at casinos or with a winning lottery ticket must pay a percentage to the federal government. Nonresidents who win at a casino must complete and submit IRS Form 1040NR.

5. Can gambling losses be written off on your tax return?

The first step is to report some amount of winnings from your gambling. This is why a ledger of your gambling activity can be useful. Once you acknowledge your winnings, you can itemize deductions for all your losses as well.

6. Do you still owe taxes if you leave all your deposits and winnings in your account?

Just because you do not make any withdrawals during a tax year, that does not negate the fact that you won. If you won money gambling during the tax year, it is a wise decision to record these winnings, and then report them according to the guidelines mentioned.

7. Are team or group gambling bets still taxed?

The same tax system that is applied to individual winnings earned from gambling, applies to any money you may win as part of a betting team. If you bet using the team concept, it is recommended you keep detailed records. The consequence is to be hit with a tax for the entire cash payout when you actually only received a percentage.

8. When you’re retired, do you still need to report winnings from gambling?

A large percentage of the casino gambling community is retired persons. You may think that since you’re retired, or on some form of fixed income, that you may not need to pay taxes on any money you win.

In all honesty, you can even be hit with a tax for winning a big bingo jackpot. If you’re retired, reporting gambling winnings can be even more important. By not reporting your gambling winnings, you can create a number of headaches for yourself.

You can be bumped into a different tax bracket, or have your medical coverage and premiums changed because of unreported income from winning at the poker table. Be dutiful with your gambling activity, especially if you’re enjoying your retirement years.

These are the basic principles of how gambling winnings are taxed. The most important principle to follow is to always report your winnings. When the alternative is to get hit with a surprise tax bill, honest consistency is the best policy.

Maintaining good records is also a worthy suggestion. Receipts can be used to itemize and deduct losses, plus you’ll know in advance how much tax you will owe on any winnings. While it might seem frivolous to keep records if you only gamble occasionally, there is always that possibility you hit a big cash jackpot.

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