In the world of professional poker, there are a lot of misconceptions about how taxes work. Many people assume that because poker is considered gambling, winnings are tax-free.
However, this couldn’t be further from the truth. In fact, professional poker players are required to file taxes just like any other self-employed individual. In this article, we’ll take a closer look at how professional poker players file their taxes.
The first thing to understand is that professional poker players are considered self-employed individuals. This means that they must pay self-employment taxes on their income, which includes both winnings and any other income they generate from playing poker. Self-employment tax is calculated as a percentage of your net income (i.e., your income minus any allowable deductions).
One important distinction for professional poker players is the difference between “professional” and “recreational” gambling activities. The IRS defines professional gambling as an activity that involves “carrying on a trade or business as a full-time activity.” This means that if you’re playing poker as your primary source of income, you’re considered a professional gambler in the eyes of the IRS.
As a professional gambler, you’re able to deduct certain expenses related to your business activities. These might include travel expenses to tournaments or other events, equipment expenses (such as purchasing new cards or chips), and even coaching fees paid to improve your skills.
It’s important to keep detailed records of all these expenses throughout the year so that you can properly deduct them when it comes time to file your taxes. Many professional poker players hire accountants or tax professionals who specialize in working with gamblers to help them navigate these deductions and ensure they’re filing correctly.
Another key consideration for professional poker players is state taxes. Depending on where you live and play, you may be subject to state income tax in addition to federal self-employment tax. Some states have lower tax rates than others (Nevada, for example, has no state income tax), so it’s worth considering the tax implications of where you choose to live and work.
When it comes time to file taxes, professional poker players are required to report all of their gambling winnings on their tax return. This includes not only winnings from tournaments or cash games but also any other income generated from gambling activities. The IRS requires that all gambling winnings be reported as “other income” on your tax return.
Professional poker players may also receive a Form W-2G from the casino or card room where they played if their winnings meet certain thresholds. This form reports the amount of the winnings and any taxes withheld by the casino. It’s important to include this information on your tax return so that you don’t run afoul of the IRS.
In summary, professional poker players are required to file taxes just like any other self-employed individual. They must pay self-employment tax on their net income and report all gambling winnings as “other income” on their tax return.
It’s important for professional gamblers to keep detailed records of their expenses and consider state taxes when choosing where to live and work. With proper planning and guidance from a qualified tax professional, filing taxes as a professional poker player can be relatively straightforward.
