Taxes are one of life’s few constants for US citizens, and while it is a thorny issue for gamblers, there is no way of circumventing the laws. It can be a bane for those who like to frequent casinos and play poker. For most, it is something they probably don’t want to talk about or don’t feel comfortable divulging information on.
However, filing taxes is something US players are compelled to do, and you can’t skirt around it. If you find the subject of gambling taxes mind-boggling, this guide will come to your rescue. We have outlined the most important factors you need to take into consideration and provide an overview of how to file your taxes correctly.
How gambling winnings are taxed
You may be wondering what constitutes gambling winnings. In the case of poker, this will emanate from any money generated by players through participating in cash games or tournaments. Remember at this point, you will need to subtract any buy-ins or rakes from the total prize money won.
Anyway, the federal tax gambling rate is set at 24%. Those who play poker in a professional capacity will only pay income tax on the winnings they have accrued at the poker table as opposed to adhering to the standard gambling tax. Most states will also levy their own local rates, so that is something you also ought to keep at the forefront of your mind.
If you manage to win more than $5,000 from a land-based casino or poker room, you should be given a Form W-2G to fill in. This can be found in the section pertaining to gambling income on the IRS’ official site. Land-based venues will generally give players a W-2G to complete, however, at online poker sites, transactions will be manually collated.
As you will see later on, having detailed records is necessary to keep on top of outstanding taxes that need to be paid.
Calculating Poker Profits
This is arguably one of the most challenging steps in the process. When reporting gambling winnings, you may be required to pay an estimated tax on any additional winnings that may be amassed.
All gambling winnings must be submitted via Form 1040 or Form 1040-SR, and if you are a high roller, you may wish to hire an accountant to help you with calculating your profits.
Figuring out deductions
Once you have calculated any profits you have made from poker winnings, it’s time to turn your attention to tax-deductible expenses you can claim. For pro players, reasonable business expenses can include anything ranging from travel to and from the casino, purchasing materials such as cards or chips, as well as tournament buy-ins. If you are looking to turn pro, and want to know how to pay taxes on your poker winnings, recognizing tax deductible expenses is something you should be aware of to get the most from your time spent playing at a casino.
Insofar as playing online poker is concerned, transaction fees incurred may be included as a deduction for your prospective tax bill. Once you have collated all the information, you will be ready to submit the requisite forms.
Keep a log of gambling activities
While it might seem like a cumbersome task, keeping a running record of winnings will greatly assist in figuring out what poker-related taxes you will need to pay. Nowadays, there are state-of-the-art poker tracker software packages, such as PokerTaxPro and TurboTax that will do the groundwork for you which is handy, especially if you prefer to do things online rather than rely on handwritten notes.
Indeed, maintaining a log will make things eminently easier when you submit your form. Just make sure you meet the deadline, otherwise you could be liable to paying a financial penalty.
Rules for Nonresident Aliens
If you reside outside of the US, then you will still be obliged to file a tax return for any gambling winnings made from playing poker in the US. This will be in the form of a Form 1040-NR along with a Schedule 1 (Form 1040).
There will be instances where international poker players who live in countries that have a long-standing tax treaty with the US, and they will be issued with an ITIN (Individual Taxpayer Identification Number). So, if you think you will make a killing playing online, then applying for an ITIN will ensure you aren’t in for any nasty surprises.
Final Thoughts
Taxes may be confusing for some, but by following the advice outlined in this guide, paying poker-related taxes shouldn’t be too daunting.
Most importantly, keeping a running log, so you can stay abreast of everything going on, and always gamble responsibly!