The Poker Lab Rat

December 18, 2008

Poker Winnings and Taxes

Filed under: General Blog Rant,Poker News & Views,pro tips — Mike @ 7:55 pm

Paying tax on poker winningsWe thought this was an interesting item from the team at bet365 poker. It’s Part one of two, and we’ll publish the second one tomorrow. (Part 2 covers tax on poker winnings in other international jurisdictions).

Poker Winnings and Taxes Part I: Americans and Canadians

Disclaimer: The following is for informational purposes only. A tax professional should be consulted for official advice.

Nothing feels better than winning a big poker tournament. The cheering of the railbirds, the awarding of the trophy, ring or bracelet and best of all, is getting the cash. That is until you get to the cash cage and find out that they are holding 30% of it for Uncle Sam. Or worse yet, you could be like WSOP Main Event winner Peter Eastgate who may have to give the Danish government $6.6 million of his $9.1 million.

With poker being an international game it’s not uncommon to see things like the WSOP, a Las Vegas based poker tournament, have a final table with one Dane, one Russian and two Canadians. That’s why it’s important to understand what various governments will take from you after you make a big cash. As you can see by the Eastgate example, sometimes the tax is so hefty that, if you’re a poker pro, it might make sense to just pack up and move.

AMERICANS

For Americans, taxes on poker winnings varies depending on what state you live in. You can also get all or a part of the taxes back if you file for a tax return with the IRS and all of your receipts are sent with it. That way you will only end up getting taxed on your net profit. You can also make deductions on losses and other expenses related to playing poker.

Professional players can report their poker tournament winnings as income. In order to be recognized as a professional poker player you will have to be able to prove that the majority of your income comes from poker.

Here are some examples of what the America 2008 WSOP Final Tablists will pay:
• Dennis Phillips of IL won $4,517,773 – $1,568,950 federal tax, $135,533 state tax (37.7% rate)
• Ylon Schwartz of NY won $3,774,974 – $1,396,304 federal tax, $387,966 state tax (47.3% rate)
• David Rheem of CA won $1,772,650 – $651,262 federal tax, $170,302 state tax (46.3% rate)
• Kelly Kim of CA won $1,288,217 – $470,995 federal tax, $121,074 state tax (46.0% rate)
• Craig Marquis of TX won $900,670 – $328,911 federal tax (36.5% rate)

CANADIANS

It seems that many Canadians are under the impression that they don’t have to pay any taxes on poker winnings. This is probably because they are exempt from paying on things like lottery and casino winnings. The problem is that Canadians are subject to an automatic 30% withholding tax from poker winnings made in the U.S.  However, Canadian residents who are taxed on their poker winnings can also deduct any losses they suffered in the U.S. while gambling that year.

Canadian residents should file Form 1040NR to get a refund of U.S. taxes withheld from their poker winnings.

Canadian poker pros are also technically required to pay taxes on their winnings because if you have a “reasonable expectation of profit” on your winnings then you have to pay on them. The upside is if you are considered a professional poker player you will be able to write off a lot of stuff including: hotels, travel, meals, etc.

 

usa_OKTOP POKER ROOMS FOR USA RESIDENTS – Safe, reputable poker rooms that welcome Amercian players

Stumble it!

No Comments »

No comments yet.

RSS feed for comments on this post.

Leave a comment

You must be logged in to post a comment.