Tax Strategies for professional poker players in the US

Meh, not once they deploy the AI tax evasion detection.

This. It should answer most questions.

Your posts were kind of confusing, or not, depending on what you meant. For the professional, net gambling income is reported on Form 1040 Line 8 via Schedule 1 (with gambling losses and expenses already deducted). Those calculations are made on Schedule C, so yes, you're reporting winnings (Part I) and losses (Part II and Part V--Other Expenses) separately on Schedule C. I would add education expenses as a deduction if you paid for a service or course to improve your game and income (such as GTO Wizard, RIO, etc.).

As far as seeking professional help is concerned, many "tax professionals" don't know much about the tax laws with respect to gambling. So seek out someone who does. If you don't want to spend for that, learn for yourself. Anyone smart enough to be a winning professional gambler is smart enough to handle their taxes if they take the time to learn.

Hey, good thread i think i remember you OP.

Anyway just to keep in mind for anyone trying to do this, you need to be keeping good records if you want to file as a "pro poker player" you need to show that you've been profitable 3/5 years, and this really will only apply to tournaments because that is where the IRS will have the highest audit flags given the W2-G if you cash a MTT.

So if you aren't a high stakes MTT player who plays live frequently and has cashes over 5k+ frequently, its hard to justify filing as one.

I think its also worth looking into creating your own llc and filling as an S-corp if you are going to go this route, you save on taxes this way. In addition, to starting up a SIMPLE IRA/401k/Rolling over funds like other people have mentioned to reduce that tax burden. Im assuming this is what people do when they win like 500k at the WSOP, they def have their own LLC and some sort of IRA to deposit into to offset the tax.

There are some ways you can get away with big tournament wins like saying you purchased 50k in coaching from rampage poker or some **** like that, so you can deduct that 50k from say your 60k tourney win and pay 10k in SE tax/income tax.

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Also i think it sucks if you do file as a pro gambler somwhat... because if you play poker overseas you might end up paying a shitload of extra tax, given poker is not classified as earned income.

Anyway the TCJA by trump was pretty good for the most part, and hopefully they roll out a new TCJA part 2 that benefits the middle class and more poker players who are trying to squeeze water from stone.

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If anyone needs tax advice feel free to pm me

Can anyone recommend a book on taxes for poker players (specifically cash games)? I see a few on Amazon and they all sound generic on covering gambling in total.

So far I am looking at:

• Tax Help for Gamblers: Poker & Other Casino Games 4th Edition by Jean Scott, Marissa Chien, et al. | Feb 20, 2019
  
• All In Against the IRS: Every Gambler's Tax Guide
  

The first one you listed is good. I got it years ago on Amazon kindle.

Are you indicating you have specific training/experience in tax prep in general and poker or other gambling specifically? Are you a CPA?

What is the basis for your free advice?

For the many people who are not Familiar with the abbreviation EA in financial title lingo stands for ENROLLED AGENT. You can think of it as a taxation specialist.
Just like with CPA's your mileage may vary but it's solid credentials.

Have to admit my questions were loaded. Some of the tax information you posted is boarderline.

TLDR...take what has been written with a block of salt and consult a tax professional (BTW, I am NOT claiming to be a tax professional and definitely not YOUR tax professional. OTOH, I am not completely ignorant on the topic either.)

1. You stated that you have to be profitable 3 of 5 years to file as a professional gambler. That is incorrect. You do not have to be profitable but you do need to show that your intention is to profit and not just enjoyment. There are other rules to filing pro but currently being profitable is not one of them.

There are MANY professional gamblers (or filing as such) who do not even play much less win poker tournaments. It is definitely not ONLY for "high stakes MTT player who plays live frequently and has cashes over 5k+ frequently". There are good reasons that cash only players want to file as a professional. While not as easy for IRS to "catch" those not filing, they certainly can do so. (Recent thread on this board about a "famous" lawyer going through that right now.) That such "cheating" (since everyone owes taxes on gambling winnings) is more difficult to catch does not mean one should not file as a pro. As to record keeping, anyone wishing to write off losses above or below the line, must be keeping good records. Plus if you ever want to take out a mortgage or even a car loan, those records will be very important if you have no other job.

I am also not sure why you limited this to playing live. While I do not, never have, played online, I am pretty sure if you win enough in an online tournament for enough $, they are going to issue a W-2G (at least on the regulated sites for certain.) For cash, it is difficult to prove your winnings live (though again, possible), online cash winnings are actually easy for IRS to prove (again, at regulated sites for certain). Unlike live your buyins, cash outs and probably any session wins/losses, are all documented. I would be shocked if these records were not retained and subject to subpoena by the IRS. Simply put online or live doesn't really matter w.r.t. tax liability.

I suspect that your 3/5 comes from filing as a business vs a hobby. Where EVENTUALLY the IRS expects you to show a profit or they will rule is as a hobby not a business. But even this rule (in non-gambling ventures) is not hard and fast.

One example. Say you decide to take your hobby of cabinet making and turn it into a business. You start with the tools and machines you already have. But for the first X yrs you use revenue to purchase different and/or professional machines/tools. These are not the types of machines/tools a hobbyist would typically need or buy but they make your business more professional making the products easier/faster or better to produce.

Obv. during those years you are plowing money back into the biz so you likely won't show a profit. But if you are audited and challenged that this is a hobby, not a business, you can show what you are doing makes it a business that will/should be profitable once your capital outlays are complete. So it will still be a business because the efforts taken demonstrate it is not just a hobby. (Literally have a couple of friends who did this exact thing, got audited, had no issues. Once they had all the equipment, one quit his FT professional job (non-related field) and worked FT in their shop)

2. You talk about forming a LLC and then filing as a S Corp. Hope every one knows these are two separate things. You can form a single owner LLC and file such that the LLC is a disregarded entity (this is the default). Or you can elect to have the LLC file as a S corp (upon filing proper info with the IRS.) Technically the S corp is still a disregarded entity.

Both of these are choices. But NEITHER are required to open a SIMPLE IRA nor Solo 401K. A sole proprietorship business (basically a business filing a Sched C but not forming an LLC) can open these as well as and LLC.

There is no specific tax savings opening an LLC vs. filing as a sole proprietorship (there can be sometimes but not applicable to this discussion.) The LLC is more about some liability protection (but for a single owner LLC this is pretty limited protection).

The choice to become an S corp (after forming LLC) can save on taxes. Specifically SE taxes since you only pay those on the salary you are paid from the LLC/S Corp. The balance of any profit flows through the Sched C but is NOT subject to SS/Welfare (FICA) SE taxes since it is considered dividends.

But you are required to pay yourself a salary, so if the LLC doesn't make enough in a given year to cover that salary, you can actually pay more in taxes. Generally most people do want to pay a certain amount of SE taxes to make sure they get the 40 qtrs necessary to collect SS and Medicare. How much salary you most be paid and how much you want to be paid is its own discussion. But you would almost always want to max out the first SS bend and usually well into the second bend. Numbers I hear are you want the salary to be in the $60k to $75k range but some occupations may be required to go higher.

Forming a S corp certainly can shelter some of your income from SE taxes. But it also isn't something you can turn on/off as desired. And (this I am not positive on but 99% certain) you need to form the LLC/S corp BEFORE you hit that big WSOP win. The tax liability occurs the instant you win. So unless the LLC existed (entering the tournament using the LLC EIN makes it more clear but is not fully necessary) when you entered the tournament, it is likely the "win" goes to the sole proprietorship and not the LLC. There may be a way to delay collecting the prize until after the the LLC is collected and then have the LLC collect. But this would be very dubious. Plus there is no real tax savings.

And since the S corp election to be effective in say 2025 tax year, must file the 2553 by March 15, 2025 or within 75 days (IRC) of the LLC formation, there would be a VERY tight window (form the LLC within 75 days of the tournament and then file the form 2553 after the tournament win but within 75 days of the LLC formation.) Now admittedly, the IRS is usually quite lax on the form 2553 and it usually isn't hard to get relief for missing this deadline, I am not sure how they would react in a case like this.

3. You mentioned that playing poker overseas is a disadvantage since that is not classified as earned income. While not something I have 1st or even 2nd hand knowledge of, I don't understand why you think this. I am pretty sure it still would be reported on your sched C (or the S corp 1120-S/K-1) and treated as earned income. Now there could be Foreign Tax Credits to claim. Also for Foreign Earned Income Exclusion, professional winnings are not considered earned income. But since foreign winnings are taxable to non-professionals (but they are NOT earned income in this case) also, I don't understand your concern. But I am highly certain that for a professional gambler, foreign poker tournament (and cash also) winnings are taxable and are generally considered earned income. How different countries handle reporting to IRS and documenting would be (for some nerds) an interesting study/discussion, I can say with certainty that on cruise ships sailing and returning to US ports, even when in international waters AND operating under the laws of their flag country, they will issue W-2G's to US citizens on winnings large enough to require such domestically. I suspect some foreign country casinos do something similar in some circumstances.

4. The only part of the 2017 TCJA that I know of related to professional gambling/poker, had to do with losses. Before 2018 IIRC, you could use net losses to reduce your AGI. You could also carry these NOL backward and forward against taxable income. (Though I forget the specific rules and such).

Post TCJA, if you have a net gambling loss on your sched C, this NOL can only apply to gambling income. So that part of the Sched C cannot be less than zero. Though you can carry forward the NOL (not backward) against future year gambling winnings (but only gambling winnings).

So I would say that for professional poker players, unless there are advantages I am not aware of, it was overall a negative on the rules applied.

5. As to helping WSOP foreign nationals with reportable winnings, I don't know how much help you really can be. You can become an Acceptance Agent and then help (of course there is nothing saying you can't just help someone who actually does "it" themselves). But in this case being an AA probably doesn't help much. The foreign national would still have to send in their identifying documents (iow, passport physically mailed to IRS). They likely won't get the passport back of up to 10+ weeks. I certainly would not part with my passport in a foreign country for 10+ hours much less 10+ weeks.

You could become a certifying acceptance agent. This process is about the same as the AA process but you have to take specific training on Forensic Document Identification training. This avoids the foreign national physically sending in documents and using a CAA is probably faster then doing it yourself or via a AA since document verification by IRS is not needed. But I still think the process is "weeks" not days. Ofc, casinos that help (directly or through staff or associated CAA's might have more stroke to get it done quickly.) But unless you have some "in", your "clients" would still be waiting probably a couple/few weeks. So it depends on how long they will be in LV.

IIRC, (the EA I sleep with is not currently a CAA or AA, though she was CAA years ago), it takes a couple of months to become a CAA or AA and that was after completing some or all of the required training. Also don't forget to maintain your status in addition to renewing every 5 yrs (IIRC) you have to do a certain number of applications every year or they pull your status.

I am assuming your are a Registered Tax Return Preparer (or whatever IRS calls those now) or have some other means to be eligible to apply to become a CAA. If not, none of this matters since not just anyone can even apply. E.g. there are a lot of things I can do, but currently I could not become a CAA (but it would not take much for me to change that situation.)

Basically, I have hear that certain casinos can/will assist in getting a ITIN and apparently they can do so quickly. But most/all will only do so AFTER you have a win large enough to require one that you hit in their casino (MAYBE a 'sister' casino like Caesars Palace doing one for a jackpot at Flamingo MAYBE).

But IMO, unless you can somehow speed up the process (and I have zero knowledge of how that might be), I don't think you or anyone else here, can really help. The ITIN process just largely sucks unless you can get a casino to assist somehow.

Again, I am not a tax professional, I am not giving tax, financial or legal advice to anyone reading this. Everything written by me here is for entertainment only.

Ethics and taxes do have a relation.

If you are fored to pay taxes, you are innocent.

If you deny the gov resources to to unethical actions, this is a moral action.

If you voluntarely give it, beyond what you're forced to, then you have part of the responsibility.

You make some good points, however you are really missing a lot of key details in regards to the things I mentioned very broadly.

I never went into detail with the topics I was discussing. Don't take things so literal buddy, at the end of the day if you don't have any connections or experience to anyone related with tax, audits, and law its hard to really grasp the full of scope of things, like you said you aren't a tax professional and im not sure how much experience you have in regards to the gaming industry or poker for that matter.

Then p,ease point out the details where I was wrong. I am not a tax professional, but if you have one season working for Intuit, I have done many more times the returns you touched. Everyone I ever did except my own, were reviewed in detail by a CPA or EA. I was largely just doing data entry but I have done it for decades.

Let’s make it simple.

You do not have to be profitable to file as pro.
There are very good reasons cash players file as pro.
You do not need LLC nor S corp to set up solo 401k or SIMPLE IRA.
Live vs online have same rules and reasons to file pro.
Foreign gambling winnings are earned income on US Fed return.
It would be quite difficult to become a CAA starting now to be able to help someone at this summers WSOP and if you did become CAA in time you are probably still looking at weeks to get them an ITIN.

Except for the last in the list, you outright made incorrect claims or your statements strongly indicated the incorrect position. So tell me which ones I was wrong or don’t understand. BTW while I am not a pro reg grinder, since I retired I have been filing as a pro so I probably am not as unfamiliar as you seem to believe.

As to taking you literally, when you make erroneous factual statements in a public forum where some people could be lead astray, don’t be surprised when your statements are challenged and corrected.

Let me give you some more help, one year of using TTax doesn’t make you an expert. Neither does a couple of tax courses in getting a BS/BA in accounting. It takes experience over years. You are nowhere near ready to test for an EA cert. I watched and helped my wife prep for it. I know what she said about the test and I know the experience in doing taxes she had when she took the exam.

I am not sure if you understand what i am saying, and thats okay!

Do you even know what material is on the EA exam or the CPA exam? You should probably ask your wife or do some due diligence through google or chatgpt, there are quite a lot of differences (its pretty standard stuff).

Thank you for your posting, youve actually provided a lot of insight and id love to work with you one day tbh given your experience with tax!

Maybe we could start our own tax firm, me you and your wife? 40/60 split in your favour?

As I considered going after both EA or CPA to be more help in wife’s firm. I know very well both processes. EA a 3 part single exam of individuals, business and RP&P vs 4 separate 4 hr exams covering breath of accounting practice. CPA doesn’t test as heavy on taxes, unless you choose the optional one on taxation. While EA is easier or at least easier to prep for as it is all about taxes.

But not sure why you bring this up. Fact is you completely blew the tax code discussion, say you plan on taking EA after 1 season of using TTax and then offer tax advice.

You are neither ready to sit for EA exam nor give tax advice. As to starting a firm, wife’s firm (full service, not just taxes though that is biggest part) is doing fine. She has considered retiring or going part time by selling it to CPA firm she once worked for. Would you like to buy it? But doubt you can afford it much less run it.

Before you offer to give advice you may want to get the topic correct first.

It's a tax standoff, may the best 1040 win!

I received a tax penalty in the mail for $215.32 which isn't too terrible, but I'm relieved to see that I haven't been audited. Maybe it is a bit early to celebrate, but so far in the clear. If I do, I will let y'all know. That way it will be a data point for the risks some of you may or may not want to take with your tax return.

Well I have to give you props for a great attitude toward any penalty - but it I would ASSUME its an underpayment or late filing penalty. If so both can be easily corrected by making estimated payments and or filing on time next year.

If it's a penalty coming from anything else I will give you a cautionary warning you are not totally out of the woods yet and won't be for at least 3 years.

You posted earlier you didn't want to pay someone else to do your taxes and honestly doing them yourself with the help of any of the various commercial software isn't a terrible thing to increase your own understanding but realize a couple issues. Late payment penalties is a red flag, office in the home (your earlier post) is a red flag etc. Now that does NOT mean you will be subject to an audit BUT it does increase your likelyhood. You truly might want to reconsider the professional help for the future and bite the bullet and spend the $1,400 just make sure that is all inclusive (THEY handle any IRS questions for returns they prepare ) and don't charge you additional because that type of work CAN get expensive.

It was an underpayment penalty that I am sure of. Yeah, I definitely hit all the typical red flag areas for doing taxes. I would imagine, having "professional gambling" as profits probably doesn't help either.

Poker isn't easy is it now a days, tack on increasing rake & tax?

:(

Around 2022 & onwards is where there started to be more regulation in both poker and crypto, through mandates like the ARPA most online gambling sites are required to report 1099-MISC & 1099-DA for cryptocurrency wallets.

It's best to keep a good record of all your transactions, expenses, and wins/losses. You could also prepay 100% of your estimated taxes for the year, so you don't have to worry about tax penalties if you are filing as a professional poker player.

Good luck!

I love how a discussion on tax strategies can lead to two pages debating the IRS's capacity and willingness to conduct audits, followed by another page focused on credentials and knowledge related to taxes.

As a former professional poker player and now a financial advisor running my practice, I believe poker players should consider two distinct services, which may or may not be provided by the same firm:

1. Professional Tax Preparation: This service should include guidance on maintaining proper records and ensuring compliance for your business, as well as keeping you on track with payments. Additionally, it may involve suggestions for funding retirement accounts (such as IRA, Roth IRA, and SEP IRA) and provide incidental financial advice. It may not be necessary for everyone, but it could certainly be helpful to use one of the well-known poker CPAs or EAs.

2. Tax Planning: This is a more holistic and projection-based. I offer this for financial planning clients, ideally coordinated with a client's tax accountant. We might use simulations to evaluate questions like:

Should I file as an S-Corp?
Should I tax-loss or tax-gain harvest in taxable accounts?
Asset location (which investments in which accounts, balancing short-term and long-term)?
Based on my projected marginal rate in a poor poker year, should I consider a Roth conversion?
Should I use a SEP or a Solo 401K?
How does funding a pre-tax retirement account impact my QBI deduction?
Would a Roth or a tax-deferred be best in my situation?
When selecting my health-care plan off the ACA this winter, do I qualify for any premium credits?
How will my taxes be impacted by my upcoming marriage or divorce?

It's my own opinion that S-Corp filing is being overutilized for solo-business owners. Here are the reasons it may not make sense for a professional poker player:
-More expensive to establish and higher accounting and maintenance fees.
-Difficult to argue that income is not 100% attributable to the business owner playing poker.
-Potentially short-sighted because SEP and Solo 401 K contributions are limited by W2 wages and lower future SSI benefits.

Happy to continue the discussion of actual strategies that make sense here or in DM.

That's awesome 😀 Do you strictly focus on the gaming industry and poker tax returns in general?

What do you think of these Court Cases? What are some cases that you recommend?

Valenti v. Commissioner, T.C. Summary Op. 2014-8

Shankar v. Commissioner, T.C. Memo 2015-222.

Coley v. Commissioner, T.C. Memo 2023‑11

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Back in the old Stardust and Golden Nugget days players hid their money in shoe boxes. Few paid taxes. Guess who came out way ahead in the long run. Those who declared their winnings and invested them.

I am a financial advisor who incorporates tax planning into my services. Some of my clients are also poker players. To clarify, I do not practice law, represent taxpayers, or prepare tax returns. However, I do believe that more professional poker players could benefit from good financial planning. What do you think?

In my early poker days (2006-2009), I opened a SEP account on the recommendation of a friend who was newly employed for a regional broker-dealer selling annuities. I agreed to buy the annuity, but luckily did not go through with the required physical. It would take me another 5+ years to really get serious about longer-term investing and personal finance. I wish I had the services I offer my clients (via hourly or flat fee, without an AUM or commission) from someone I trusted back then.

I believe you said you're working toward your EA. I'll shoot you a DM, would love to connect.

Geezus, times must be tough if the legendary KPR16 is shilling his services on NVG, while on his high horse, on 50ppp, and admits he doesn’t offer any of the services he got on his high horse about.

Literal gambling legends like KPR, living GOATs, should be telling us about the stuff this forum was built on, tax evasion, irresponsible fiscal decisions, drugs, and the GTO nationalities to date. They definitely shouldn’t be trying to hustle up some management fees — yikes, someone pass out the blunts and pour the stout.