For poker players, the tax question comes up as soon as they start making some serious money–or for the more responsible ones, even before that. In a nutshell, the plain truth is that you have to report everything you earn, whether you play in your free time or as a living. The question then is not whether or not to report, but how to report your earnings–or your losses.
One of the first questions to come up is whether you should report your earnings as a hobby player or a professional. The main difference is that reporting your poker earnings as a business allows you to write off all the expenses you incur while playing, including transportation, meals, and even entertainment, on top of the capital you put in. Reporting it as a hobby only allows you to write off your losses.
Although there are obvious advantages to treating your poker playing as a business, it’s not as arbitrary at that. To be considered a “professional” player, you need to rely on your poker playing to pay a considerable part of your bills, and spend the equivalent of a full-time or part-time job playing the game. In other words, you can’t lie about it–if it’s really just a hobby for you, then that’s how you should report it. The full guidelines on what constitutes a professional player can be found on Section 1.183-2 of the Federal Tax regulations.
If you’re filing your taxes as a hobby player, you report it on your 1040 form on the front page as “Other income.” The IRS officially considers this hobby income. In this case, you don’t pay self-employment tax as a businessman would, but you pay federal income tax according to your tax bracket. Any losses can be offset on Schedule A, but the bad news is that they have to be itemized; otherwise the deduction won’t apply.
If you expect to have poker income to declare in the next tax season, make things easier by keeping a game log. This can be an Excel spreadsheet or a physical logbook, although the former may be more practical if you play online. Although you won’t really need to provide any proof unless the IRS comes for an audit, it never hurts to stay on top of your numbers. At the very least, it spares you a lot of digging and worrying before the tax deadline.
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