Poker Players Alliance Forums » Ask Skallagrim

What is required at tax audit for online poker?

(16 posts)
  • Started 3 months ago by HoldemEagle
  • Latest reply from HoldemEagle

  1. HoldemEagle
    Member

    Hi, I think the PPA could help protect PPA members with a sheet/web page telling what we need as far as online Poker if audited by the IRS. I bring this up due to a guy who was getting audited and the IRS wanted him to show receipts for his loses online. Not everyone can afford to hire a $10k tax attorney. What is required to prove to the IRS what you lost? The guy played cash games online. How is he to get these receipts? Is he required to get receipts or is the IRS just giving him a hard time?

    I play Tournaments. I get a tournament history for each one I play. Would the IRS accept this with my detailed log. If so, would they take it as a text file on a CD. Some of these tourneys have 30,000 players in them. If the IRS was to make me print all the tournament history's out it would take 20,000 to 40,000 pages.

    If a SnG player makes 10% ROI and the IRS refused his log of his loses it would ruin him. If he makes 10k profit on 90k of buy-in's they would Tax him on 100k winnings. Their hurting the US if they start running over the poker players trying to do right. Others will see and just not file if they see others being robbed by the IRS.

    I hope someone at the PPA will see what we are legally required to give the IRS at a audit. Also see if we are required to print our entire bankroll away to prove our log is correct.

    Thanks in advance.

    HoldemEagle

    Posted 3 months ago #

  2. Big Jim Slade v2.0
    Moderator

    I'm not a professional tax expert, but I like to hear myself type.

    I play on Doyle's Room. In the cashier section there is a transaction log that tells me every buy-in I make for a ring game and every cashout I make when I leave the table. For tournaments, I get an entry in the transaction log for every tournament buy-in and another entry for every tournament prize won.

    If I were to play two tournaments every day for 365 days per year, as well as three seatings at a table for ring games, then there would be 10 log entries per day, or 3,650 entries per year. (Assuming I do cash in every tournament, otherwise the number will be less.)

    At 66 lines per page, this would be 3650/66 = or about 55 single column pages. If I put the buy-in in one column and the cashouts and prizes in a second column, then this would make about 28 pages of detail. Or make it two sets of coumns per page and make it 14 pages of detail for the year.

    It is my non professional guess that if you delineate every purchase and every return to your account in these 14 pages and do the math to show your win/losses the IRS will take this as sufficient evidence of your play and losses.

    It is my guess you do not need to document every card played in every hand of every tournament by every player to show profit/loss in 40,000 pages. Have you considered just documenting the transactions that go through the cashier to document profit and loss?

    Posted 3 months ago #

  3. HoldemEagle
    Member

    Hi Big Jim Slade, I play on PokerStars. A SnG grinder can play up 500 SnG's a day. If you saw Boku87's Prop bet you can see 50 SnG's at the same time is posible. Search Boku87 on YouTube. I play 20+ 180 player SnG's a day. I also play MTT's such as the $11 Sunday 200 grand on PokerStars which has 30,000 entries. PokerStars will give you an Excel tournaments played report. From what I gather from the following link's the IRS wont accept that. In one link below they want the cash game guy to print his hand histories for half of two different months. The other link the guy had to pay $50K to a tax lawyer for a three year audit.

    If the PPA could tell us what records we need to keep for online poker and what proof is required of us if audited, it would prevent future tax problems for the honest among us. We could show up at the audit with our proof already layed out and ready. The IRS should furnish this info to the PPA or to some of the Politicians connected to the PPA for the asking. Then the IRS auditor's job will be easier and maybe wont ask us to print tons of records. The IRS should accept a CD rather than all this printing. Maybe the Politicians connected to the PPA could check on that. It is better to be prepared ahead of a audit than to be hit with a bunch of stuff you didn't know when it happens.

    audit

    Audit-2

    Posted 3 months ago #

  4. TheEngineer
    State Director & Forum Admin

    New legislation provides for all of that (tax forms, etc). One provision in the new McDermott tax bill is great for us in that allows non-pros to net wins and losses - potentially even eliminating the gaming log requirement altogether.

    Posted 3 months ago #

  5. Big Jim Slade v2.0
    Moderator

    I think you are missing my point, HoldemEagle.

    Your proof of profit or loss at the tables is the arithmetic difference of all you pay in and what you have left when you leave the table. Some online poker rooms provide that information.

    For my favorite poker room it is kept at the cage section of the poker client and has noting to do with the number of playing in a tournament or the actual hands played.

    I really don't know if you favorite poker room provides the same info or not.

    Posted 3 months ago #

  6. HoldemEagle
    Member

    Hi TheEngineer, I hope all these bills get passed. It will sure make it easier to file. Maybe the licensed poker sites will give us something like a W2. Thank You for all you do for all us poker players.

    Hi Big Jim Slade, I think we are on the same page as far as proof is concerned. I would accept what your saying as proof/receipt. I would also accept PokerStars "Tournaments Played Report" as proof/receipt. What we think is proof/receipt might not be what an IRS auditor thinks is proof/receipt. Then again it might. I don't want to go to an audit and be told that my proof/receipt is not any good. What I am asking the PPA for is to find out for sure what is required for proof/receipt for online poker in the eyes of the IRS and tell all of us PPA members. A statement from the IRS that we can hold them to and present a copy of with our proof if we get audited.

    Try to find out anything about online poker at IRS.GOV

    I think for home games your even required to turn in the names and address of the rest of the players at the table. Try that for online poker. :)

    Posted 3 months ago #

  7. Skallagrim
    State Director & Moderator

    The reason you cant find anything about online poker at the IRS site is precisely because they have passed no regulations or guidelines specifically for online poker.

    Since they haven't done that, whats required and what isn't is something of an open question. Most tax experts suggest you keep the same kind of log the IRS has approved for B&M poker. Of course, the two are different enough that this is actually impossible.

    I am NOT a tax expert, not even close. But I do have expertise in criminal law, including the crime of "tax evasion." Tax evasion occurs when you purposely under report or fail to report income to the IRS. DO NOT DO THAT.

    If you keep good records, in whatever form, and make a good faith, honest effort to accurately report your income, you will not be guilty of tax evasion. At worst, if the IRS deems your record keeping done in good faith but still insufficient, it will assess you additional tax and interest. You can survive that; can you survive a few years in prison for tax evasion?

    If you are making significant money playing poker (online or live) it is definitely worth it to hire a CPA to assist you in keeping your records and paying the correct amount of taxes. Doing that (and following the CPA's advice) will likely be enough to survive an audit with nothing worse than a slightly adjusted tax bill.

    Skallagrim

    Posted 3 months ago #

  8. HoldemEagle
    Member

    Hi Skallagrim, Thank You also for all you do for us poker players. Your answer is the reason why I wanted the PPA to get some of the politicians that are on our side to get the IRS to give an answer to this. The IRS shouldn't be able to adjust anything or charge interest if they can't define something that is a good enough receipt for online poker loses. The way it is now they can rob us at will. I didn't bring this up for just me. I didn't even deduct my loses. There is a lot of poker players who have deducted loses. Most think the PPA book keeper or their log is all that they need. Others think they can use Hold'em Manger or Poker Tracker. Yet others think Sharkscope is proof. Sad isn't it?

    Maybe we will get the new legislation passed. Very long shot IMO. Thanks again Skallagrim.

    Posted 3 months ago #

  9. mmateo
    Member

    IF you make 10k off 90k buy ins your taxed on 10k. You can only be taxed on money earned not both earned and spent. If you do not deposit that 10k into your bank account you can not be taxed as you did not earn it until it touches your bank. If you start the year with 100k and end the year with 150k and you deposit that 50k you will be taxed on 50k. I dont understand your math holdem eagle or your logic as to your sng example. Same gos for pros who play B&M. There is a dif as they touch the cash daily therefore keep logs, but they are still only taxed on money earned. Most pros operate as a business and pay monthly or guarterly taxes depending on there incomes. Let me guess you also think you can write off your losses...

    If your up 10k this year and you deposited that 10k you pay tax on that 10k. The irs will simply want an explanation of where that 10k came from. Even if you have 200k in your cashier you can only be taxed on money you touch.

    Posted 3 months ago #

  10. repulse
    Member

    mmateo, you said "If you do not deposit that 10k into your bank account you can not be taxed as you did not earn it until it touches your bank" and this is 100% wrong in all circumstances. The money is taxable income as soon as you earn it, regardless of whether or not you cash it out.

    Posted 3 months ago #

  11. HoldemEagle
    Member

    Hi mmateo, I am no tax expert so take this for what it is worth. You need to do some research. Lots of research. I will also add you have to report to the Treasury Department all money you have in foreign accounts if the sum of that money is $10,000 or greater. You can net your wins and losses when filing as a Pro. If you are not filing as a Pro then you must itemize your loses. A lot more to it than just that.

    irs-reporting-gambling-income

    Posted 3 months ago #

  12. HoldemEagle
    Member

    Adding this about 10k.

    "Form TD F 90-22.1
    REPORT OF FOREIGN BANK AND FINANCIAL ACCOUNTS

    General Instructions
    Who Must File this Report. Each United States person who
    has a financial interest in or signature or other authority over
    any foreign financial accounts, including bank, securities, or
    other types of financial accounts, in a foreign country, if the
    aggregate value of these financial accounts exceeds $10,000
    at any time during the calendar year, must report that
    relationship each calendar year by filing this report with the
    Department of the Treasury on or before June 30, of the
    succeeding year."

    http://www.irs.gov/pub/irs-pdf/f90221.pdf

    Posted 3 months ago #

  13. mmateo
    Member

    I didnt feel the need to explain in FULL detail. All that states is that you report the amount in it. The account acts for example like a 401k you only pay tax on it when you touch the cash. I have foreign bank accounts... Iraq for exapmle

    Posted 3 months ago #

  14. HoldemEagle
    Member

    • Prizes and awards.• Gambling winnings, including lotteries, raffles, a lump-sum payment from the sale of a right to receive future lottery payments, etc. For details on gambling losses, see the instructions for Schedule A, line 28, on page A-10.

    Line 28, on page A-10.

    Only the expenses listed next can be deducted on this line. List the type and
    amount of each expense on the dotted lines next to line 28. If you need more space, attach a statement showing the type and deducamount of each expense. Enter one total on line 28.
    • Gambling losses, but only to the extent of gambling winnings reported on Form 1040, line 21.

    Instruction BooKs.

    For 1040

    For Schedule A

    Hi mmateo, So what your saying is as long as I use direct deposit to my savings/checking account it isn't considered income till I get them to hand it to me at the bank. So if I earn a million this year I don't have to pay taxes on it till I take it out of the bank? "Touch It" Would you please show me where this is listed of the IRS website. The 401k account is a special account with specific rules. You can't just choose any account and say it is a 401k or like a 401k can you? Your Poker Account for example?

    Posted 3 months ago #

  15. Skallagrim
    State Director & Moderator

    I think perhaps the PPA is going to have to invest in publishing some basic poker tax advice. I will talk to some folks about that. Until then, and even with that if you are making good money at poker, you should always seek independent professional tax advice.

    After all of that, let me point out that mmateo has implied one big mistake, and holdemeagle has it pretty much correct. The IRS declares income as "earned" as soon as it becomes readily available to you. In live play, that usually means when you leave the table and cash your chips. Hence the IRS requires you to log each session, basically each buy-in and each cash-out. The issue is how to apply those principles to online play. But not among those issues is the idea that you haven't "earned" it until you request a cash out. You have earned it once you are entitled to it and in control over it. "Control" here means the right to request it, just like deposits in your regular bank account. You have that control every time you leave a table and the chips are in your hand or the money is placed in your account.

    This does not settle the question of how to keep online records, but I would be remiss if I did not correct the idea that if you win a big amount on an online site you can avoid paying taxes on it by simply not cashing out.

    However, if you play 5/10 NL and multi-table and play tournaments at the same time, you might start one night and lose 10k over several hours, then you take a nap, resume for a few hours, and this time win 8K, then you eat breakfast, then you play for a few more hours till your up to plus 1K, and then don't play again for a week. Would it be wrong to record all of that as one session of 1K winnings? That's for the tax experts to decide.

    Skallagrim

    Posted 3 months ago #

  16. HoldemEagle
    Member

    Thank You Skallagrim. Poker tax advice is needed. Including what we can use for a online receipt for our loses. tyty

    HoldemEagle

    Posted 3 months ago #

Reply

You must log in to post.