taxdood Debut: Intro to Poker and Taxes
My name is Brad and I am a tax attorney who represents taxpayers under audit by the IRS and NYS. Krantz and I have been close friends since sixth grade. Great guy. We’ve done a lot of talking recently about the poker boom, specifically how there are many players out there who are simply uneducated when it comes to handling their financial matters properly. This is particularly understandable for someone without previous exposure to earning large sums of money in short time.
Consider this true story. In 2005, player X finished fifth at the World Poker Tour’s Jack Binion World Poker Open and won the WPT’s L.A. Poker Classic less than a month later. These two finishes alone earned player X over $2 mil. In fact, player X has more than $7 mil in tournament earnings in his career. Fast-forward to this year. In May, the IRS filed a tax lien against player X to collect on $339,000 of back taxes owed from 2005 to 2007 (a lien essentially gives the IRS a superior right to the equity in player X’s properties to collect on the back taxes). This lien resulted in two foreclosed homes and a very big headache for him and his family. With proper guidance and smart planning, player X could have put some of his earnings aside to keep current with tax obligations and not have to face these consequences.
Today’s Takeaway: Gambling winnings are taxable. You are required by federal and state laws to report these earnings and pay the associated taxes.
Unfortunately, I see situations similar to player X’s too often. Each time I find myself thinking, where did this client go wrong? Sometimes the client consciously tries to cheat the government. Sometimes it’s indifference. Sometimes it’s lack of knowledge.
With this blog, I will make weekly posts highlighting a point or two the casual or full-time poker player should be aware of. The law pertaining to poker is cloudy and complex, and the taxation of poker earnings is no exception. Considering there are players all over the globe, the rules simply are not the same for each player, as each country’s tax system is different. By giving each of these issues some attention, however, I am confident the picture as it applies to each reader will become much clearer.
If you have any general inquiries, don’t hesitate to drop a comment. I’ll either hit you back there or, if it raises an important point, I’ll discuss in a future post. I’ve also created a twitter account (@taxdood) through which I will mention important news, such as filing deadlines.
Until next time,