You might not know, but you must pay tax on the winnings you make when playing poker as a US resident. You are required to follow the guidelines that the IRS has set out, and failure to do so can lead to penalties being incurred.
If tax season was not hard enough when it came to filing income, it can become even more difficult if you like to play poker on the side. Thankfully, several different strategies can be followed to help guide you on how to do your taxes as a poker player. These strategies can make things easier when it comes to making your returns and declaring any income made from the game correctly.
1. Knowing the type of poker player can help with tax returns
Here, we do not mean in terms of the gameplay strategies that you may adopt when playing at the table. In terms of tax, it does not matter whether you are an aggressive type of player or if you like to take a relaxed approach. It means in terms of whether you are a professional or an amateur.
Depending on your status, you will be required to fill out a different tax section. A professional – who will make most of their income from playing the game – will need to file a Schedule C as a self-employed person. An amateur would have to classify any income derived from the casino game as “other income”. A professional poker player will be required to pay tax at a rate of approximately 15.3%.
2. Calculate the wins or losses experienced from poker
To gain a true reflection of what money is owed as tax, you need to work out what has been won or lost when playing poker. By calculating an accurate figure, you can pay the right amount of tax that is owed to the IRS.
Taxes can be made payable depending on the amount of income that is obtained while playing, and while it is possible to lose more money than is made, the threshold for the amount earned may still have been crossed. If this is the case, then tax will still need to be paid.
3. Use an accountant and software to help
It can be highly advisable to use an accountant or tax software to calculate any potential tax that may be required to pay. Utilizing these options can keep a record of what has been earned during the financial year, and once it comes to submitting your return, it is clear to see what needs to be returned.
An accountant is perhaps the best thing for a professional poker player as they can keep abreast of all of the major expenditures and money coming in. A software platform might be better suited to a casual player, as it can help to distinguish the difference between their main income and the revenue that has been generated as a result of playing poker. There are some options that feature a poker-specific function available on the market, making it easier than ever for those who wish to submit their own returns to separate their incomes correctly.
4. Keep accurate logs of your poker experiences throughout the year
It is not enough to just tell the IRS that you have earned a certain amount while playing poker throughout the financial year. They will want accurate records and a log of all of your playing history for the period in which taxes are being collected, as they want to ensure the right amount of tax is being paid.
While online poker has become the most popular form of the game, the IRS recognizes that many still like to play in offline tournaments. This is where keeping track of winnings and losses can become more difficult. The body requires individuals to keep handwritten logs of their results and a journal consisting of important information related to the game. This can include details about where the game took place, the amount that was won and lost, etc.
Final Words
It is important to understand that there are tax laws in the US relating to money obtained when playing poker – whether it be online or offline. There are various strategies that can be utilized to try and make things easier during tax season, with many of them highly recommended as methods to follow.