Thursday, April 13, 2006

The Taxman Cometh

I did my federal and state income taxes last night, and they weren't nearly as bad as I expected.

Because I spent half of last year in Chile, and the other half I was unemployed in Atlanta, poker winnings were my only source of income.

The IRS has some arcane rules about taxes on gambling winnings. You can't simply report your net winnings; you have to add up all your winning sessions and report it as income, then you need to go line-by-line on your losing sessions and list them as itemized deductions.

I put my total winnings on line 21 of the 1040, and then I listed each losing session as a deduction on Schedule A.

This was pretty easy to do because the poker spreadsheet I use has a tab that breaks down poker winnings and losses on a day-by-day basis. I copied that tab and sorted wins from losses. Then I copied the losses to another spreadsheet, ordered them by date and printed out that page as my line-by-line account of my itemized deductions.

A link to the bankroll spreadsheet I use is on the right-hand column of this page.

Here are the totals for 2005:
_Net winnings: $14,752
_Gross winnings: $42,065
_Losses: $27,313
_Winning sessions: 155 (57 percent)
_Losing sessions: 117 (43 percent)
_Federal income tax due: $1,371
_State income tax due: $182
_Total taxes paid: $1,553 (10.5 percent of winnings)

The reason my income taxes weren't higher is because I didn't have any other income, and therefore I fell in the lowest tax bracket.

I recommend that anyone who's reading this report their poker earnings on their taxes, even if you think you won't get caught. I've never been audited, but I've heard it can get pretty ugly.

The feds haven't cracked down on poker tax reporting yet, but it would make sense for them to do so any time now. With millions of people playing poker, that's a lot of income that the government wants to get its hands on.

Like it or not, paying taxes is a requirement. Evade them at your own risk.


kurokitty said...

As I've told Shammie on the issue of taxes, "The gub'mint needs money for bullets."

thecaffiend said...

...and abstinence programs...

Victor_Enriq said...

I love my Chile. I pay a 19% against your usual 6% which is awful.

But I dont have to pay anything for my poker profits as what i'm doing doesnt exist. A beatufil void in our law... and will be for a long time!