Saturday, May 12, 2007

Tax Answers

After paying taxes this year, I quickly decided it was time for me to stop doing them by hand and find a tax accountant. Taxes are a pain, they're too expensive to risk making mistakes, and I had a lot of questions.

So I met with an accountant yesterday and had a great opportunity to ask her all about poker and taxes.

The first thing I wanted to know about was filing as a professional. As a professional, you can deduct many poker-related expenses, including travel, meals, expenses and lodging. The downside is that you have to pay self-employment taxes on your winnings of an additional 15.3 percent. The accountant ran the math, and it didn't result in any savings for me. Unless I spend tens of thousands in poker-related expenses, it makes more sense for me to file taxes as normal. Maybe someday, when I become a badass tourney player and tour the world. Right.

I also found out about how to pay estimated taxes, which I will have to do this year or else risk paying penalties. I have to pay quarterly estimated taxes because government withholdings from my paychecks don't include gambling income. Anyway, the way to do it this year is to base my estimated tax payments on my taxes last year. For example, if I owed $15,000 in taxes on April 15, I need to basically divide that number by four to figure out my quarterly responsibility, and then fill out form 1040-ES for the feds and another form for the state.

Because I owed a large amount in taxes last month, I had to make several withdrawals from poker sites in order to cover the bill. Those withdrawals temporarily inflated my bank account above $10,000 for the first time. I wondered whether that amount triggered federal reporting requirements. Fortunately, the accountant told me those requirements only apply to cash transactions. When it comes to checking accounts, she said there's no reporting requirement. That's nice to know.

Finally, I asked her the big question: Isn't there some way for me to pay less taxes? Unfortunately, she said there wasn't much I could do. All income is taxable, and we have to pay the taxman or risk getting caught.

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