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Message: [QUOTE="Flops'm&Bets'm, post: 619316, member: 25442"] [b]Tax Info ~Cont'd~[/b] [B][SIZE=3][COLOR=indigo]~Continued from previous Post~[/COLOR][/SIZE][/B] [B][U][COLOR=black]TOURNAMENTS[/COLOR][/U][/B] [COLOR=black][I][B][COLOR=navy]-What are the rules for sharing tournament action?[/COLOR][/B] [/I] If you are swapping or selling action in a tournament and you win, you need to give the casino a Form 5754. You can find this Form along with the instructions on the IRS website at [/COLOR][URL="http://www.irs.gov/"][COLOR=black]www.irs.gov[/COLOR][/URL][COLOR=black]. Believe it or not, this is a simple Form to understand and complete. All you do is complete Part 1 with the amount you won, your name, social security number and address. You then complete Part 2 showing each person that you are sharing your winnings with, along with their name, social security number, address, and the amount that you are paying them. Seems like you are a bit of a snitch but really you are helping everyone. If you decide not to prepare this Form, (or didn’t know about it until now) the entire amount that you won will have to be claimed on your tax return. This can be a really big problem for several reasons. First of all, if your poker playing is something that you do for fun, i.e. a hobby, the entire amount you won will show up on your Form W-2G and will have to be claimed on the front of your tax return on Line 21 as “Other Income”. The only way to offset the money you won during the year is with the money you lost during the year and with the money that you “payback” to others that back you. The only place to do this is on a Schedule A which is for itemized deductions. The bad part is that if you cannot itemize, you technically cannot offset those gambling winnings at all. It’s not fair but it’s the rule. Whether or not you can itemize can be determined fairly easily by looking at the instructions for the Schedule A. [I][COLOR=navy][B]-I play poker as a hobby. I was lucky and won a $12,000 package which included my $10,000 buy-in in addition to $2,000 to cover my plane ticket, hotel room and food. How does this work on my tax return.[/B][/COLOR][/I] Let’s assume that this is all you made for the year. You would claim the $12,000 as income and then you would deduct the $10,000 as gambling losses (assuming you weren’t “in the money” in the tournament). Unfortunately that is it. Even if you spend the $2,000 or more for your expenses, there is no way to write this off. You can ONLY do this if you consider your poker play as a business. [I][B][COLOR=navy]-Using the same example, meaning that I won the $12,000 package but I am a pro, how would I treat this now?[/COLOR][/B][/I] In this instance, let’s assume this is all your income and expenses for the year. We will assume that you played the tournament and did not make any money. Let’s also say that you ended up spending $1,500 for your hotel and plane trip and $500 for your meals. It looks as if you can write off the entire $12,000 income against $12,000 in expenses and gambling losses but here is the twist. Yes, your income that you would claim on your Schedule C is $12,000. Your expenses, however, are only $11,750. Why? Meals are only ½ deductible. Remember also to keep your receipts so that you can prove you spent the money. Otherwise, it would all be considered income. [/COLOR][U][COLOR=black][B]FOREIGN ACCOUNTS[/B][/COLOR] [/U][COLOR=navy][B]-[/B][/COLOR][I][COLOR=navy][B]What do I need to know about declaring foreign accounts?[/B][/COLOR][COLOR=black] [/COLOR][/I][COLOR=black] You have to answer the question on the Schedule B of your Form 1040 if you have “an interest in or signature or other authority over a financial account in a foreign country…” You have to list on the Schedule B what the foreign country is. The best way is to go on the internet and type in what specific law you are interested and try to find a “free” link. Its all out there, it just depends on specifically what you are looking for. [I][B][COLOR=navy]-Is NETeller considered a foreign bank account? I know from the emails I have received from NETeller they certainly do not consider themselves a bank.[/COLOR][/B][/I] This is a really good question – almost too good! Even after doing some research on this, I am not sure. I know that if you earn interest on your money, and a bank is holding more than $10,000, you have to answer the question on the Schedule B of your Form 1040 if you have “an interest in or signature or other authority over a financial account in a foreign country…” Netteller may just be a holding company and we really don’t know where it is operated from. I know that you have to list on the Schedule B what the foreign country is. If you don’t know, how can you answer that? If we cannot find this out, then we really cannot truthfully answer the question on the schedule. [/COLOR][U][COLOR=black][B]MISCELLANEOUS[/B][/COLOR] [/U][COLOR=black][I][COLOR=navy][B]-Reporting poker income properly per the Federal requirements seems to cause a problem on my State income tax. If I report Federal Income properly (gross poker winnings or inflows reported as 'income', poker losses or outflows then taken as a 'deduction'), then the gross amount of poker revenue hits the top line of your State return and since you cannot deduct poker losses you must pay tax on poker revenue and not just your winnings. Netting your winnings on your Federal return solves this problem for the State return, but reporting only net winnings is not permitted on your Federal return.[/B][/COLOR] [/I] Tax law states that you cannot net your wins and losses – plain and simple. The problem is that many gamblers think that because you have enough losses to offset winnings, there is no reason to report either to the IRS. YOU CANNOT NET THESE TOGETHER AND NOT REPORT THEM! You also cannot net them together either. They, unfortunately, have to be separated. Although this hurts you on the State Return, there is really no other way around it. [/COLOR][COLOR=black][I][COLOR=navy][B]-What are some links to the actual tax laws so that I can look up specifics about these rules? [/B][/COLOR][/I] You have the main IRS website at [/COLOR][URL="http://www.irs.gov/"][COLOR=red]www.irs.gov[/COLOR][/URL][COLOR=black][COLOR=red].[/COLOR] Then you have [/COLOR][URL="http://www.business.gov/"][COLOR=red]www.business.gov[/COLOR][/URL][COLOR=black][COLOR=red].[/COLOR] Unfortunately most of the tax laws with opinions are in research packages. Such companies are RIA and TaxTools. [/COLOR][B][COLOR=black]EXAMPLE – FILING AS A PRO VS. HOBBY ON YOUR TAX RETURN[/COLOR] [/B][COLOR=black]Let’s try to break this down so that you can see how it works on your actual tax return. It’s important to realize what a difference this can make in your tax situation. Here is the scenario: Your poker is a hobby. You are single without children. You made $40,000 in winnings, $20,000 in losses and spent $10,000 for your other expenses such as hotels and plane tickets (let’s don’t assume any meals in this example). This is all you had. For your 2005 Tax Return, your income is $40,000, reported on line 21 as Other Income and the $20,000 would go on your Itemized Deduction sheet under Gambling Losses. You would get a personal exemption for yourself of $3,200 so your taxable income is $16,800. The Federal tax on this is $2,159, which is what you would owe the IRS. Now, lets take the same scenario above except now you are a poker pro and treating your poker playing as a business. Here is how it looks now. For your 2005 Tax Return, you report all of the information on a Form called a Schedule C, Profit or Loss from Business. You would show $40,000 as income, the $20,000 of wagering losses on the line for Cost of Goods Sold, and then claim the $10,000 as Travel expense. This gives you net income of $10,000. This $10,000 is subject to self-employment tax which is Form SE. So, $10,000 shows up on the front of your Form 1040 on line 12, which flows from the Schedule C that you prepared. You will have to pay self-employment tax of $1,413. This is calculated on Form SE as the $10,000 less 7.65%, and then you multiply that number by the self-employment tax rate of 15.3%. The IRS gives you a deduction of ½ of this number, which is $707 on the front of your return on line 27. Now your income is $9,293. You get a standard deduction of $5,000 since you are single, and you get the exemption for yourself of $3,200. Now your taxable income is $1,093 and your Federal tax on this is $109. Remember that you now have to add your self-employment tax to this of $1,413 which goes on Line 58 (this comes from the Form SE). Now you owe the IRS $1,522. See the difference in claiming as a pro versus a hobby. With this very basic scenario, your tax savings is $637. Believe me this amount is nothing compared to the larger numbers you will probably have. The more money you make, the more the tax savings as a professional poker player. Being able to write off expenses besides your wagering really makes a difference.[/COLOR] [SIZE=3][COLOR=navy][B]~Hope this gives you Insight~[/B][/COLOR][/SIZE] [/QUOTE]

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