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Tax Consequences of Online Poker Withdrawals Post-Black Friday[ return to main articles page ]

By: Dan Cypra    [See all articles by Dan Cypra]
Published on Jun 28th, 2011
If you're one of the many online poker players from the United States that has withdrawn, or is thinking of withdrawing, from sites like PokerStars following Black Friday, beware. Poker tax expert Ann-Margaret Johnston (pictured), the brains behind PokerDeductions.com, told PocketFives.com that paying taxes on your withdrawals is of the utmost importance. Johnston prepares taxes for well-known pros like Jeff yellowsub Williams and Carter Bdybldngpkrplyr Phillips.

Johnston told PocketFives.com, "I've been hearing players say they have $500,000 stuck on Full Tilt and PokerStars. Then, they ask what they should do now. If it's money they've claimed in the past as income, they have no problems. If they take it off the site, they're going to have to pay taxes on it. Anyone who hasn't been reporting anything needs to think twice about it."

Remember, the U.S. Department of Justice returned PokerStars' dot-com domain name in order to facilitate player cashouts. Therefore, it's possible that the U.S. Government has a watchful eye on what's being withdrawn. Johnston explained, "If this is being overseen by the DOJ, they have your name and bank account number. They're going to know that you transferred $50,000 to your bank account and then will take a look at your tax return."

What will the IRS be looking for on your 2011 taxes, which will be due in April 2012? Matching transactions, of course. "They're going to know you transferred cash off of an online poker site and they'll know how much you reported," Johnston argued. "Even if you lost everything, you should at least show the gross amount you had in your account."

Johnston advised, "Let's say you were playing until April 15th and had $20,000 online. The IRS had better see $20,000 or more on your return. If you don't put that amount on a tax return, they could get you for fraud."

On April 15th, the U.S. Department of Justice seized the dot-com domain names belonging to PokerStars, Full Tilt Poker, and Absolute Poker and indicted 11 individuals associated with the sites and their payment processors. So far, only the former has paid out U.S. players. As a result, Johnston revealed that some of her clients are planning to move to Canada in order to continue playing online poker professionally.

Our resident tax expert has appeared on several editions of the PocketFives Podcast and authored one of the most popular articles we've ever had on our site, a Poker and Taxes Q&A. Johnston told us, "You should be honest in claiming your wins and losses if you haven't by now. If you didn't, you're going to pay all of your earnings in one lump sum when you withdraw. The IRS can go back and start making your life miserable, looking at your lifestyle. They'll drive by your house and pull your DMV records, for example."

We've had several members of PocketFives ask if withdrawing from PokerStars, and eventually Full Tilt, UB, and Absolute Poker, will increase their chances of getting audited. Johnston guessed, "My first inclination is yes, but the DOJ has a list of players anyway. They have our social security numbers. When you signed up for an online poker account, you had to put your name and address and it had to be verified."

What about money still locked up on sites like Absolute Poker, Full Tilt, and UB? Should poker players report that on their taxes? No so, said Johnston: "There isn't anything to report because you can't get to it. There's something called constructive receipt of income. If you made it, can claim it, and can use it, then you have to report it as income."

In a recent thread in the Poker Community forum about back taxes, Johnston summed up how poker players, and those who withdraw from their U.S. online poker accounts post-Black Friday, should be approaching their poker taxes: "If you have income, you are supposed to report it. Whether or not you get caught is a gamble... You may never report or pay taxes on anything and they may never catch you, but if they do, you are looking at fraud, which they would enjoy doing to a poker player."

Visit PokerDeductions.com for more information.

Comments

  1. As much as it sucked.....I always reported my winnings.....:}
  2. pretty sure the amount you cashout has nothing to do with how much you pay taxes on
  3. Thanks for the article! I would like to ask for clarification on this quote:

    “Let’s say you were playing until April 15th and had $20,000 online. The IRS had better see $20,000 or more on your return. If you don’t put that amount on a tax return, they could get you for fraud.”

    The amount you should claim should be your income, NOT your cashout amount, correct? That person with 20k online could have made 5k in deposits and only profited 15k. Are you advising that people claim the whole amount? Certainly you should be able to show your records of deposits, methods, and games played / detail to tie out your profit/loss but to claim the entire amount would be incorrect imo.
     
  4. Ha that last sentence is funny.
     
  5. yeah but what if u lost back what u won online in a cash game in vegas?
  6. Basically you are right - but I guess my point is that if you cannot justify where it is from there are bigger issues. The money you take out could be for more than one year but it all needs to make sense if questioned.
  7. what if you claimed income from previous years over the amount that you cashed out? For example, say that I cashed out $20k last year but claimed 40k in winnings, leaving 20k online. Am I correct in assuming that I would not have to pay taxes on the 20k that still remains because I already paid it last year?
     
  8. um yea....so no
  9. This whole system sucks. Hobby player deposits 1000 online. Makes 500 1st night, loses 200 next two nights, makes 500 4th night loses 600 5th night makes 1000 6th night loses 900 on 7th night. That's what you are supposed to do right. Keep track of each session. So hobby player would have to report they won 2000 when in actuality the income is only 100 for the week. That is a bunch of bullshit. Somebody needs to take this to the Supreme Court.
  10. Ya wtf? Are they not counting losses or what lol?
     
  11. Only way they count losses is if you file as pro poker player and file a schedule C. But then you have to play self employment taxes.
  12. Here you go, 7 Helpful Tips from the IRS

    IRS Tax Tip 2010-34
    Gambling winnings are fully taxable and must be reported on your tax return. Here are the top seven facts the Internal Revenue Service wants you to know about gambling winnings.
    1. Gambling income includes – but is not limited to – winnings from lotteries, raffles, horse and dog races and casinos, as well as the fair market value of prizes such as cars, houses, trips or other noncash prizes.
    2. Depending on the type and amount of your winnings, the payer might provide you with a Form W-2G and may have withheld federal income taxes from the payment.
    3. The full amount of your gambling winnings for the year must be reported on line 21 of IRS Form 1040. You may not use Form 1040A or 1040EZ. This rule applies regardless of the amount and regardless of whether you receive a Form W-2G or any other reporting form.
    4. If you itemize deductions, you can deduct your gambling losses for the year on line 28 of Schedule A, Form 1040.
    5. You cannot deduct gambling losses that are more than your winnings.
    6. It is important to keep an accurate diary or similar record of your gambling winnings and losses.
    7. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.
    For more info visit www.irs.gov
     
  13.  
    Originally Posted by tcb21 View Post

    what if you claimed income from previous years over the amount that you cashed out? For example, say that I cashed out $20k last year but claimed 40k in winnings, leaving 20k online. Am I correct in assuming that I would not have to pay taxes on the 20k that still remains because I already paid it last year?

    correct
 
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