It’s once again time to pick the brain of Kondler and Associates, CPAs President and Owner Ray Kondler (pictured), whose firm specializes in part in poker taxes. We’re just a couple of weeks away from the all-important April 15 tax deadline in the US and, given that many Americans have just received refunds from Full Tilt, there are plenty of tax-related questions flying around. With that in mind, let’s get to our interview. You can read more at PokerTaxSavings.com.

PocketFives: Very basic question that we want to make sure everyone reading this article knows the answer to: What is the proper way to report gambling income and losses on a tax return?

Ray Kondler: Reporting gambling income and losses on a tax return varies depending on the filing status of the individual. If you are an amateur gambler, you are required to show total gross gambling income on Line 21 (“Other Income”) of your 1040 and total gross gambling losses as an itemized deduction on Schedule A. You cannot net your income against your losses and show that figure on Line 21; it must be separated.

We have been receiving many questions from new clients who are filing as amateurs regarding the amount of gambling winnings shown on tax returns. Many players are under the assumption that the IRS only requires net winnings to be shown on Line 21. This, however, is incorrect and we have been educating many players on how to do this in accordance with IRS guidelines.

The IRS requires amateur gamblers to separate gross income and gross losses in order to better represent the actual activities of the year. Any gross income from gambling increases your Adjusted Gross Income, which could have an effect on eligibility for certain deductions and credits. This can also serve as a disadvantage to the taxpayer since some states base income tax off gross gambling winnings rather than allow an itemized deduction for gambling losses.

For instance, a Connecticut resident had gross gambling winnings of $20,000 and gross gambling losses of $20,000 while gambling in Connecticut. The player would not be required to pay tax on gambling activities on the Federal level because the $20,000 of income would be offset by the $20,000 of losses as an itemized deduction. However, the state of Connecticut will tax the player based on the $20,000 of gross winnings, disallowing the deduction for the losses. In this case, even though the player broke even gambling, he would be subject to state tax on the $20,000.

If you are filing a return as a professional gambler, you are still required to show gross gambling income and gross gambling losses separately, but this will all be shown on Schedule C rather than on Line 21 and Schedule A. Although you are putting the information on a different form, the process for recording and showing income and losses remains the same. This is why we tell our players to make sure they track all winnings and all losses instead of net amounts. At the end of the year, it is difficult to decipher the amount of gross winnings and losses if players only tracked net amounts.

PocketFives: What is the best course of action for players who have not filed yet this year? Should they file an extension or should they try to file before the April 15 deadline? What about those players who haven’t filed in a few years?

Ray Kondler: The April deadline is quickly approaching, but it is not too late to submit your 2013 tax year documentation to a CPA to prepare a return. We talk to players on a one-on-one basis and determine if it would be practical for them to prepare all of the documentation needed to file a return. If it is evident that we will not be able to gather all of the necessary information, we advise players to file an extension so the process can be completed.

If someone does not file a return or file an extension before the April deadline, they will be assessed penalties and interest based on the length of the delay. In this case, if you owe the IRS money, the later you wait to file, the more money you will owe. However, if you are due a refund, you will only be repaid the amount of tax overpaid.

Some players we talk to have not filed taxes in a number of years. If this is the case, the clock is already ticking for all prior year returns, meaning the longer you wait to file a return from 2010 or 2011, the more penalties and interest you will owe. We encourage these players to file sooner rather than later and work with them to gather all of the necessary documentation to file the appropriate tax returns.

Kondler & Associates, CPAs is a full-service accounting and financial consulting firm with locations in Las Vegas, Nevada and Atlantic City, New Jersey. The firm, led by President and Owner Ray Kondler, CPA, specializes in individual and corporate tax preparation and has developed a thorough understanding within the gaming industry over the past 10 years. This has translated into a practiced understanding of the industry and exposure to diverse gaming taxation scenarios. Visit PokerTaxSavings.com for more details or call 702-433-7075.

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