Thanks to a significant change in tax law, American poker players should pay special attention to their taxes this year. The Tax Cuts and Jobs Act of 2018 (TCJA) was an unprecedented overhaul of the American tax system and will be in effect this year and beyond.

Properly planning and understanding your tax situation is crucial for poker players and spending a couple hundred dollars on proper tax planning could lead to thousands of dollars in tax savings.

All gambling winnings are a reportable event for American poker players. As the year winds down, casinos may issue a W-2G – Certain Gambling Winnings. The W-2G is issued when net winnings are $600 or more and at least 300 times the amount of the wager. They will also be issued if you are subject to federal income tax withholding.

Casinos are required to withhold a flat rate of 24% if your net winnings are more than $5,000 so keeping adequate records of wins and losses is important.

Your winnings will be reported on Line 21 of your 1040 tax form as “Other Income”. This type of reporting commonly defaults to a recreational gambler. Recreational gamblers are allowed deduct their losses up to their winnings, on their Schedule A as an itemized deduction.

Individuals who play professionally will report their gambling activities on Schedule C – Profit or Loss from a Business. This type of reporting allows the professional bettor/business owner to reduce the income earned by expenses incurred or losses from bets up to the extent of their gambling winnings. The TCJA limited expense/losses up to gambling winnings for both professionals and recreational gamblers.

How do you know which reporting is best/right for you?

The IRS has several criteria under the Internal Revenue Code that helps distinguish the casual gambler from the professional gambler/business owner. DFS Accounting, a tax and consulting service focused on American gamblers, has developed a Tax Determination Questionnaire designed to assist American poker player in making this decision. Selecting the correct tax position is critical. It’s important to understand that missteps could result in IRS tax notices and significant interest and penalties.

Determining the proper tax position (recreational vs. professional) is important but not as important as proactively tax planning throughout the year. Proper tax planning will lessen your tax burden and reduce your stress come tax time.

If you have questions about your current tax situation or find the process more complicated than you thought, contact DFS Accounting for a free consultation.