Poker Taxes Straight from the Source
Johnston is a pretty good poker player, too. She is fresh off a third place finish in the $1,000 buy-in Ladies No Limit Hold’em event at the 2010 PokerStars Caribbean Adventure (PCA) in the Bahamas. She finished behind only Team PokerStars Pro member Vanessa Rousso and Halli Pinson in the tournament, banking $9,300. We asked Johnston to assess the validity of several statements that appeared in the thread in Poker Discussion.
PocketFives.com: One poster relayed the importance of gathering audit information from online poker sites: “Email the sites about a full audit for 2009. The sooner you do this the better, personal records like spreadsheets are not enough by themselves, you need another source to justify expenses. We all know FTP for example will take forever on this so plan accordingly.”
Ann-Margaret Johnston: It’s not necessarily true that spreadsheets are not enough by themselves. That’s debatable because few poker players have been audited. You should have everything you can to back up what you file. You’re on trial if you’re audited. You have to prove every single expense you have.
PocketFives.com: What about the reporting of offshore accounts? One post read, “If you have over $10K in aggregate online from all the sites you play on, you must report it. If at any point during the year you had more than $10K online, you need to report it.”
Ann-Margaret Johnston: That is true and you report it once per year. For example, if I have $5,000 on Full Tilt Poker and $8,000 on PokerStars and the total hits $10,000, then you fall under the rules of having to report the average. The form you need to use is 90-22.1 and it’s due on June 30th. They extended it in 2009 for various reasons to October 15th, but it’s due on June 30th this year. It’s easiest just to do it with your taxes. The worst thing that could ever happen is that you get audited, the IRS finds out, and they nail you for not filing these forms.
PocketFives.com: Talk about the importance of record-keeping, outlined in the following statement: “I then compiled a summary in Excel of: Site name, total winnings, total profit, net transfer amounts, S&G winnings/profit, and MTT winnings/profit.” Is that enough?
Ann-Margaret Johnston: That’s on my website under “Poker Log.” It’s in an Excel spreadsheet. The more support you have of what you’re doing, the better. The more you give the IRS, the better.
PocketFives.com: Is it advisable for poker players to set up an LLCor other corporation?
Ann-Margaret Johnston: You can’t have a corporation being a poker player. They’ll say that it’s not the corporation playing, it’s you. You can have a one-person LLC, but you can’t elect to be treated as a corporation for tax purposes. There is really no advantage to setting up an LLC other than for liability reasons. What liability do you need to be protected from? It’s a waste of money.
PocketFives.com: Talk about what filing deadlines exist.
Ann-Margaret Johnston: You really need to have a CPA who knows what they’re doing. Let’s say it’s your first year and you’ve finally made money. When I do your tax return, I’m going to base what you did in 2009 for your 2010 tax return. I’m going to give you tax estimate coupons. Those are due four times a year – April 15th, June 15th, September 15th, and January 15th. On April 15th, not only is your tax return due, but if you’re required to do estimated payments, you’re also sending in your first one. You can also pay in one lump sun.
Another important deadline is January 31st. If someone has backed you, you won money, and then paid them money, you have to give them a 1099. That’s proving to the IRS that the money went to someone else. My advice is to do it no matter what the dollar value is. It doesn’t hurt. All you need is a person’s full name and social security number. It goes in Box 3 on your tax return, “Other Income.”
PocketFives.com: How do you create a poker player’s tax return if they are unable to retrieve audit information from online poker sites and have not kept other records?
Ann-Margaret Johnston: What I’ll do is go to every site I can think of like PocketFives, SharkScope, thepokerdb, and even Google their screen names to find as much information as I can. I’d also want to look at their bank statements if they have done wire transfers.
PocketFives.com: Talk about some of the other tax credits that poker players can take advantage of.
Ann-Margaret Johnston: I’m encouraging anyone with a bad year in 2009, if they meet certain parameters, to buy a house and the IRS will hand them $8,000. If you buy a house before April 30th and you’re single, you can get the full $8,000 up to $125,000 in gross income. Beyond that, it starts going away.
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