If you’re one of the many online poker players from the United States that has withdrawn, or is thinking of withdrawing, from sites like PokerStarsfollowing Black Friday, beware.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 yellowsubWilliams and Carter Bdybldngpkrplyr Phillips.
Johnston told PocketFives.com, “I’ve been hearing players say they have $500,000 stuck on Full Tiltand 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 Therefore, it’s possible that the U.S. Government has a watchful eye on what’s being withdrawn.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 Podcastand 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.