My younger son has been playing poker since he was very young, and appears to be quite good at it. He lives near Denver now, and has been playing more and entering some tournaments. He is actually winning money, and tax consequences loom large.

The big question is whether or not he can declare himself a professional gambler and file a Schedule C, even though he has another full time job. I just listened to a podcast from a guy in a CPA firm in Vegas that does a lot with gamblers, and he said that 15-20 hours per week has been sufficient to survive an audit when declaring professional gambler status. Can anyone who is knowledgeable and experienced in this area confirm this?

For those who don't know, the IRS doesn't particularly like gambling income, and while almost any other business activity can be pursued part time, gamblers traditionally have to be considered full time gamblers to be considered professional gamblers.

The difference is whether you can file a Schedule C and deduct ordinary business expenses such as travel, or whether you can deduct only gambling losses, and then as an itemized deduction on a Schedule A.

He is serious about it, keeps meticulous records of his wins/losses and time spent playing. This will make a big difference for him, as he is single and rents, so he takes the standard deduction. Basically he's screwed out of his first $12K of losses, and can't take expenses, if he's not considered a professional.

Thanks for any input from anyone who is qualified to opine.

Recommend you read the article recently published in the Journal of Accountancy, link follows. In it there is a link to an older article that discusses the issues the Courts consider as to whether a person is a casual gambler v. a Pro. Your son is doing good to keep detailed records contemporaneously on his activities. That goes a long way if the need to argue a position arises.

AICPA New Law on Gambling Losses

I appreciate the link, but I've read those articles. Basically he has most things checking off the boxes, except that he has a good job and makes decent money, so poker is not how he earns his living. I heard that one tax professional say that 15-20 hours per week would survive an audit, and I'm looking for confirmation of that.

Court cases are going to be the definitive answer. If your fact pattern is supported by a majority of the Court cases (or you can make it so), then you have legs to stand on. Otherwise it's a crap shoot! If he's using a CPA or other professional for his return preparation, you have to remember that the CPA has to be satisfied of the position taken before he will sign the return as he/she is also subject to penalties for unsupportable positions.

I think you need to factor in the cost of a tax audit. Even if the IRS does not find anything wrong with the return you have the time, expense, and worry to think about. I would hazard to guess that if he makes substantial income from another source the IRS is going to contest the matter. Remember the government has unlimited resources when it comes to these matters.

I wonder if Edwin Edwards ever filed as a professional gambler when he was governor. He certainly wagered a substantial amount of money in casinos.

What’s stakes does he play?
I’ve cashed out pretty good sums from 1/2 and 2/5 nl games and never gotten a tax ticket.

Maybe there’s a threshold I haven’t hit.

If plying the same room or casino a lot, I know players that will “squirrel” a couple K in chips and bring them back the next day and cash out or use to buy in another game

I would think it's a non-issue for anything they don't 1099 you for. I forget the number. But if you want to write off expenses and losses, you probably need some 1099s to show you're really playing. I kind of wonder how the IRS views all the comped trips and hotel stays for heavy gamblers. My uncle does this stuff and gets flown to LV, AC, Biloxi, etc. all the time. I don't know if that stuff is reportable.

quote:

Originally posted by ElKabong:
What’s stakes does he play?
I’ve cashed out pretty good sums from 1/2 and 2/5 nl games and never gotten a tax ticket.

Maybe there’s a threshold I haven’t hit.

If plying the same room or casino a lot, I know players that will “squirrel” a couple K in chips and bring them back the next day and cash out or use to buy in another game

Cash games aren't the problem. The IRS requires casinos to issue a W2G for any winnings of $5000 or more, and I don't think they do that in a cash game. But he's playing more tournaments now. In 2019 he'll have $16K reported to the IRS. And he has another $11K in tournament winnings that while not reported, are public record. Tournament cash outs are public record, and poker websites like TheHendonMob post records by player name.

If you know anyone who plays poker tournaments, just google the name and "poker", ie. "John Smith poker". You will see links for TheHendonMob database, and clicking on the link will show winnings. For example:

https://pokerdb.thehendonmob.c...ayer.php?a=r&n=12632

I think most poker players only claim winnings for which they get W2s or 1099s. But if you're ever audited and all it takes is a google search to see all the winnings that were less than $5K each, it takes a lot of nerve (or stupidity) not to report it. Of course legally all winnings are required to be reported and are taxable, no matter what size, including cash games.

But playing poker in a cash game is like playing any other casino table game. If you walk away from a craps table up $10k, there is no record of it. There could be reporting requirements if you cash $10k at one time, just like bank deposits. I've never had the good fortune of doing so, but as you said, you can cash a few chips at a time and there is no large transaction. I have cashed out over $5K on two separate occasions, and that was done without report.

Even a casual gambler can take losses as Schedule A deductions, but he's got almost no other deductions to itemize, and he can't take other expenses that way. He's flown to Vegas for the WSOP (not main event), but a $500 entry, and won $3700. It sucks to have to pay taxes on the $3700 and not be able to deduct the $500, or his flight there, or the hotel and meals.

It sounds like your son is quite serious about his poker, and it’s impressive that he's considering declaring himself a professional gambler.

If he’s putting in 15-20 hours a week and keeping thorough records of his wins and losses, he might indeed meet the criteria to file as a professional on Schedule C. However, it’s really important he talks to a tax expert who specializes in gambling because IRS rules around this are pretty strict. If he’s into different kinds of gambling for fun, checking out offers like the book of dead slot bonus might be enjoyable.

This message has been edited. Last edited by: rcpylon,

quote:

Originally posted by honestlou:
For those who don't know, the IRS doesn't particularly like gambling income,

Oh they LOVE the income and expect every nickel of that to be reported, it's the offsetting losses, entries and expenses that they aren't wild about and make it difficult to claim.