Taxes Hold ‘Em

[LL] “Since you guys are here playing poker, I assume you’ve all filed your taxes already?” Leroy the Lion suggested, less than rhetorically.

[RR] “Sure, I usually do them as soon as I get my W-2 and all my 1099-DIVs and INTs and whatnot”, Roderick the Rock confirmed. “No reason to wait if I’m getting a refund.”

[SS] “I’m almost done”, Stan the Stat declared. “Definitely needed this break, in any case. How about you?”

[LL] “Starting on them tomorrow. I procrastinate every year, but at least I don’t have to run to the post office anymore, thanks to online filing.”

[RR] “Have you ever needed an extension?”

[LL] “Trust me, I’ve considered it many times, but that would be yet another form1 to fill out! My vice of laziness is stronger than my bad habit of procrastinating.”

[SS] “Speaking of taxes, I wonder how many poker players didn’t request their Full Tilt Poker funds back because they were sure the IRS would realize they hadn’t paid taxes on their winnings over the years.”

[RR] “I’m sure a lot of people with under $100 dollars there wouldn’t risk it. Maybe a thousand dollars, ten thou, or more even.”

[SS] “Basic expected value calculation: the chances of getting audited times the owed taxes and penalties versus the amount in the FTP account.”

[RR] “The IRS hasn’t publicly admitted anything, but supposedly they’re not involved with the payouts.”

[SS] “Legally, these payouts are exactly the same as anytime you withdraw money from an online poker account. The tax implications come when you win and lose money in games, not when you deposit and withdraw.”

[LL] “Ever the optimist, I paid my taxes on my Full Tilt Poker winnings, even for 2011,2 since I expected to get my bankroll back.”

[RR] “If you’re an optimist, why didn’t you not pay the taxes and assume the IRS would never audit you.”

[LL] “I’m a sole proprietor, so I’m already cruising down audit highway in a bright red sports car. And it especially sucks to live in Massachusetts, one of four states3 where you can’t deduct your gambling losses. And that’s not even net. If you have five winning sessions and six losing sessions, Massachusetts only cares about those five wins.”

[RR] “Unless you file your taxes as a professional poker player.”

[LL] “Exactly, but none of us play enough poker to move it out of the hobby category. Well, except maybe Yuri back in his online poker heyday.”

Footnotes:

  1. For individuals, Form 4868 will automatically get you another six months to file your taxes. You still need to pay estimated taxes in April though if you owe.
  2. Legally, nobody had to pay taxes on their 2011 Full Tilt Poker winnings since there was no “constructive receipt”. That would be the once case where taxes would be owed when the FTP funds were returned in 2014.
  3. Massachusetts, Connecticut, Illinois, and Ohio specifically don’t allow deducting your gambling losses as a hobbyist. Some states have no income taxes (AK, FL, NV, SD, TX, WA, and WY as of 2014); others only tax dividends and interest (NH and TN as of 2014); the remaining states allow you to deduct your gambling losses like the U.S. government does.

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