A number of US poker players are under the misconception that they can get away from paying taxes on their poker winnings. Unknown to players, the US federal government uses the latest technology to track players’ bank accounts, owing to which players have to pay taxes on their winnings, irrespective of whether they were playing poker online or in a land casino.
Players may feel that it is easier to hide their poker winnings from the government’s watchful eyes if they play in casino card rooms, but nothing can be farther than the truth. Land casinos are required by law to log each poker game session.
US tax laws also require land casinos to generate W2Gs whenever players win more than $5,000 and submit it to the IRS along with the players’ personal information. Players have the right not to reveal their personal information to casinos, in which case casinos are required to hand over the winnings minus the taxes payable.
Casinos are also required to generate currency transaction reports whenever players’ spend more than $10k in the poker room. If any player activity arouses a casino’s suspicion, it can immediately report the matter to the IRS. The best way out for US players is to report their winnings and pay taxes on them.
Players can declare their poker winnings in two ways. One, they can enter their poker income under the miscellaneous category, which is something most players do. Usually, players who declare their poker winnings as recreational poker player will only have to pay the standard tax rate on their winnings. They will be exempted from paying Medicare taxes and social security taxes.
Although the IRS has not defined the term “pattern of winning” clearly, players who exhibit specific patterns of winning can declare their poker winnings as professional poker players. A schedule C tax form is required for players who want to declare their winnings in this manner. One of the major drawbacks of using the schedule C form is that players will be required to pay the self-employment tax, which includes Medicare tax and social security tax. The silver lining to the cloud is that they can deduct 6.2% as business expenses.
On the brighter side, players who use schedule C tax forms can deduct related expenses such as travel expenses, accommodation expenses, and car rental expenses. Online poker players can also deduct computer expenses, Internet expenses, and all other computer-related expenses.