Poker winnings are taxable whether they are from cash games or tournaments. This is true for brick and mortar, as well as online poker rooms. Even if a player lives in a state where online poker is explicitly illegal there is still a responsibility to pay taxes on those winnings. Online poker taxes in the United States. Poker Tournaments File Form W-2G for each person to whom you pay more than $5,000 in winnings, reduced by the amount of the wager or buy-in, from each poker tournament you. Winnings and losses of the participant from other poker tournaments you have sponsored during the year are not taken into account in arriving at the $5,000.

On vacation with my dad and siblings recently, my brother and I passed the hours playing several games of Monopoly, which I hadn't played in, well, decades. And I had never played it heads-up.

I was struck by how winning in the game required asymmetry. If my brother and I each owned two railroads, we just passed that rent money back and forth. But if I had three and he only one, then not only did I get paid off three times as often, but the rules of the game dictate a higher rent payment each time, and now there would be a net flow of money my way.

The same principle applied to the “Electric Company” and “Water Works” utilities. If we each had one, it was a wash. But if one of us owned both utilities, there was a strong net flow of cash to the owner.

The whole situation reminded me of one of the simplest but most powerful truths about poker I’ve ever learned — one which seems obvious once it’s pointed out, but which you probably have not thought of on your own. It’s about reciprocality. My eyes were opened to it through Tommy Angelo’s great book, Elements of Poker, so let me quote him:

Before anything flows, there must be a difference. Between different elevations, water flows. Between different pressures, air flows. Between different poker players, money flows.

…Reciprocality is any difference between you and your opponents that affects your bottom line. Reciprocality says that when you and your opponents would do the same thing in a given situation, no money moves, and when you do something different, it does.

You can mine for reciprocal gold anywhere in the poker universe. Pick a topic, any topic. It can be as general as “food selection” or as specific as “Ace-king in the big blind at limit hold’em.” You dig for gold by looking for things that you could do differently in the future, things that will create or increase advantageous differences between you and your opponents, and thereby cause theoretical money to flow from them to you.

You’ve probably heard it said that if you’re at a tight table, play looser, and if you’re at a loose table, play tighter. There’s truth in that, and it’s in reciprocality. If you’re making all the same decisions as your opponents, then the money just sloshes back and forth among you, with bits of it being lost to the rake every hand. In order for there to be a net flow of money your direction, you have to do something different — and something better — than your opponents.

What might that “something” be? Just about anything, really. Here’s a list of possibilities:

• You might steal the blinds better.
• You might pick off bluffs more accurately.
• You might play small suited connectors more optimally.
• You might fold marginal starting hands more often.
• You might be better at exploiting tournament bubbles.
• You might make more correct thin value bets on the river.
• You might be friendlier, and thus pick up extra calls on your strong hands because people don’t mind losing to you.
• You might be better at concealing tells.
• You might be quicker to recognize that this is not a profitable table, and request to be moved.
• You might be sharper at deciding to leave when you’re not playing your best.

If you want to make more money at poker, you’ve got to find something at which you are already superior to your opponents and perfect that skill even further. Or you have to find a leak in your game, something at which your opponents are consistently better than you, that is currently causing money to flow from you to them, and make it stop.

The latter is usually simpler to do, though not easy. It requires a big investment of the kind of humility, introspection, and objective self-evaluation that most players can’t find. It’s simple, in theory, to stop playing like a madman after losing a big pot on a bad beat, but it’s not easy to muster the discipline to recognize that is what you’re doing, that it’s costing you money, and that you need to plug that leak — and then to do it.

If it were easy, you would have already fixed it long ago, right? In fact, if it were easy to fix, it wouldn’t be such a common problem. But then it wouldn’t present you with a golden opportunity to open up a difference between you and the opponents who tilt in the same way and for the same reasons.

Look for specific things that your opponents are doing better than you. Match what they do, and you stop the flow of money out of your pocket. Learn to do it better than they do, and you make the money flow your way. There is literally no other way to make a long-term increase in the rate of your poker earnings.

^{Photo: “Monopoly Cowboy,” Rich Brooks. Creative Commons Attribution ShareAlike 2.0 Generic.}

Robert Woolley lives in Asheville, NC. He spent several years in Las Vegas and chronicled his life in poker on the “Poker Grump” blog.

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Many poker players in the United States are unaware of the tax laws that cover their winnings. Poker winnings are taxable whether they are from cash games or tournaments. This is true for brick and mortar, as well as online poker rooms. Even if a player lives in a state where online poker is explicitly illegal there is still a responsibility to pay taxes on those winnings.

Online poker taxes in the United States

Many players may think that they can get away with not paying taxes on winnings because it was not won in a traditional casino. This could not further from the truth. Just as the technology for online poker has advanced over the years, so has the technology that helps the US Government monitor banking transactions. This is not just true for money that you deposit into a bank account. It goes well beyond that.

While depositing a check or receiving a wire from an online poker room may draw some scrutiny from the IRS, the government has other ways of tracking your online poker winnings down too.

The Neteller bust in 2007 was the first time it became obvious to online gamblers that the US Government could monitor their transactions. Many players thought that the IRS would never gain access to this information. They were proven wrong. Many players were forced to scramble to pay taxes on their winnings before they got a dreaded tax bill. Many players learned a lesson here, while others did not.

Neteller was just one of many US facing ewallets to fall. The government seized UseMyWallet, QuickTender, eCheckUS, eWalletXpress, PrePaidATM and many fly by night processors that processed US online gambling payments. The Department of Justice even created a bogus processor called Linwood Payment Solutions and received countless information about player payments that passed through their processing center. This gave the feds unlimited access to online poker player’s transactions that were once thought to go under the radar.

Ewallets were not the only companies handing over their player records to the US Government. Busted online poker rooms and other online gambling companies were doing the same thing. PokerStars, Full Tilt Poker, Absolute Poker and Ultimate Bet are just a few of the names that were forced to turn over player records to federal authorities. The lesson learned here is that there is always a chance that the information that you thought was private can fall into the hands of the IRS.

Brick and mortar poker taxes

Brick and mortar wins are a bit it easier to hide, but there is still an obligation to report your winnings. Each cash game session must be logged. The IRS does not define what a session is. Keeping a daily journal of wins and losses should suffice. Tournament players should log each tournament entry. A poker room will be happy to give you a receipt for any tournament entry upon request. Large tournaments will automatically provide one.

A casino will issue a W2G any time that a player nets $5,000 or more in a brick and mortar tournament. A W2G is a tax form that will be submitted to the IRS with the player’s Social Security Number and other personal information. Players can refuse to provide this information. If they do, the casino is required to automatically withhold taxes on the win.

Brick and mortar players should also be aware that a casino is obligated to create a Currency Transaction Report any time a player crosses more than $10,000 through the casino cage in a 24 hour period. Poker players should also know that the casino may report any transaction that they consider to be suspicious as this is required by federal law.

Should you file as professional or recreational gambler?

There are two ways to declare poker winnings. One way is to enter the income under miscellaneous income. This is what most players will do. A player that files as a recreational player will pay their standard tax rate on this money, but will not have to pay Social Security or Medicare taxes on these winning. Most players that have full time jobs will file this way.

Players that have demonstrated a pattern of winning can claim their winnings as a professional gambler, regardless of whether the player has a full time job or not. A pattern of winning is not defined by the IRS, but many believe it means the player has gambling wins in two of the last three or three of the last five years. This is where it gets complicated, as this type of filing requires a Schedule C tax form. This is the same tax form used by self-employed business owners. There are many advantages to filing this way and one large drawback.

The drawback is that a player that files as a professional player must pay the self-employment tax on that money. When someone has a standard job they pay 6.2% of their income for Social Security and their employer matches this. This means that since you are filing as self-employed, you pay both sides of this tax because there is no employer to pay the other half. The percentage for the employee side was 4.2% in 2012, but it went back up to the traditional level of 6.2% for the 2013 tax year. There is also a 2.9% Medicare tax. This means that you will pay 15.3% in taxes placing poker income under a Schedule C, where adding it on a 1040 as Other Income will not trigger this tax. The total percentage in 2012 was 13.3% due to the Social Security tax reduction during the recession. Schedule C filers will be able to deduct 6.2% of the tax as a business expense. This adds some tax relief.

Professional poker player tax deductions

The good news is that professional players that file a Schedule C may deduct all expenses that are related to their poker business. Travel expenses tend to be the largest for professional poker players. The mileage expense for 2012 was 55.5 cents per mile. That number will be 56.5 cents in 2013. This includes miles driven to and from any casino or other gambling establishment in your personal vehicle as long as your intention was to win money. Players that think they may file this way should keep a log of how many miles that are driven to and from any poker game, even if the game was not in a traditional casino. You will need this information to decide which way to file at the end of the year.

Other travel expenses may be deducted as well. This includes airfare, hotel and rental car expenses when you take a trip where your primary purpose is to win money playing poker or some other gambling game that requires skill.

Online poker players may also have other expenses related to their work. Computers are deductible as a business expense. If you bought a computer with the sole purpose of using it for your poker business, then it qualifies as a tax deduction. So does that monitor setup needed to 24-table.

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There are also some expenses that get overlooked. Your internet connection may be deductible up to the percentage of its use that is used for online poker. If you bought a computer desk, chair, floor mat or anything else office related, then that is deductible too.

You can even take the home office exemption, although this may start to push the limit. A business owner can deduct a percentage of their rent that is based on the percentage of their apartment or home devoted entirely to their business. This can be risky though. First, this has been known to send a red flag to the IRS. Second, people that do not rent may find problems down the road when they sell their home. It may create a taxable event when the home is sold if the home is considered to be a primary residence.

State income taxes

Many states tax gambling winnings. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming have no state income tax. Players in other states should expect to pay taxes to their state beyond what is paid to the IRS.

How should a poker player tax plan?

If a player has a net cash win of $5,000 in a poker tournament in a brick and mortar casino they will receive a W2G. A player will also receive a W2G for a $1,200 gross slot win. A player has the option of having an amount withheld from their win of up to 39.6% to cover taxes in 2013. If you are the type of player that has bankroll management problems, then having the casino withhold a percentage of your win is probably a good idea. This will prevent a nasty surprise when tax time comes in 2014. There is nothing worse than owing the government money that you do not have. Do not let yourself get into that situation.

One exception to asking for a tax withholding is if you are a net losing or break even player. Even then, there is still a disadvantage to receiving a W2G.

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A player can write off their gambling losses up to the amount that they won. Gambling losses are an itemized deduction though. A player that typically takes the standard deduction will not be able to write off all of their losses. Most people that do not have a home mortgage interest deduction or donate a lot of money to charity will take the standard deduction. The standard deduction for 2013 is $6,100 for single filers and $12,200 for married couples filing jointly. If you do not itemized deductions normally then you will end up getting taxed on the applicable amount, even after itemizing gambling losses, because you could already deduct the standard deduction amount.

Tax planning for 2013

It is too late to plan for 2012, but it is not too late to plan for 2013. There are several phone apps that track sessions. These include Poker Journal and Poker Income Pro. Keeping an old fashioned paper notebook with poker sessions works too, especially for people that are prone to losing phones. Make sure to back up sessions entered into the app in case your phone should break or get lost. These apps may be used for online and brick and mortar poker sessions.

Poker players should also keep a mileage log for their car. A trip requiring long distance transportation should also be tracked. It may seem like a waste now, but it will not be if a big tournament win should come later in the year. You will then be prepared to demonstrate the expenses incurred to get you to that big win.

Disclaimer

This article is meant as an informational tool to help poker players. This article does not take the place of professional tax help. There are many tax attorneys that handle gambling winnings, especially in Las Vegas. Consult one of these tax specialists before filing your taxes if you have gambling winnings to make sure that your deductions are proper and you are filing your taxes correctly.

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