tax question

[remmy358]

hi guys,

i will be paying tax on my gambling winnings in full come tax time.
my question is as follows:

if the IRS ever audited you, would they request your personal bank statements? the reason i ask is because i have a lot of activity in my checking account, and it would be confusing as hell to explain to someone.

no disrespect to anyone, but i am not looking for people that feel like guessing or think they may know an answer, i am looking for someone who knows the answer.

thanks

[MrX]

If you are audited, yes, they will look at your banking activity and, yes, the more activity and the more confusing the activity, the uglier the process will be.

Let's hope it doesn't come to that, though.

[remmy358]

If you are audited, yes, they will look at your banking activity and, yes, the more activity and the more confusing the activity, the uglier the process will be.

Let's hope it doesn't come to that, though.

thanks mr x.

this is confusing to me. a few more questions if you dont mind...

#1 - how would they know how many bank accounts you had? of course you'd have to provide the direct deposit one...but what if you had others?

#2 - how would they feel about the fact that you received bank wires/eft's/checks from online gambling establishments overseas? could this get you in trouble? i am in NYS, and this state doesnt have the explicit language that some do, that say online gambling is illegal.

#3 - how in the hell could they make sense of everything?? there are numerous reasons for cash in and cash out -- loans, large purchases, etc...

do you suggest i see a tax attorney?

also, out of curiosity, how do you have knowledge of this? experience? are you a cpa? just wondering..i appreciate your help..thanks

[pokernut9999]

#1 your SS# is tied to any bank account and not to hard for the IRS to figure that out.

#3 they do not have to figure out your bank statement, it is up to you to explain it.

[remmy358]

#1 your SS# is tied to any bank account and not to hard for the IRS to figure that out.

#3 they do not have to figure out your bank statement, it is up to you to explain it.

#1 - that is true.

but for #3 - you could say anything....

i don't understand - why would they ask for your banking activity? wouldn't they just take your winnings for what they are and audit your deductions (gambling losses)?

[pokernut9999]

i don't understand - why would they ask for your banking activity? wouldn't they just take your winnings for what they are and audit your deductions (gambling losses)?

Not a very smart question there.

[chandler1981]

Remmy, You said that you were going to pay taxes in full. As long as you do this I doubt you would get audited. Most audits come from extreme differences in categories from one year to the next. For example, a friend of mine was audited because their shipping expense went up 50,000 in one year. The reason was because they offered free shipping on all online orders. It threw up a red flag but they had sound records and everything was cool. GOOD LUCK! Hope you dont have to worry about explaining anything to them.

[remmy358]

i don't understand - why would they ask for your banking activity? wouldn't they just take your winnings for what they are and audit your deductions (gambling losses)?

Not a very smart question there.

i am not trying to hide anything. i just would have a hard time explaining all the transations. i am a transaction man, i move a lot of $ around.

[ipickwinners]

id talk with an accoutant, someone who u might know, or a friend of yours that knows him. my friend won a little under 200k 2 years ago, got with his accoutant that he trusted, and got everything legit, dont know the details, but id strongly suggest getting with someone like this

[remmy358]

IRS makes you claim ALL your gambling winnings under "other income" and the losses are itemized. you can't net the two and just report the winnings...that's tough.

most people think you can just net the two, only professional gamblers can do that.

[MrX]

thanks mr x.

#2 - how would they feel about the fact that you received bank wires/eft's/checks from online gambling establishments overseas? could this get you in trouble? i am in NYS, and this state doesnt have the explicit language that some do, that say online gambling is illegal.

To the best of my knowledge, you have no reason to worry that you would get into any legal trouble beyond the tax issue.

#3 - how in the hell could they make sense of everything?? there are numerous reasons for cash in and cash out -- loans, large purchases, etc...

They can't, but they'll assume the worst, that anything coming in is pure income. A friend of mine, a professional gambler, was audited. He had a lot of account activity and the IRS claimed he was delinquent 6 figures. This guy is meticulous and pays all of his taxes. In the end, they agreed that he owed $0, but it was a huge ordeal and cost him plenty in attorney fees. I specifically remember how exasperated he was that they assumed every movement of funds was income-related, and what a pain it was to have to account for every one.

do you suggest i see a tax attorney?

You'll probably be fine. I'm almost sure that my friend was turned into the IRS by a spiteful associate. You're chances of an audit are probably very low. If you're truly paying your taxes, you have very little to worry about.

[Data]

remmy358, they are not going to bother with your transactions. Basically, there are two questions they are going to have.
1) Here is the money coming to your account that you have not listed as your income on your return. Please explain why this is not an income.
2) Here are your tax write-offs, show the records/receipts.

I highly doubt they are going to be interested in the monies you sent out. That is not what they are after. If you do not claim the money spent as a write off they could not care less.

[remmy358]

To the best of my knowledge, you have no reason to worry that you would get into any legal trouble beyond the tax issue.



They can't, but they'll assume the worst, that anything coming in is pure income. A friend of mine, a professional gambler, was audited. He had a lot of account activity and the IRS claimed he was delinquent 6 figures. This guy is meticulous and pays all of his taxes. In the end, they agreed that he owed $0, but it was a huge ordeal and cost him plenty in attorney fees. I specifically remember how exasperated he was that they assumed every movement of funds was income-related, and what a pain it was to have to account for every one.



You'll probably be fine. I'm almost sure that my friend was turned into the IRS by a spiteful associate. You're chances of an audit are probably very low. If you're truly paying your taxes, you have very little to worry about.

thanks mr x.

what about reporting income and losses on separate lines? those would be pretty high numbers... thats what the code says. is that really necessary?

[MrX]

thanks mr x.

what about reporting income and losses on separate lines? those would be pretty high numbers... thats what the code says. is that really necessary?

Personally, in the situation I think you're describing (no W2Gs, 1040MISC, just reporting gambling income on the honor system), I would simply put your net gambling wins on the misc income line.

By the book or not, I hate the idea of something like reporting a $300,000 misc income from gambling and deducting a $260,000 gambling loss. Seems much much more likely to trigger an audit. Keep it simple.

[Data]

Personally, in the situation I think you're describing (no W2Gs, 1040MISC, just reporting gambling income on the honor system), I would simply put your net gambling wins on the misc income line.

By the book or not, I hate the idea of something like reporting a $300,000 misc income from gambling and deducting a $260,000 gambling loss. Seems much much more likely to trigger an audit. Keep it simple.

This would be loosing your money while still breaking the law and therefore makes no sense.

[remmy358]

This would be loosing your money while still breaking the law and therefore makes no sense.

"breaking the law" - to a degree...bottom line is income, and either way you are reporting the same net income.

these rulers were not made for sports bettors putting tons of money day in and day out.

what's the worst that could happen in the event of an audit? either way 40k tax is due. period. only thing is that if you took the standard deduction they could take that way and say u werent entitled to it cuz u gotta itemize losses..so what 5400 gross income u have to pay more tax on

i agree w. mr x and i've heard from others that it's not a smart move for a guy not makin millions to put such a large figure for winnings...

thanks data though, your input has helped, as long as mr x's...i appreciate both points of view

[MrX]

This would be loosing your money while still breaking the law and therefore makes no sense.

There's a big difference between paying your taxes and making a minor clerical error, and tax evasion.

[SBR_John]

It does get complicated. I think you both are right. I mean Data by the letter but Mr x's way will work. If you pay the same tax no matter how it is reported they will not throw the book at you.

Have a good CPA prepare your taxes.

[remmy358]

It does get complicated. I think you both are right. I mean Data by the letter but Mr x's way will work. If you pay the same tax no matter how it is reported they will not throw the book at you.

Have a good CPA prepare your taxes.

i agree. there's no way i am putting 500k in winnings and 490k in losses...i would be asking for an audit.

[Data]

There's a big difference between paying your taxes and making a minor clerical error, and tax evasion.

I hear you, but you have to agree that you are making an argument here wishing it will work but there is no guarantee here that it will. By the book, if a taxpayer files like that he is actually hiding a great part of his income, that is obvious, right? So, hiding your income, is it a minor error or tax evasion?

[remmy358]

I hear you, but you have to agree that you are making an argument here wishing it will work but there is no guarantee here that it will. By the book, if a taxpayer files like that he is actually hiding a great part of his income, that is obvious, right? So, hiding your income, is it a minor error or tax evasion?

i think what it comes down to is that you'll have to prove your losses...if you track them, it's no problem.

[Data]

i think what it comes down to is that you'll have to prove your losses...if you track them, it's no problem.

It is no problem if you are talking to a friendly agent who plays along and does not follow his agency rules.

It is no problem if you report 500k as you income and 490k as your itemized losses of which you must have records. You are saying that this is asking for an audit but this is the only way, aside from filing professionally, where you have nothing to hide. Filing professionally is the best choice for a small wining player. Once it gets bigger, you are just being forced to leave the country.

[remmy358]

It is no problem if you are talking to a friendly agent who plays along and does not follow his agency rules.

It is no problem if you report 500k as you income and 490k as your itemized losses of which you must have records. You are saying that this is asking for an audit but this is the only way, aside from filing professionally, where you have nothing to hide. Filing professionally is the best choice for a small wining player. Once it gets bigger, you are just being forced to leave the country.

yeah but those large #'s are going to set off HUGE red flags in the computer system that decides who should get audited...

[MrX]

I hear you, but you have to agree that you are making an argument here wishing it will work but there is no guarantee here that it will. By the book, if a taxpayer files like that he is actually hiding a great part of his income, that is obvious, right? So, hiding your income, is it a minor error or tax evasion?

Well, this is certainly going further into this argument than I should, as I am far from a tax expert. But what the hell, I'm a little drunk.

First of all, I am advocating paying 100% of owed taxes and am only arguing the best way to represent gambling winnings on your 1040 form. The IRS publication 525 Miscellaneous Income section is far from clear on this. If you were to interpret it down to the letter, I believe a slot machine player would have to add up every time they hit mixed bars and report it as income and deduct losses for every non-winning combination. As Remmy mentioned, the rules were not really designed with gamblers in mind.

It's pretty arbitrary to divide up wins/losses by sessions, days, or years. I find it hard to believe that someone who goes out of their way to pay on unreported winnings is going to get in trouble because he had a hard time understanding a vague IRS publication. I've made a clerical mistake on my tax form before, and there was no punishment beyond taxes owed, and I'd be surprised if this is any different.

That said, I've heard a little back and forth on this subject before, and if anyone can point me to a specific IRS publication that states that every single winning wager or every winning session (however they define it) must be added up for miscellaneous income and all losing wagers or session deducted on Schedule A, I'd appreciate it. I could be way off base here.

On a lighter note, here's an honest to God quote from IRS publication 525 (Miscellaneous Income section):

Bribes. If you receive a bribe, include it in your income.

[MrX]

Actually, it seems pretty accepted now that all winning "sessions" must be added and reported as income and all losing "sessions" can be added and deducted on Schedule A. I still haven't seen the official publication that says this. If someone can point me towards it, I'd appreciate it. Also, if anyone knows the penalties for not following this procedure (but still paying the proper amount) I'd like to hear it.

Also, is there any particular reason that, say, the MLB season couldn't be considered a session for someone? There would be far more individual wagers in some people's daily online poker sessions than in a season of baseball betting.