Tax Strategies for professional poker players in the US

Maybe someone has gone through this as I have this issue last year: 100k in capital gains, 100K in losses in poker filing as a pro. Is taxable income zero? Thanks

Short answer: Probably not, no, but it would depend on other specifics (filing status, deductions, etc).

Slightly more detailed answer:

A professional poker player is currently unable to generate a Net Operating Loss (NOL).

https://www.journalofaccountancy.com/issues/2018/oct/pro-gambling-net-losses/

Journal of Accountancy

Tax reform law deals pro gamblers a losing hand - Journal of Accountancy

Although in this situation, if you did qualify for NOL, you'd probably prefer to use it as a carryforward and not to offset preferential treatment of long-term capital gains (> 12-month holding period).

This may be a good time to look for any red cost basis in your portfolio that could potentially be used to offset those capital gains before the end of the year.

Alternatively, I can envision a situation where an individual with no immediate liquidity needs, a substantial tax-deferred account, and a down year compared to their typical income might want to consider increasing their tax burden through a Roth conversion.

I have always felt that under the current regime, there's an incentive to do less shot-taking at the beginning of the year before there's any income, and more when the income is substantial. It might be mostly psychological, but it's a MFer to cut a huge check in April for prior year, while being buried in Q1.

Anyway, this is not tax advice, and you should definitely ask your accountant. You otherwise may want to do more tax planning in the future revolving around future capital gains and interest, which is where a financial planner like me can help out.

I currently have a limited number of clients, as I am a solo Registered Investment Advisor (RIA) in my first year. So far, most of my clients have some form of cryptocurrency investments. While I do not directly manage crypto assets or encourage clients to buy them, I strive to provide the best advice possible while respecting their preferences.

The same applies to private real estate and alternatives like hedge funds. I offer advice only for individuals who do not want or need asset management.

But to be clear, I otherwise do not operate in the gray. My financial plans are not sexy or exciting. Probably not of great appeal to most of the gambling community.

Anyways, we'll leave it at that, and I'll look for your message.

2 plus 2 could charge a fee for information like this. Thank you.

Are you an LLC? Is the cap loss inside the LLC? I am going to GUESS the answer to at least one of these is no. Based on that assumption, probably not.

Your sched C loss, since from gambling, flows to 1040 as zero. Thus doesn’t offset cap gains on 1040

I've been filing as a professional poker player. So how can it be I get taxed on cap gains but not deduct losses? maybe it is treated like stock losses-3k/year?

Because your gambling losses deduction is limited to the amount of your gambling winnings. Basically line 31 of your sched C cannot be less than $0. This flows thru sched 1 and lands on line 8 of the 1040. So for professional gambler line 8 will be zero.

Meanwhile the cap gains are calculated on sched D and the $100k will land on line 7.

Since your gambling net cannot be a loss, that loss cannot offset the cap gains.

That’s a smart approach, leveraging big tourney buy-ins as potential deductions could definitely help optimize your tax outcome as a professional poker player. Just like using a VAT calculator to get a clear picture of your net costs in business, having clarity on taxable income and deductions is crucial here too. Definitely worth consulting a CPA for the fine print.

Are travel costs for a schedule c poker player also limited at 90%?

If you’re a serious professional tournament player/backer wouldn’t it make sense to live in UK/european countries with no gambling tax over the US?

My understanding is yes. Would love it if someone who really knows their stuff confirms this though.

You would still need to pay taxes to the USA. The only way around it would be to renounce US citizenship which is a big deal. Might be worth it if you are a very serious pro who doesn't have any real ties to home.

Only if you "never" play in the US (or even visit per se) or if you renounce US citizenship.

You would still need to pay taxes to the USA. The only way around it would be to renounce US citizenship which is a big deal. Might be worth it if you are a very serious pro who doesn't have any real ties to home.[/QUOTE]

If the USA thinks you are renouncing citizenship to just avoid taxes, they will refuse to accept your renouncement. Thus, you will still owe taxes as far as they are concerned. Meaning you will never be able to reenter the country without facing possible arrest for non-payment of taxes.

You'd still owe taxes to the US less an exemption of something like the first 125k in income if you're out of the country 330 days or more. I could be slightly off on those numbers but I remember looking into it after Black Friday. So I guess if you didn't care about your friends and family over here and wanted to grind online anyway it could make sense. But no wsop, no wpt etc. and considering how many euros come over here to play I doubt the games are so great over there. Hell half the euro grinders in Vegas are trying to marry American women so they can stay here year round so what's that say about what they can make in Europe with high rakes?

So not sure what you mean by serious player/backer but if you're making tons of money from poker, you could only be in this country for about one month a year to save maybe 20k in taxes? Doesn't seem worth it for someone making piles unless you can only make that money abroad and couldn't in the US- in which case the taxes saving is an added bonus and not a reason to move.

Additionally it's not like you can just move to a European country 11 months a year unless you have dual citizenship.

About online cash play, can I do daily sessions?

I'd like to simplify and keep my losses minimal as possible.

Any suggestions for recording online play? With the 90% cap rule in play, I don't think those games would be beatable anymore but I would want to play some online poker to practice and improve my game.

They've never specifically defined sessions. I've even heard different accountants who specialize in gambling say different things. 2 people can even get audited by 2 different IRS agents who say 2 different things.

Does anyone know a good tax attorney or CPA/tax specialist in S Florida (or Florida in general) who specializes in gambling tax law? Feel free to PM me if you don't want to post their name publicly.

I want to get some professional advice about what I should be doing differently if this Trump bill provision goes into effect next year.

Ideally I am looking for someone I can form an ongoing relationship with. My current tax guy is good, but he doesn't specialize specifically in gambling tax law.

Lol

Why lol? It could potentially add five figures in tax liability to me at the end of the year as a live tournament player.

And there's nothing you can do about it till this bs law is repealed. The lol is there's no great wisdom to use to help you. The law is crap and you're screwed until someone fixes it. I'm not sure how being taxed on money you did not even make is legal. There should be even more outrage about this then there is now .

PM me if you can. I have some info I can share with you from my accountant.

Many years ago I heard something to that effect, but that it applies for five years. The IRS won't let you quit the USA to avoid taxes, or you can quit but you still have to pay for five years.

While it's an absurd law, I doubt many will actually leave the USA because of it. What some gamblers (especially cash players) will do is under report their winnings or over report their losses and hope they don't get caught. Those who already do that will do so to a larger degree. Those who play only tournaments will be effected the most, in practice.

The law will not add much to the US bottom line. The vast majority of slot players are already of the opinion that they only have to report hand-pays ($1200+ jackpots) are aren't reporting the smaller ones (even though all winnings are income). And most gamblers are losers and the 90% limit on losses will still exceed their winnings. Where they get burnt is the requirement to put losses on Schedule A, with the standard deduction being over $12K. Many are already paying taxes on losing years.

The new law will mostly effect winners, and winners aren't going to leave the USA or quit gambling because the "rake" is a little higher.

Five figures in tax liability? You must be doing a ton of gambling.

If you're in the top tax bracket, you're paying 37% on your income at the top end. To reach the bottom of five figures of additional tax liability ($10,000), the 10% would have to be at least $27,000, making your total losses (total of losing sessions) at least $270,000. If you also have winnings totaling $300,000, your net income will be cut by 33%--a significant amount. But if you also have winnings totaling $1M, your net income will be cut by only 1.4% (but $10K is still $10K). While that's certainly possible and many people have losses that large, I'm pointing out the numbers in case you (or others) think the new law will effect them more than it actually will. It could be significant, or it could be rather small. It will be different for everyone.

I understand. I've done the math myself after I realized the true implications of this new law. With my current year-to-date numbers the new law would add less than $2k to my tax bill. That's with five months still remaining in the year, and an average buy in under $1,000, so my win rate is relatively high and the law doesn't effect me as much.

My goal has been to work my way up to where I'm playing mainly $1,500-$10,000 buy-ins. That's when the math gets scary. The edges are smaller and the "total losses" number gets a lot higher. Some of the best players at these stakes will crush some years and basically break even other years due to variance.

Imagine you have $1 million in "profits" in a year but also have $1 million in losses. Now you're going to owe the government five figures even though you had 0 profit.

People who aren't serious grinders don't understand that money just flows around in circles. From talking to excellent pros who play stuff like the Triton high rollers the good players only have something like a 5% edge.