Play Hard, Be Smart, and Don't Gamble with the IRS
A Few Tips to Keep You in Check
By: Ann Margaret Johnston

I love this time of year. It’s when Certified Public Accountants (CPA’s) become popular and well-liked. Ok, maybe its not that we are liked as much as the fact that we are in great need. A “necessary evil” is what I always call myself. Being a CPA that specializes in poker has made me a little more popular, however, my “regular” clients sometimes wonder about my newly found passion. A poker-playing accountant? I am not very typical for a CPA but that pretty much describes me. Now, on to the “fun” stuff.

This is the time of year when poker players start to worry about the new fortune they have made in the prior year. Most are wondering what to do on their tax returns based on what happened in the previous year. As we know, a gambling business is under a different set of rules than any other business. Can gambling be a business? Absolutely, and this was settled in a case called Commissioner v. Groetzinger. But, the bad part is that gamblers cannot take losses that are more than their income. This is one of the most unfair areas of tax law that has ever passed. Of course, this was also passed long before internet poker. This law was for when “bad, shady people” played poker in backrooms with big cigars, clouds of smoke and where Guido was by door just waiting for trouble.

How does a poker player win against the IRS these days? Well, you just have to be smart. The IRS has not begun to focus on poker players because they don’t realize how popular and profitable that it is. (It takes them a while to catch on-after all, we are talking about the Government) But, guys, when they do, watch out. We all know what is happening out there, yes, even this rookie poker-playing accountant is in the loop. I’m not trying to scare you but I don’t want you to be the one that the IRS decides to make an example of.

So, what do I mean about being smart? If you have a $2,000 mortgage or rent payment each month, you travel to tournaments all of the time and the wife doesn’t work, it is not too smart to have a tax return showing net income of $10,000 for the year. You do the math. Remember that if the IRS audits you, they will match your total deposits for the year on your bank statements to your tax return. If the numbers are not even close, someone has a lot of explaining to do. If you cannot explain it, the word Fraud comes to mind. Another word for Fraud is a word starting with an F, ending in -ed, in which you are now the Governments new boy toy. Remember that money traveling in and out of accounts has to be “accounted” for. You can only explain away so much in Christmas and Birthday money. Now, this is not to say that you truly may not have income for the year. Again, as long as there is an explanation (if you are audited), then you should be fine.

I want to address another issue that many of you know about. There are people out there that will “volunteer” to claim your tournament winnings for you for a price. They may be sitting there at the end of the tournament just waiting. They will give you their name and social security number for your Form W2G because they say that they have plenty of losses. What is the catch? They want a percentage of your winnings in cash. This really does happen and I cannot stress enough how bad of an idea this is besides the obvious. Your name is usually on the internet or in print somewhere that lists your name and your tournament winnings. This is another area where you need to use common sense. For example, if you win $700,000 in a tournament, there is going to be a paper trail. If the money is not claimed on your tax return, you are gambling with something that can give you a lifetime of losses. Remember, if something sounds too good to be true, it probably is and this particular deal is only a good for the other guy.

Good luck with tax time and I will see you at a table somewhere soon.

Ann-Margaret Johnston is a practicing CPA in Cumming, Georgia. She is the author of the book titled “How To Turn Your Poker Playing Into A Business”. Her website is www.pokerdeductions.com where you can find answers to commonly asked poker tax questions.