September 26, 2011: Ann and staying out of IRS hell.
Many of us are guilty of wishful thinking at tax time. On the 1st of April,
we begin pulling together tournament entry receipts, hotel bills, airline
boarding passes while recreating a spreadsheet of our previous-year
earnings. We try to recall people we have backed and who have backed us.
We shove all of this together into a spreadsheet, and send a suitcase full
of papers to our local accountant, hoping that the money we have set aside
for taxes (we did, didn’t we) will be sufficient.
We are courting financial disaster. There is every chance that the IRS will
throw out many of those deductions, query our reported income and challenge
the status of people we have backed. A full time live-pro can easily have
$50k of expenses, or several times that.
How do we avoid such disasters so that we don’t dread opening those
envelopes with the most dreaded three letters in America (IRS) on the cover?
Healthy Poker caught up with nationally known expert on gambling taxation,
Ann-Margaret Johnston to ask her a series of questions.
Ann-Margaret Johnston answers:
Can I claim my expenses, hotels, flights and meals as a poker player as
deductions on my tax return?
The basic rule is this. If you earn money doing something, be it poker or
any other form of income, you are supposed to claim this on your tax return.
That is the tax law – they make it pretty cut and dry.
Now, if you have poker winnings and losses, the next question is how to
report it on your tax return. This is where you have to figure out if you
are treating your poker playing as a business or not. If it is your
business, you are able to claim all expenses that you incur related to
poker, not just the amount you spend to play (losses). Some examples of
this include your meals and entertainment, travel, auto expenses, etc. If
your poker is a hobby, you can only claim the losses you have â€“ not any
As far as the IRS is concerned, am I a pro, or is this a hobby, and what are
A hobby is an activity for which you do not expect to make a profit. If you
are thinking of starting a business but it does not provide you with the
ability to earn a living, or to make a profit, it very well may be a hobby.
It is important to first distinguish as to what your intentions are with
your poker playing. Ask yourself these questions:
- How often do you play?
- Do you depend on these winnings to pay bills?
- Do you have another job and if so, how many hours per week do you work?
- How much time do your dedicate to playing poker?
The answers to these questions are important. A hobby is something you
usually do in your spare time and is not relied upon to pay the bills. It
is normally for fun or entertainment in addition to your other main income
source. Profit is not typically the main goal when you have a hobby.
It is important to know the difference between something that is a hobby and
something that is for profit. Hobby expenses are deductible only to the
extent of hobby income.
NOTE: Gambling expenses, if you are a hobby, are treated different from any
other hobby. Non-
professional gamblers are not allowed to deduct expenses for transportation,
meals, lodging, etc. You can only offset your income with the money you
As a professional gambler, you report your gambling activity on a Schedule
C, Profit and Loss from Business. This form goes along with your personal
tax return (Form 1040) and submitted to the government. This is the form
where you summarize what you made from gambling, what money you lost and the
gambling-related expenses that you had.
At this time, the IRS will not allow you to deduct more expenses than income
- even if you are considered a business. Of course this is not true for
other types of businesses. “Regular” businesses can take more expenses than
income and have losses on their tax return.
Gambling is a totally different from other businesses. It has always been
the rule that if you have gambling income you can offset it with gambling
losses. This rule applies to the “hobby” gambler that can only offset these
winnings if they can itemize. By taking it a step further and becoming a
business, the IRS still applies the gambling rules. Basically, you cannot
exceed gambling winnings and you have to show a net profit of zero if your
expenses are more than your income.
So what are the tax benefits of treating your gambling as a business? Well,
it’s the only way to take your gambling-related expenses even if you can
only net them to zero. If you had income and were a hobby, you would still
have to claim the income on the front page of your tax return. Remember the
expenses are not deductible if you are a hobby, only the losses up to the
income amount and only if you can itemize. Therefore, the adjusted gross
income (AGI) for a professional gambler would be lower than the hobby
There are credits that you may be able to take that are based on the amount
of your adjusted gross income (AGI). The lower your AGI is, the more likely
you are to be able to take other credits or deductions. Some of these
credits include Earned Income Credits, Child Tax Credits, Education Credits,
deductibility amount of IRA contributions, phase-outs of personal
exemptions, itemized deductions, etc.
What could be more awful than having a stellar year at the tables, and then find out that tax issues lead to larger than expected payments, audits, or even (in extreme cases) bankruptcy?
Healthy Poker is proud to have an association with Ann Margaret Johnston, CPA who specializes in working with poker players.
Ann-Margaret Johnston, CPA is a native of East Point, Georgia. She and her husband David, who is also a CPA, have lived in Gainesville since 1999. She received her BBA from Clayton State University and began Johnston & Associates in 1995. She has worked in public accounting since 1986 and has experience in all tax and accounting related areas. She has an extensive knowledge of Quickbooks and specializes in tax advice/prep for poker players and gamblers. She is Treasurer of Lanier/Forsyth Rotary and a member of the Georgia Society of CPA’s. She has written many tax articles for poker sites as well writing for CardPlayer and Bluff magazines. Her book on “How To Turn Your Poker Playing Into A Business” was released in 2006.