01- 4-06, LearnTexasHoldem:
Poker Profits And Taxes
How can you get a tax shelter? Is it a good idea? what about offshore accounts? Do poker players have to pay more/less taxes in America than the normal 9to5er? Ive heard that in England you dont have to pay taxes on gambling winnings, is there any type of program like that over here? Any info on these topics would be very useful.
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Answer:
As a rule, if you make money, the IRS gets their share. You can just claim this as miscellaneous income. Then also, you have your state taxes, depending on where you live. As for limiting the amount you are taxed, the best legal way to do it would be to start a retirement fund and put some in it, as well as claiming any legitimate deductions. For example, if you bought a new dual monitor to play holdem online, you can consider that a deduction (or a percentage of it as a deduction). Just make sure that you keep records of everything. Home businesses and self-employed people get audited a lot because they abuse deductions -- like buying a new car for "work."
Now, as for other ways of limiting tax liability, like "tax shelters", there are ways, but they aren't legal. You have Nevada corporations, offshore corporations and bank accounts and all kinds of other ways of tricking the IRS, but they are all illegal and if you get caught, you'll be in big trouble. Each way is supposed to find a loop hole in the law, but fails.
The tax code is very detailed. For example, you might try to open an entity elsewhere in the world and divert the funds over to it. The problem is though that you are an American citizen and if you make money in the US, or elsewhere, the you are required to be taxed on it. Having a non-US entity doesn't do anything but make it harder to catch you. And creating an entity in another country for the sole purpose of limiting taxation is illegal. So the solution not only doesn't exploit any loophole, but also breaks an additional law.
See, the tax law covers every thing. Another example is the structuring law, which basically means it is illegal if you break up your deposits that amount to $10k or over, so the bank doesn't have to file a form to the IRS. The annoying part is that all major corporations fudge on their taxes, have offshore accounts and corporations and literally break the law, but no one gets in trouble. You on the other hand would, so I wouldn't recommend getting tricky. Render unto Caesar what is his, and you'll sleep a lot better at night.
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