01-13-04, LearnTexasHoldem:

Uncle Sam Getting His Share...

Question: First off I would like to thank you for a great site and the updates. It has become very resourceful. My question is an accounting question and I don't know if you would be able to answer such. I have been playing poker on the internet for a little while now and have been doing well so far. I hope at the end of the month to make my first withdrawal. I have a tax question since it is getting to be that time of the year. First off do you have to claim winnings to the IRS since it is offshore? If so how much do you have to win in a year before you have to claim? If I withdrawal under a certain amount each time do I have to report it to the IRS? For example in Vegas if you hit a slot machine for under a certain amount you do not have to fill out IRS paperwork. If over a certain amount you have to claim it on your federal taxes. So my thought was to have them cut me checks under that limit each time i make a withdrawal. How do you claim your winnings? For example is this considered "other source of income" or "a gaming win"? Don't know if you know anything about internet sites or are going to just refer me to H&R Block. Any advice would help. Thanks again.

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Answer: Thanks for the question. I'm not a tax expert but my brother is a lawyer that does a lot of tax related stuff and his answers usually always disappoint me in this area. Whenever I hope to hear a loop hole it always turns out to be illegal or in the gray area that if you get audited you'll have to pay. First of all, if you make money offshore is it a tax haven that you don't have to pay anything on? No.

The tax code makes it clear that there are no tax havens and as long as you are making money and a US citizen you have to pay tax on what you make. How you pay that tax and when is different but there are no legal tax havens. Most people use offshore accounts in hopes that the government won't be able to find out or do anything but that doesn't change the fact that if they do, you are in trouble. Most people would considered playing poker gambling so file it under a gaming win.

Now with all that said, most people don't file anything for gaming wins since the money is cash. Most people file for gambling losses and that looks normal since most people who gamble lose. Chances are you won't get caught, just like if you have an offshore account somewhere, but if you do get caught you'll have to pay what you owe plus fines.

So do what you think is right but the bottom line is if you make money, Uncle Sam gets some regardless of where or how it was made (unless you are a church..hehehe).

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