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Poker and Tax – What You Need To Know


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October 12, 2022

The poker industry is thriving once again and has grown exponentially in recent years. According to the World Poker Tour, there are approximately 100 million online poker players across the globe, with 60 million within the U.S. alone. Poker has a long history in the U.S., and that means authorities have also been long aware of the financial aspect.

With online poker becoming more popular, several states are benefiting from the tax dollars collected. In 2021, the state of Michigan
grossed a total of $1.4 billion in total iGaming receipts, of which online poker was a portion. But it's important to know that legalized poker is only available in certain states, and that complicates things when it comes to tax. When it comes to tax and poker, both online and offline, you need to consider the state you're in alongside any profit and losses. In this post, we'll cover some of the salient points.

1. Report All Your Winnings

If you've won big while playing online poker, sorry to tell you, but you don't get to keep the full amount. By law, any amount you win, whether it's just $10 or a whopping $10,000, are fully taxable and will need to be reported on your federal income tax return. Your winnings could come from an online poker room, tournament, or special event - it doesn't matter because the Internal Revenue Service (IRS) wants to know so that they can collect their share, too. Winnings may be reported on Form W-2G.

2. Know Your State Tax Laws

Winnings in a certain state can be taxed, meaning you'll need credits in your own state. Some people may cross state lines to play because online poker for real money is not legal in every state. As of this writing (2022), the states that have licenses, are Michigan, Pennsylvania, Nevada, New Jersey, and Delaware. Although West Virginia and Connecticut have passed laws allowing online poker, there are no live internet sites as of yet. Therefore, be sure to check your state laws before playing online poker.

3. Withholding Taxes

If the amount you win playing online poker is greater than $5,000 and the payout is at least 300 times the amount of your bet, you must pay the IRS 24% in taxes. But this is an estimated amount because the real amount you owe depends on how much your annual income is. If you want to see how much was withheld, look at Box 4 of Form W-2G.

When you file your 1040 the following year, include the amount withheld as federal income tax. You'll see it subtracted from the tax you owe (or will be reimbursed). Remember to attach Form W-2G to your return.

4. Losses May Be Deductible

Everyone has had some unlucky hands and lost. It may not be as bad as it seems because you may be able to deduct your losses on your tax return. These can even include items like the cost of the wager, travel expenses, gasoline, and airline tickets, among others. In order to take advantage of deducting your losses, you'll have to itemize everything that you want to be deducted by using itemized deductions on Schedule A. Unfortunately, if you use the standard deduction, you won't be able to take advantage of deducting losses.

There's another thing you should be aware of. You're not allowed to deduct losses that are more than the winnings you report on your annual return. For instance, if you won $1,000 in one poker tournament, but lost $3,000 in a few other tournaments, you're only allowed to deduct the first $1,000 of your losses. If Lady Luck was not on your side the entire year and you had zero winnings, you're not allowed to deduct any of your losses.

Winning at poker is great, but don't forget about Uncle Sam. There are some tax rules to follow, and knowing the right ones can help you
obtain more money, while still paying your fair share.


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About the author

Willis Goff

Willis Goff is a freelance finance writer with a passion for gaming. With online games becoming increasingly monetized he hopes to provide useful financial advice to fellow gamers. When he isn't gaming or writing he loves to hike.

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