Paying Taxes On Online Poker Winnings

At this time of year (tax time) the following question comes across the minds of many online poker players.

“Do I have to pay taxes on online poker winnings?”

The answer: Absolutely.

The IRS does not care where you made money, or whether or not it is legal. (online poker is legal in the United States) Uncle Sam wants his share whether you are getting paid to dig ditches, sell quilts on Ebay, or sell crack behind the local bowling alley. This is how many of the largest mob organizations came crashing down. Not for stealing, fraud, or murder, but for not paying taxes on their earnings. This is, in fact, what sent Al Capone to Alcatraz.

Of course I am not saying that playing online poker in your bathrobe in your own home is the same as running an international mafia organization, I am just saying that in the eyes or the IRS, these activities are one in the same.

Before I go any further, let me say that I am not a lawyer or an accountant, so take everything I am saying at your own risk. But I have been playing online poker professionally since 2004, and I have done quite a bit of research on this matter. A great resource for more information is the poker legislation forum at twoplustwo.com.

Paying Taxes on Overseas Poker Winnings

Many people falsely believe that since online poker sites are located overseas and are therefore not located in America, you do not have to pay taxes on those winnings. This is 100% false. The United States imposes a federal tax on worldwide income and must be paid the same as taxes on income earned in the good ole’ USA.

This would be like Ford selling a Mustang in Cambodia and then claiming that since it was sold outside the United States, they did not need to claim that sale as income. That’s just not how the tax law works.

How to Keep Track of Online Poker Winnings For Tax Purposes

The IRS has repeatedly shown that they prefer (require) that a gambler keep a bet log detailing individual gambling sessions. The IRS is very unclear on what exactly constitutes a “session” but Russell Fox has written a very informative article on the definition of a gambling session.

He states that:

You must keep an accurate diary or similar record of your losses and winnings. Your diary should contain at least the following information.
1. The date and type of your specific wager or wagering activity.
2. The name and address or locations of the gambling establishment.
3. The names of other persons present with you at the gambling establishment.
4. The amount(s) you won or lost.

I believe that we can safely assume that recording wins and losses on a daily basis should be enough for the IRS. It is probably not enough to log your results on a weekly, monthly, or yearly basis. You should keep as much detail as possible and record your results as quickly after you are done with a session so that you do not forget your results or accidentally mis-state your win or loss.

Conclusion on Paying Taxes On Online Poker Winnings

While I have covered some of the basics involving paying taxes on online poker earnings, Federal and State tax codes are long, detailed, convoluted documents that I will not even attempt to read myself. Do not take my word for anything that I have stated above. I am not a tax professional. If you have any questions about paying taxes on online poker winnings, contact a certified tax professional.

There is no reason to take paying taxes lightly. There is much too much information for the average person to try and digest on their own. If you have any interest on reading about this subject more, I recommend you head over to Russell Fox’s tax blog about online gambling.