The day after I won the $700,000.00 RIVER, I immediately went to the bank to cash my winnings. It was great having over $700,000.00 in the bank. It didn't last for long.
I was going through a divorce and to simplify matters my accounted suggested that I immediately pay the IRS. I wrote them a check for $290,000.00. Then I needed to pay the taxes to State of Oklahoma. They only needed $42,000.00.
The money was dwindling fast. Next I needed to pay my soon to be ex. About 60% of my estate went to her. That would make her half of the winning about $220,200.00. Of course the attorney's were thrilled about the big win. That gave them more to fight about. The attorney's got about $30,000.00.
Now I'm down to $117,800.00. That's kind of a bummer, but it's all cool. I'm still a happy camper. Winning a big one will be a memory that will last forever. But I started thinking, how could I get some of that tax money back. The IRS and the State of Oklahoma ended up with a lot more than I did.
My Account - IRS - Taxes - Poker Losses
First I went to my accountant. She had never handled a poker win before. After much research and making inquiries she accurately concluded that the only way I could retrieve money back from the IRS was to have poker losses and use schedule A. That sucked big time. There were no loop holes. I couldn't even write off hotels or travel expenses because I didn't qualify as a pro. To be a pro you must rely on the income.
My accountant is very conservative and has taken care of me for a long time. She keeps my out of trouble. I trust her, but I decided to explore all the other options and see if there was something she was missing. I went to everyone that I knew that had won a poker tournament to get advice. There schemes and ill-advised plots are in this article. Even my own research would indicate that they were in dangerous territory. When I asked if they had ever been audited, they all answered, "No." I had to conclude that there schemes would be busted.
You must report the full amount of your gambling winnings for the year on Form 1040, line 21. You deduct your gambling losses for the year on Schedule A (Form 1040), line 28. You cannot deduct gambling losses that are more than your winnings. You cannot reduce your gambling winnings by your gambling losses and report the difference. You must report the full amount of your winnings income and claim your losses (up to the amount of winnings) an itemized deduction. Therefore, your records should show your winnings separately from your losses.
Pot Odds with Losses
Play, play and play some more after you win. I paid $290,000.00 to the Federal Government after my win. Then I paid another $42,000.00 to the State of Oklahoma. That's 47.4% of my winnings. Because of my pending divorce and the uncertainty of the future, that amount is probably higher that normal. I do expect to get a refund.
But here is the good part. Every time I bet a dollar, it's like betting 52.6% if I lose. That's because when I lose the government is giving me money back against what I have paid in. When I play in Oklahoma the tax advantages are the greatest.
How do you like those odds? Betting a dollar is like only betting 53 cents if I lose. I love those odds. The only problem is that I'm playing looser at the table knowing I have the odds on my side. Go play all you can, because you cannot carry over poker losses from one year to the next. That's right. You could have lost millions of dollars the past few years, and then one $6,000.00 this year. You have to pay taxes on the six thousand and you cannot right off anything from the prior years. If you didn't keep good records and a diary of your losses this year, you won't be able to right those off either. Don't believe anyone that tells you that you can carry over the loses. You'll just get yourself in trouble.
This Article vs Schemes and Plans
I was sitting at one high stakes table during a Poker Championship. Three of the guys at the table were recent winners at the River Tournament at the Winstar Casino. The others guys at the table were also recent winners of tournaments. We were all experiencing the same information problem. We all shared information regarding the losses and wins and reporting. We all wanted to know what was the best way to document our winnings and losses and maximize what can be written off?
This article is being written to help fellow poker winners avoid hours and hours of research that I had to do to find the answers to hundreds of questions. I'm not an accountant and this article should not be considered tax advice. This article is also not being written to help you illegally avoid taxes. While reading this article you may think that you have discovered several ways to show losses and avoid taxes. I would give you this advice. You won. Enjoy your winnings and don't do anything that would jeopardize an exciting event in your life. Keeping accurate records and maximize your losses. With your winnings you are now experiencing pot odds on every bet. Take advantage of your winning season and add more profit to it.
Here's a News Flash
Every scheme to avoid taxes and all bad advice works!!!!! .... As long as you don't get audited. If you are a winner, you are going to hear how John Doe did this or that on his income tax return. They are going to claim it is all legal and that it works. As long as they don't get audited it will work, but wouldn't you prefer to do this right? Don't gamble with your future.
Don't let some know it all get you into tax trouble. Research everything you hear before doing something that will cause you future pain.
Give me your feedback. I'm writing this article to help others avoid the ill advice that is given out by would be accountants. If you see anything wrong in this article, please give me your feedback. I want this information to be available for anyone that has won and is looking for the proper way to pay taxes while maximizing loses.
Scheme 1 - Losing Tickets at the Race Track
Every time someone recognized me as the $700,000 River Winner and we start talking about taxes, they always bring up losing tickets. "Just go to the race track, sports book area, dog races or where ever there are betting tickets and pick them up off the ground. You can right them off against your winning!" Or they go on, "Have a janitor sweep them up and pay him for a large stack! Have a convenient store manager save losing lotto tickets and give him a cut!
Trying to avoid poker wins this way is going to cause you problems. There have been people audited and busted by the IRS by using this technique. In today's technological world, the sports tickets are all tracked by the cages they were purchased at, the time, and other factors. They even keep camera records. If your records don't match or you were suppose to be at two windows at the same time, you'll get busted.
In addition to being a dishonest and bad idea, it just doesn't make sense. If you get audited, the IRS is going to look for a pattern and a diary of you betting. Did you all of the sudden become a sports book addict when you have never done it prior to you win? Sure, you could pick up a few tickets here and there, but the amounts will be so small that it won't be worth your time. My advice is that you totally avoid the losing ticket scheme.
Scheme 2 - Cashing Out without Playing
Recently a man wired a large sum of money to a casino. He went to the cage and withdrew the money in chips. A few hours later, he attempted to cash in the chips without playing in the casino. He got busted. Security held the man and the police arrested him.
Your probably wondering what the heck happened. Here is the rest of the story. The man that wired the money did it online. He was not the rightful owner of the bank account. He had hacked into the account and wired money to the casino in the name of John Doe. John Doe was successful and able to withdraw the money. So far the two crooks were able to succeed in their fraud. When John Doe returned to the cage and attempted to cash in, the red flags went off. The casino did a check with the banks and they discovered the truth. John Doe got busted.
I'm telling you this because Casinos track people that cash in and out without playing much. The scheme above is just one of many that people do everyday to try to steal or laundry money. The schemes are so elaborate that they are over my head. Some players will play with dirty money that has the serial numbers tracked and then try to cash out with clean $100's. The Federal Government wants to catch these people. They use the money for terrorism, drugs and other illegal activity. We should all be in favor of this. The government is not doing this to catch poker winners avoid taxes. But the tracking system will catch you if you think this is an easy way to fake losses.
Scheme 3 - Cashing Out and Playing Blackjack
If you want to show wins and losses in a hurry, then get off the poker tables and go play Blackjack, Craps or Roulette. It seems like $1,000.00 can disappear in a few minutes at the Blackjack table, but last forever at a poker table. But don't try to cheat the system by claiming you lost money at the table.
Many players think that they can sit down, give their card to the dealer, put all their money on the table and then be tracked as playing for big cash. So far your idea is correct. The casinos will have a record of you playing at the table. They know the amount that you started with. It's a great way to track your play. If you think you are going to pick up your chips and then try to show them as a lost, you are wrong. They casino tracks your winnings and losses very accurately at the gaming tables. These records are kept on file and can be obtained by aggressive IRS agents. Don't try to show fake losses at the gaming tables.
Recently I was told that the most of the larger casino track your ID card and that you are also welcome to view their records. They allow you to log on to their website, see how much you have played and also how much you have won or lost. My understanding is that this is pretty accurate. I believe you can get statement from most of the larger casinos and use those when reporting wins or loses.
Scheme 4 - Donking Chips to Beautiful Women
Since the Blackjack and gaming tables keep a record of your losses, perhaps your mind is going through other scenarios. One of the rather lame ways that was discussed at the poker table was donking/gifting chips off to beautiful girls. If you have played enough Blackjack, then you have seen this happen. Some drunk sits down at the table and wants to control the play. When he wins, he gives the girls chips in hopes of getting future benefits. The women follow the guy from table to table, gold digging all they can.
Did you know that casinos track this activity? You could get away with giving some chips to other players. This happens everyday. It is all quite innocent. I've given hundreds of dollars away myself, just because I like someone at a table. When I was just a young man, Mr. Samonite, (The CEO) was playing at the same crap table as me. I made him a ton of money. He gave me $500.00 like it was nothing. I enjoy passing it along and doing the same for young couples. However, when it becomes a pattern at a series of tables or becomes overt or obvious the casino starts tracking you. The same scenario occurs when you are putting up money for someone else. This is actually frowned upon.
The casinos work with the gaming commissions to help track illegal or dirty money. They really aren't interested in a player trying to create poker losses. But the same practices that are set up to track illegal activity will also put you on a suspicious activity list. One casino manager told me, "We don't have a problem with players gifting chips or using them to flirt with other players as long as the totals are small. When it looks like someone is intentionally passing chips to another player, then we flag them."
You don't want to be flagged as conducting suspicious activity. Once you get on the list you will be tracked. I don't know exactly how it works, but I've been told that the casino sends a record of all suspicious activity to the FBI and other agencies. They watch for a patterns. Don't do something stupid. Donking chips is stupid.
Check out these articles about God's lesson plan for Poker.
Scheme 5 - Selling Chips to Other Players
As we continued the discussion at the table, one player suggested that he was able to show poker losses by selling chips to other players at the table. The player would buy a large amount of chips from the cage and get a receipt. Then he would buy into the table for about 50% of his chips and put the rest in his pocket. He would then wait for the right opportunity. The receipt would show a legitimate buy in and a diary record. He would sell the chips to other players and put the cash back in his pocket. You innocently see this all the time. Someone goes all-in and loses their stack. They pull out money and another player pulls chips out of his pocket and sells them.
This is not unusual. Most players that need to watch their write offs, but chips at the cage. Whenever possible they get a receipt for their chips. There is no real record when using a chip runner unless they track you using your card. Then the chips in the pocket are us to replenish the stack without having to re-buy. If a pro player's stack falls below the average stack at the table, they will just take chips out of their pocket and put them on the table. This is perfectly legal and is much easier than getting a chip runner.
Another scenario would be when a person gets ready to leave. He stacks his chips in a tray and ask if anyone wants to buy some. When he sells chips like this, he has less to cash in. If he had a marker, he doesn't have to put the cash back into the account. At the table I was sitting at, this happened randomly with different players. The dealer even loaned a marker to make sure the new hundreds were not counterfeit.
This seems like a great idea right? Wrong! Again the same scenario comes into play. You can do this several times without getting caught. You can lie in your diary and probably get away with this, but you might also get flagged. If you change out chips too many times, someone is going to start noticing. The chip runners don't like it. The dealers have to mess with the watching money cross the table. It's not the proper edicate. Most of all, everyone see what you are doing. The cameras capture every transaction. You are creating evidence to bust yourself. It only takes one player to complain and you will get flagged.
Scheme 6 - Cashing in at Multiple Cages
One of the players at the table had the brilliant idea of cashing out his chips at multiple cages to avoid the casino tracking him. For example: He said, " I have 12k in chips. If I cash them all out at the same cage, they will have a record and take my ID. Therefore, I'll out smart them and cash out at several cages." What this player was attempting to do was fraudulently avoid evidence that he had loss only a small amount, broke even or won money.
While this seems like a good way to go unnoticed, it isn't. The casinos are watching for money laundering. They aren't watching for you. But imagine that you are on the security team for a casino. You are watching the cashier cages. Wouldn't you be suspicious if you saw a person cashing out three different times at three different cages. If you were the security team, wouldn't you put that person a suspicious list?
Scheme 7 - Cashing During the Game
Another player suggested that he would cash during the game. He would go to the cashier's cage, purchase a large amount of chips and then start playing. However, he would not buy into the table with all his chips. Instead he would buy in for the minimum and then keep the rest in his pocket. After a couple of hours of play, he would then cash lump sums from his pocket at the cashier cage. Meanwhile he would continue to play at the table.
What was he trying to do? The player suggested that by purchasing a large amount of chips that he had created a record for his IRS diary. Then by cashing out a little at a time throughout his play, that he could fool the IRS into thinking that he lost that money. The end result would be that the IRS would balance that lost against his winnings.
If you are planning on being dishonest, this seems like a pretty clever plan, but there are problems that will get you in trouble. For starters, each casino cage in the poker room has a cash in threshold that is part of their reporting system. If you exceed that cash in threshold then they record you on an MTL list. I'm not sure what that stands for, but they get a physical description and record the information. I'm told they never use the information again, so why do they write it down? It is used when something starts becoming suspicious. If you are cashing out chips every couple of hours and you are over that threshold, then you start appearing on the list over and over again. You will be tagged and your scheme will be busted.
If the casino is taking your ID when you cash in your chips, then you are over the reporting threshold. It's all good if you are only cashing in one time, if you are trying to cover your winnings by cashing in several different times, then you are just throwing up the red flag. Understand that poker is the least regulated of all gambling games because you are winning money against others and not the house. The poker rooms don't care who walks away with the money, they still get their rake. When you draw attention to yourself by doing something foolish, then you stand a good chance of being reported, audited and busted.
Scheme 8 - Sponsoring Your Friends, Personal Bets and Writing it Off
Another player suggested that he took his winnings and began sponsoring his friends as a team. He then claimed he would write them off as losses on his income tax. Now this sounds like fun. I can put my buddies in tournaments and take a cut of the winnings. If they lose then I get the tax write off. Great. No. Hang on a second. There is a problem. You cannot sponsor others and use the money as a gambling loss. You cannot buy into the same tournament twice. You cannot get a receipt with your name twice. The receipt will have their name on it.
The laws regarding gambling wins can only be offset by gambling losses. A sponsorship does not count as a loss. The player responded by telling me that he would just go to his room then and lose the money to his friends in private. He would then report that as a gambling lost. Sorry, but that doesn't work either. You can only write off gambling loses from an recognized gambling establishment. Even if you could write off losses to friends, they would have to report it as income. This plan does not work.
If you could write off receipts from unlicenced gambling places, then you could just go to your local underground game, slip them a hundred and they would give you a receipt showing you lost a million dollars. Since they are not a reporting entity, they don't count. If you are a winner, you need to be playing at an established casino. This is the only way you can balance your losses.
Scheme 9 - Turning Pro and Taxes Losses
A few of the players at the table had considered filing as professional poker players. There was talk that you could file for a professional players card. All that is old school. In order to deduct hotels, air flights, meals and other expenses, you must be a poker professional. A part time player or weekend warrior isn't going to qualify.
Actually turning pro was one of my first thought. It only seemed reasonable. I had just won 700k and thought it would be easy. Unfortunately, I still have a full time job and a company that I run. I still receive regular income from my companies. I can't claim that I'm a poker pro because the IRS states that a person must prove, beyond a doubt, that gambling is a full-time endeavor to the exclusion of all other income producing activities.
The only option available to turn pro would be if I quit my job by the end of the year and decided to make gambling my full time job. I'm not willing to do that. Winning big is nice, but the highs and lows of being a gambler would not be attractive to me.
Scheme 10 - Handing Off Chips
A lot of players suggested than anytime they win they hand off chips to one of their friends to cash in. Why would they do this? I understand the reasoning behind passing the chips. Some players don't want to show the wins and want to hid them from the IRS. By passing chips they involved another player in their scheme. Their chances of getting a suspicious activity report has increased. If they pass chips in the casino and get spotted, then they might be flagged. Cash your own chips. Don't involve others. Don't take the risk of getting them in trouble.
I understand the temptation to give someone chips to cash. One time I was playing at a casino and had about 12k in my chip stack. I went to cash in and didn't have a player card. It took about 30 minutes at 4:00 AM to get my money. They needed a player card, photo ID and social security number. Then I had to wait. I guess they were running a report. Anytime you cash over 10k you will go through extra reporting.
Scheme 11 - Betting on the Big Game - Both Sides
You are going to get a kick out of this idea. One good poker player suggested that he would go an place a two opposing bets on a Cowboy game. With one bet he place 50K on the Cowboys to win and another bet he would place 50K on the opposing team. He would lose one bet and win the other. In the process he claimed that he would only lose about 10% to the house.
The player deducted that he would lose 10% to the house and then gain 35% from the IRS on taxes. Do you see a problem with this scenario? Yes, he somehow omitted that he would have to claim a 50k win. You can't just win a large bet and go unnoticed. I'm not sure what the ruling is on sports betting, but I would imagine that anything over 5k would get a W2-G.
Tipping the Dealers
This is something that I still don't have a clear answer. Can I deduct my tips to dealers? After all the tips are voluntary. They are not demanded. It would seem they aren't deductible unless I'm a pro. If you find the answer to this question please let me know.
One reason I think they might be deductible as a lost is because some casinos will allow you to deduct your dealer tips prior to giving a W2-G. That certainly encourages tipping, but I'm not sure it is legal.
What About the Cash Trail
The players at this the table had a whole lot of ideas of how to produce loses by schemes and plot to appear to be losing. They might get away with some of the ideas, but what do they do with the cash. If they deposit the cash in an account, then they leave a paper trail. If they use the cash for living expenses, then the IRS will see that they are not spending money in a reasonable way versus their earnings.
The IRS isn't fooled easily. They will track the cash to determine if you are hiding income. Depositing the cash will instantly produce a record. Keeping the cash and spending it on everyday needs will also produce an opposite record. If a person is going to cheat and show losses yet keep the cash, they are going to have a money trail.
Keeping Receipts from Banks, ATM's, Wires and More
Even if you have never won a big tournament, it is time to start keeping a diary. A diary can also be an excel spreadsheet or any documentation of wins and losses. If you are serious about protecting yourself, you must start getting receipts. Some casinos will not give you receipts and you'll have to find other ways to show you gambling wages. I always withdraw the money from the bank before I go or get an ATM receipt at the casino. If I'm traveling, I'll have the money wired to the casino. This automatically shows my intent to play and provide the chips at the casino. It's just one more way to show my record keeping. When you wire the money to a casino, they will require that you take the money out of the account with chips. They will not give you cash. They are not a bank. You can take the chips and bet them anywhere in the casino, but beware of cashing them in.
You must keep diary or a spreadsheet record of your losses and winnings. Your spreadsheet should contain at least the following information.
The date and type of your specific wager or wagering activity.
The name and address or location of the gambling entity
The names of other persons present when you were gambling and
The amount(s) you won or lost.
You can generally prove your winnings and losses through Form W-2G, Certain Gambling Winnings, Form 5754, Statement by Person(s) Receiving Gambling Winnings, wagering tickets, canceled checks, substitute checks, credit records, bank withdrawals, and statements of actual winnings or payment slips provided to you by the gambling establishment. For specific wagering transactions, you can use the following items to support your winnings and losses. These record/keeping suggestions are intended as general guidelines to help you establish your winnings and losses. They are not all-inclusive. Your tax liability depends on your particular facts and circumstances.