Using PokerTracker for Taxes...

[PShabi]

A post I just copy/pasted from the PokerTracker forums. Dude has to claim over 100k in additional income, yet only had net gains of $6,000. Rape.

From

I just spereated my sessions from gross winnings to gross losses. and I was hit by sticker shock. I play 5-8 hrs a day and 4-6 tables at mostly 5/10 limit.

I make 83K at my job, my wife makes 45K so our income is around 128k. to my surprise I have won (gross winnings) through oct. $123,410 usd
with a gross loss of 119,885.

just thinking ahead to tax time this is gonna vault me way up two tax brackets. For about 3k in winnings and another 3k in bonus.

Hardly seems fair my extra taxes will most likely be more than the 6-7k I netted.

[PShabi]

Wish I knew how to use them.



Yes, I am getting paid by my employer to do this tax research.

[Talking Poker]

I'm pretty sure I linked to all of those earlier in this thread already, pshabi. But thanks for double checking my work.

I also emailed PT support earlier today, asking them directly about adding a "Taxes" feature. Hopefully I'll hear something back from them.

As for the guy who says he's been moved into a higher tax bracket, I still have trouble believing that. In fact, I'm all but positive he's full of shit, or at least very confused anyw.ay. Isn't your tax rate based on your ADJUSTED (meaning after your deductions) Gross Income? I know you have said otherwise before, pshabi, but the losses really should come out fiurst, before the tax is calculated. Otherwise, I don't even know how you would deduct them.

In other words, like with the guy above:
128k total income = 28% tax rate (I think - I'm not looking it up). Add in the 6k net from poker and he's at 134k, which is still 28%. And that 28% is on the last of the dollars he earned, of course. That's something else people don't understand about taxes. He doesn't have to pay 28% on ALL the money he earned. The first however many thousand are taxed at 15% and so on and so forth. It's a sliding scale. Your "tax bracket" jusr refers to the last dollar you earned. IT's not the same as your effective "tax rate," which will always be lower.

If what he is saying was true, it would be:
$128k normal income + $123k poker winnings = $250k+ total income. This would be a higher tax rate. Let's pretend it's 33%, it doesn't matter. The point is, if we figure out the tax due HERE, how are we going to decuct his $120k in poker losses? It just doesn't make sense. In fact, I don't think it would even be possible.

I really think the losses will come out first and THEN we'll calculate what taxes are due based on your Adjusted Gross Income.

I just flipped thropugh a 1040 form and this is how it looks to me. Nothing else would make sense. And as ass backwards as the IRS is at times with their outdated laws and guidelines, typically when all is said and done things at least make sense. They may want you to SHOW every penny won and every penny lost, but you're only going to get taxed on the net win.

Ok.... When in doubt, read the instructions:


From what I am seeing, gambling winnings need to be reported on line 21. Gambling losses are then deducted on line 27, but only up to the amount of the winnings, of course. These, plus all your other itemized deductions are added up and deducted from your gross income, yielding your Adjusted Gross Income... and sure enough, THAT is the number that determines your tax due.

So it's all good.

[Talking Poker]

Here is another quick summary plus a few useful links:

[PShabi]

I'm going to start rereading threads I'm revisiting. I can't believe I linked to all of those! D-D-D-D-Dumbass.

Something else I've comed to realize that really scares the shit out of me. In terms of itemized deductions:

In general, if you choose not to make itemized deductions on your tax return, you get to take the "standard" deduction. From memory, I "think" this is $9500. From what I gather, if you take this "standard" deduction, then you obviously cannot itemize gambling losses.

However, if you want to itemize your gambling losses and deduct them, that would keep you from being able to take the "standard" deduction above. So, if you aren't regularly itemizing your tax return, it seems that you're going to be fucked.

I'm starting to wonder how profitable poker really is for me. Fuck life.

[Talking Poker]

Yes, that is correct. People who don't itemize their deductions will need to start itemizing. The standard deduction varies based on your marrital status, number of dependents, and so on.

Pretty much anyone who owns a house itemizes, because you get to write off your mortgage interest. Add in charitable contributions and all sorts of other stuff, and it's not hard to "Beat" the standard deduction. Hell, any poker player should be able to easily beat the standard deduction with their session losses, tourney buy ins, etc. It adds up pretty quick.

[Talking Poker]

The response I got from PT support via email a little while ago:

Sweet.

[PShabi]

I found a perfect example of how I'm getting fucked this year. Enjoy!!!



A post from elsewhere:

Let's assume a few things:

1. I am not a professional gambler.
2. I'm married.
3. I won $20000 in 2004.
4. I lost $15000 in 2004.

If I don't really have any other deductions, does this mean I get screwed big time?

Let's assume I have $1000 of deductions so I would just opt for the standard deduction. Now, because of poker, I lose that $9500 deduction, because I have to say that I lost $15000 gambling, esentially robbing me of $9500 in deductions.

Is this correct thinking? I'm just trying to get a sense of how screwed I'm getting.




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Let's just add one more assumption if no one minds:
ASSUMING NO POKER, junkmail's income was $25,000.

So, WITHOUT POKER, his AGI would be $25,000. His exemptions (assuming 1 for himself and 1 for his wife) would be $3,100 each or $6200 total. That brings him down to $18,800 taxable income. Then he takes standard deduction of $9,500 bringing his taxable income down to $9,300

WITH POKER, his AGI becomes $25,000 + $20,000 = $40,000.
He still gets the $6,200 exemption bringing his taxable to $33,800. But now he can no longer use the standard deduction of $9,500 unless he doesn't want to declare his gambling losses, so he files a Schedule A showing $15,000 as gambling losses.

This reduces his taxable income to $18,800. This means he is paying taxes on $9,500 more income ($18,800 - $9,300) even though he only netted $4,000 from his poker.

Is this correct??

Thanx so much for pointing this out and for your help!


**** What I now gather is this. The scenario where you get fucked is:

1) Non-professional
2) No itemized deductions other than poker losses.(no home ownership, etc)
3) Your net was less than $9500.

Best thing is, that's me!

It seems like this person would be the only one getting screwed and everyone else is just paying taxes? Am I right here?

[PShabi]

Two cookies for the first person who tells me how to run and use the script in this thread:



What the hell do I do with that code? Start to finish.

[Talking Poker]

You don't need to run that. Just do the session sort thing that you showed me the other day - it works like a champ.

As for the tax problem, your gripe has nothing to do with poker - It has to do with the IRS and the "Standard Deduction." This is the exact same "problem" you would have if that $15k loss was due to mortgage interest or charitable contributions or anything else that one would itemize. Basically, you need to come up with $9500 in itemized deductions just to beat the Standard Deduction - just to "break even," based on how you are looking at it. This is just the way it is.

Instead of looking at it as how unfair this is, look at it on the other side. Your 15k in deductions are what you deserve to write off, so it all works out. The $9500 that you COULD HAVE written off was a gift that you no longer get, because $15k > $9500. Sure, lots of people out there still get their gift, but you don't, because you get MORE than that now.

Yes, it would be very nice if the IRS would allow us to report our net and pay tax on that, instead of reporting our total wins and total losses... but they don't.

[PShabi]

I do need to run it. I want to look at the numbers defining each day as a "session" and see what the difference is. I'm running it in H&R block, so I can do it a couple different ways.

And I see your point on the deduction. It still sucks though. And I'm gonna bitch all the live long day.

[PShabi]

Fine, 3 fucking cookies. Some one tell me how to use it damn it!

[sjay2k]

Gambling income is not taxable here in Australia!!

[PShabi]

That's helpful.

[MathBabe]

Do you still have the (default) Microsoft Access database underlying PokerTracker? Or have you changed it to PostgreSQL? Do you have Microsoft Access?

[MathBabe]

I got my own stats out in a reasonably useful form... these were the steps:

1. Open Microsoft Access. File->Open, browse to c:\PokerTracker\ptrack.mdb and open that.
2. I'm no Access expert, so I'm sure there's a better way to get there, but... click on "Queries" under Objects, click "Create Query in Design view", close the top window that opens up, and select View->SQL view.
3. Now you can paste in the query from the PT forum (the first one) and put in your username. If you have multiple names, or different names on different sites, add the other names at the end of the WHERE statement, as in WHERE p.screen_name='MathBabe' or p.screen_name='MathGrrl'.
4. Click the red exclamation mark and you should see the report. You'll probably want to copy and paste it into Excel so you can sum up the amounts won.

[Talking Poker]

I'm giving this thread a little bump and including the SQL here too, so we'll have it. I got back from the accountant today, and I can say that pshabi is right - reporting sessions day by day is the way to go. I'm on my wayu out now - I'll explain more later.

Here is the SQL:
SELECT MONTH(s.session_start) AS SessionMonth, DAY(s.session_start) AS SessionDay, YEAR(s.session_start) AS SessionYear, SUM(amount_won) AS AmountWon
FROM players AS p INNER JOIN [session] AS s ON s.player_id=p.player_id
WHERE p.screen_name='Rogue23' or p.screen_name='TalkingPoker'
GROUP BY MONTH(s.session_start), DAY(s.session_start), YEAR(s.session_start)
ORDER BY YEAR(s.session_start), MONTH(s.session_start), DAY(s.session_start);

The only parts you need to change are the bolded parts above and you can add as many more "or" clauses as you like.

[Talking Poker]

Ok, here's the deal about this, once and for all. I'm going to make up numbers to help illustrate how things works.

In order to avoid that whole "Tax Evasion" thing that the IRS frowns upon for some crazy reason, you need to report every last dollar that you earned playing poker (and babysitting and mowing lawns and dancing at the local strip club, etc). The problem comes about in that you can't just report that you won $500 playing poker in 2005. Instead, the IRS wants you to report that you won $192,500 and lost $192,000 (note that the net is still $500).

No, this does not put you in a higher tax bracket, and yes, you still only end up paying taxes on $500 more than you would have had you not had any poker income to report.

However, the problem comes about because now, instead of having a $50,000 per year salary (from your hypothetical day job) + $500 in poker winnings = $50,500 that you need to pay taxes on, you actually have a $50,000 salary + $192,500 in poker winnings = $242,500 in total income, less $192,000 in poker losses = $50,500 that you need to pay taxes on.

Well, that doesn't look so bad. Note that the bold amounts still match, so the bottom line due to Uncle Sam should be exactly the same, right?

Wrong! Why? Because, when determining your eligibility for a number of other deductions/credits, the IRS looks at the BIG number (the one before the poker losses were written off - in this case, $242,500). So, while you really only earned $50,500 for the year, the IRS sees the $242,500 number and decides you have plenty of money and shouldn't be allowed to write off a number of things that you could otherwise. And that sucks.

Unfortunately, that's just the way it is.

Breaking this down a bit more, where does the data come from that makes up that $192,500 in wins and the $192,000 in losses I mentioned above? Well, those are your "session" totals from all your winning sessions and all your losing sessions. Yes, you need to add them all up and report the totals (I hope you are keeping good records!). Unfortunately, in this day and age and with online poker, the IRS's definition of a "session" doesn't really apply any more, and it's very vague at best. Playing online, you can easily play in 4, 5, 6, or even 12 games at once and easily be involved in 20+ different virtual tables without your physical ass ever leaving it's physical chair. So really, that was all one "session" for you.

This is where the script above comes in. By running it, you are able to combine your multiple virtual table sessions into more reasonable playing sessions. It groups them by day, which is not perfect, but is pretty good and (IMO anyway) very reasonable.

What's the net effect of this? Well, your $192,500 and $192,000 numbers will be reduced to something more like $68,500 and $68,000 (again, I'm totally making up these numbers). So now your total income will be your $50,000 salary + $68,500 in poker winnings = $118,500 in total income, less $68,000 in poker losses = $50,500 that you need to pay taxes on. Yes, we're still at the magical $50,500 number... BUT.... note that that big number went from $242,500 down to $118,500. Yes, this is still WAY higher than your actual $50,500 for the year (and this will still cost you), but this may allow you to keep some of those deductions that the larger number would have caused you to miss out on.

Overall, the system pretty much sucks. And because it's so ridiculous, I can see why so many people choose to ignore their poker income all together when reporting their taxes. This is a very big risk, of course, but when it's this much of a pain in the ass, can the IRS really blame people?

Anyway, that's that. Hopefully that helps explain things to those who are lost, which as best I can tell from this site and others that I've visited is pretty much everyone. I'm not an accountant or a tax advisor or anything like that, nor do I claim that everything written here is 100% accurate. This is simply my understanding of how things work.

[Zybomb]

I got lost somewhere between the two bolded sentences.... not quite sure where though...

[Talking Poker]

Next time I'll use smaller words. Hopefully you won't get audited in the mean time.

[PunkyChikn]

Do bonuses you've earned through various sites count as taxable income as well?

[Talking Poker]

Every penny you earn, from every source you can imagine, is supposed to be reported to the IRS.

If you get a bonus from your day job, you pay taxes on it. Poker is no different.

[PunkyChikn]

Gotcha. This is the first year I've had to file a return, so I'm a wee bit clueless as to how it all works.