Paying taxes on losing year?

[gregy20723]

hey guys 2011 will be my fourth year paying taxes as a full time player and the previous three years i claimed 6 figure winning years. However this past year i lost a couple hundred and was wondering if anyone has had a losing year or knows anyone who's had a losing year and how they went about there tax forms for it?

[HeyEveryone]

You Can't deduct losses this year. There may be a way to deduct business expenses if you file as a pro. You shouldn't have to pay any tax if you don't have additional income.

[YourDoom]

My understanding is that you should still file your taxes claiming that you made $0.
I would ask the experts in the Poker Legislation forum to make sure.

You wont get prev tax year payments back if that's what you're asking.

[gregy20723]

my only concern is that i lost in live games which becomes hard to prove that i actually lost that type of money in home games/casinos and my accountant told me i should claim "something" to eliminate risk of audit. I feel like i shouldn't have to pay anything considering I've paid out my ass to the IRS for the past 3 years and didn't make any money last year.

[Stake Monster]

If you have nothing to hide then declaring $0 should be fine, but if you do, it's obviously a risk you'll be taking. Whenever taxes are involved, consulting a tax lawyer is the right thing to do. If you look on 2p2 I am sure you can find some references to lawyers with experience dealing with poker players.

[ajt8]

Originally Posted by gregy20723

my only concern is that i lost in live games which becomes hard to prove that i actually lost that type of money in home games/casinos and my accountant told me i should claim "something" to eliminate risk of audit. I feel like i shouldn't have to pay anything considering I've paid out my ass to the IRS for the past 3 years and didn't make any money last year.

The only reason that opinion makes sense because the audit might end up costing you more depending on how you handled your previous tax submissions.

If you have nothing to hide, paying seems absurd. I would consider getting a second opinion from another firm. If you do, definitely have copies of your previous year filings available so they can make a qualified opinion on your situation, it will also give you some perspective on how your current accountant is handling your taxes. Your info is confidential to any CPA and any opinion they make (in the event they say you owe backtaxes or something) is not reportable to the IRS.

[schlucky1]

I've been wondering about this too. I have filed as a professional for the past few years and have always deducted business expenses like coaching, internet, tracking software, ect.

Last year I lost about $1k and also paid a few $k for coaching, + other minor expenses like internet. I'm also out $10k'ish that was in FTP that I already paid taxes on. Do I still just claim $0?

[PokerXanadu]

The US Taxes sticky in this forum explains everything about reporting poker income and losses and covers what you need to know. But here are a few short answers as well:

For the amateur player, if your year has a net loss:
Report your total winning sessions as gambling income on your Form 1040 as Other Income.
Report your total losing sessions, up to the amount of your total winning sessions, as gambling losses on your Schedule A Itemized Deductions. (But if your standard deduction is larger than total itemized deductions, then just take your standard deductions.)
You can't take any deductions for any of your expenses (coaching, internet, tracking software, travel, etc.).

For the professional player, if your year has a net loss:
Use a Schedule C to report your total winning sessions and your total losing sessions (but losing sessions only up to the amount of your winning sessions).
You can also take deductions on the Schedule C for any of your expenses (coaching, internet, tracking software, travel, home office, etc.) even if this will result in a net loss for the year on your Schedule C.
Transfer your Schedule C total (positive, zero, or negative) to the appropriate line on your Form 1040 income.
If your Schedule C total is negative, it can offset other income on your return and you may end up with a Net Operating Loss which can be used either as a carryback to previous years or a carryforward to following years in accord with IRS rules. (But you can't carry over total session losses that exceed total session winnings.)
Note: Even if your net for the year on your Schedule C is zero or negative, and your tax liability for the year is zero, you still report everything as you did have income (total winning sessions).

[Russ Fox]

Originally Posted by PokerXanadu

The US Taxes sticky in this forum explains everything about reporting poker income and losses and covers what you need to know. But here are a few short answers as well:

...

For the professional player, if your year has a net loss:
Use a Schedule C to report your total winning sessions and your total losing sessions (but losing sessions only up to the amount of your winning sessions).
You can also take deductions on the Schedule C for any of your expenses (coaching, internet, tracking software, travel, home office, etc.) even if this will result in a net loss for the year on your Schedule C.
Transfer your Schedule C total (positive, zero, or negative) to the appropriate line on your Form 1040 income.
If your Schedule C total is negative, you can carry over this loss to the following year. (But you can't carry over total session losses that exceed total session winnings.)
Note: Even if your net for the year on your Schedule C is zero or negative, and your tax liability for the year is zero, you still report everything as you did have income (total winning sessions).

This is not correct regarding a negative Schedule C. That loss will flow through to Form 1040 and may create a Net Operating Loss (NOL) depending on any other items on the Form 1040.

There are two choices with regards to an NOL. It can be carried back two years (in this case, to 2009) or carried forward for up to 20 years. The default is to carry the loss back; if you wish to carry it forward instead you must file an Election statement with your tax return.

The NOL carryback is taken by filing either Form 1045 (Application for Tentative Refund) along with all required supporting documents (see the instructions for the form). Alternatively, you can file an amended tax return (Form 1040X) for the year in question.

This can get complex and I advise anyone impacted by this to thoroughly discuss this with their own tax professional.

-- Russ Fox

[LT22]

Originally Posted by gregy20723

my only concern is that i lost in live games which becomes hard to prove that i actually lost that type of money in home games/casinos and my accountant told me i should claim "something" to eliminate risk of audit. I feel like i shouldn't have to pay anything considering I've paid out my ass to the IRS for the past 3 years and didn't make any money last year.

as mentioned I believe it would be $0 income...then I do believe your legitimate necessary and ordinary business expenses can actually take you negative. As Russ just mentioned, NOLs are the bomb, but I'm not sure how they work for sole proprietorship, only dealt with corporation examples

it is definitely going to be difficult to prove cash game losses...a log of table #'s, other players' names, dealers, etc would be helpful. I always take a picture of my starting odometer in my car and then I take a pic when I return home. If you can get away with it, I always try to snap a pic in the casino, too.

[PokerXanadu]

Thanks for the info Russ. I've corrected my post accordingly.

[YourDoom]

Originally Posted by Russ Fox

This is not correct regarding a negative Schedule C. That loss will flow through to Form 1040 and may create a Net Operating Loss (NOL) depending on any other items on the Form 1040.

There are two choices with regards to an NOL. It can be carried back two years (in this case, to 2009) or carried forward for up to 20 years. The default is to carry the loss back; if you wish to carry it forward instead you must file an Election statement with your tax return.

The NOL carryback is taken by filing either Form 1045 (Application for Tentative Refund) along with all required supporting documents (see the instructions for the form). Alternatively, you can file an amended tax return (Form 1040X) for the year in question.

This can get complex and I advise anyone impacted by this to thoroughly discuss this with their own tax professional.

-- Russ Fox

You just confused me. Are you saying that a professional gambler can offset taxable income in a different calender year by claiming a NOL?

For example,
I make and claim $333k in 2009 and pay $100k in federal taxes.
I make and claim $220k in 2010 and pay $65k in federal taxes.
I lose $100k in 2011.

Am I now entitled to recovering ~$33k of federal taxes from the previous years? ie, if I filed an amended tax return, the fed would then own me ~$33k.

(I'm approximating everything in the 33% tax bracket just to make it easy, but I'm asking more about the law than the exact numbers.)

[LT22]

Here's the PDF instructions for NOLs for individuals

http://www.irs.gov/pub/irs-pdf/p536.pdf

[LT22]

Originally Posted by YourDoom

You just confused me. Are you saying that a professional gambler can offset taxable income in a different calender year by claiming a NOL?

For example,
I make and claim $333k in 2009 and pay $100k in federal taxes.
I make and claim $220k in 2010 and pay $65k in federal taxes.
I lose $100k in 2011.

Am I now entitled to recovering ~$33k of federal taxes from the previous years? ie, if I filed an amended tax return, the fed would then own me ~$33k.

(I'm approximating everything in the 33% tax bracket just to make it easy, but I'm asking more about the law than the exact numbers.)

A NOL would offset your income from previous years. If you were in the 33% marginal tax bracket and you're still in the bracket after the loss, it would be 33% refund (no interest AFAIK). Let's say you're 50k in the 33% bracket and 50k in the 28% bracket, it would be ((50,000*0.33)+(50,000*.28)) Also, you do not get any reduction in self-employment tax, only on your income tax.

page 10/11 of the PDF linked above shows an example

[PokerXanadu]

Originally Posted by YourDoom

You just confused me. Are you saying that a professional gambler can offset taxable income in a different calender year by claiming a NOL?

For example,
I make and claim $333k in 2009 and pay $100k in federal taxes.
I make and claim $220k in 2010 and pay $65k in federal taxes.
I lose $100k in 2011.

Am I now entitled to recovering ~$33k of federal taxes from the previous years? ie, if I filed an amended tax return, the fed would then own me ~$33k.

(I'm approximating everything in the 33% tax bracket just to make it easy, but I'm asking more about the law than the exact numbers.)

The answer to this is unequivocally no. You cannot deduct gambling losses that exceed your gambling winnings. If you have a losing year, what can create an NOL for professional gamblers (including professional poker players) is normal business expenses associated with the gambling activities (software, travel, home office, coaching fees, etc.). Those business expenses can still be taken as normal deductions on your Schedule C, which can result in a net loss for the year.

For example, if in 2011 you had total winning sessions of $200K, total losing sessions of $300K and normal business expenses totaling $10K, as a professional player you would report on your Schedule C:
$200K in gambling income
$200K in gambling losses
$10K in business expenses.

This would result in a $10K net loss on your Schedule C, which you would carry over to your Form 1040, and depending on the rest of your tax return could result in an NOL for the year.