Poker is not just about playing and winning – it also comes with financial and tax implications. No matter whether you play the game professionally or casually, it is essential for you to understand the tax rules related to your poker winnings to avoid tax pitfalls or troubles with tax authorities. Here in this article, we provide you with a breakdown of some common tax pitfalls players make fall into and how to avoid them.
Not Tracking And Keeping Records
Some players fail to track their poker winnings, losses and expenses (tournament fees, travel and lodging costs and other expenses), assuming that their winnings from the game are not taxable. Keep in mind that poker winnings are taxable in most countries. Failing to track, document and report your winnings (whether from online and live poker) may lead you into trouble with tax authorities and impact your financial well-being.
Solution: Keep a proper record of your winnings, losses and expenses. Ensure to track all transactions, including winnings, losses, dates, types of games played, and other necessary records. Keep proper receipts as proof with you. Use tracking software or spreadsheets to maintain your records properly.
Overlooking Deductible Expenses
Another big mistake some poker players make is ignoring or overlooking legitimate tax deductible expenses such as tournament fees, travel and stay costs, coaching fees, subscriptions to poker software and magazines, office you use exclusively for poker, internet costs, expenses for hiring and paying a tax professional and bookkeeper, and other deductible expenses related to poker. Many poker players either do not claim or do it improperly, failing to save from their potential taxable income.
Solution: Make sure to track and document all deductible expenses. Consult a tax professional to understand what is deductible and what is not.
Misreporting, Misclassifying or Mixing Personal And Poker Finances
One more common mistake is failing to report all poker winnings or not classifying income properly may also lead you into troubles with tax authorities. Similarly, not separating personal and poker finances or misclassifying your income as casual gambling earnings when you play professionally can make tax filing complicated and lead to errors. Also not keeping tournaments and cash game winnings separately may also lead to some troubles as these incomes may be taxed separately.
Solution: Understand the tax implications related to your poker activities and report all your winnings and losses accurately. Classify it as a business income if poker is your primary source of income. Ensure to use a dedicated bank account to keep records of all of your transactions.
Overlooking or Misunderstanding State And Local Tax Laws
Some poker players ignore the tax laws and regulations related to poker. Many of them wrongly assume that they just need to pay taxes in their own country, while many others fail to understand tax duties in the jurisdiction they play. Also some players even assume that online poker winnings are tax-free or that taxes are just applicable to live events. In reality, tax laws may vary from country to country and failing to understand these laws related to poker may lead you into trouble.
Solution: Make sure to research and understand taxes related to both online and live poker in your jurisdiction and anywhere you compete. Seek the help of a tax professional to ensure compliance to tax rules.
Key Considerations For Poker Taxation in India
If you are in India, all online poker platforms are required to deduct TDS on your poker winnings whether they are below or above ₹10,000. Your winnings are taxed at a flat rate of 30% under Section 115BB of the Income Tax Act. Any bonuses, referral incentives, or other inducements you are offered by online platforms are also taxable income. However, losses from poker can be set off against winnings in the same financial year.
Not Seeking Professional Advice or Using Tax Software
Another common mistake players make is ignoring the importance of consulting a tax professional for advice or not utilizing the tax software.
If you are a poker pro with a significant income, you cannot ignore professional advice. Similarly, not using tax software may lead to errors in tracking winnings, losses and deductions, thus resulting in compliance issues.
Solution: Seek help from a tax professional for advice on poker taxation to ensure you follow all the necessary rules and avoid compliance issues.
Not Filing Tax On Time
Some poker players leave the tax filing to the last minute or completely miss the specified filing deadline, which can result in penalties, interest charges or unnecessary stress. That not all, it may also result in errors in reporting winnings and deductions, thus leading to compliance issues.
Solution: Make sure to plan in advance by tracking your winnings, losses and expenses related to poker. Consult a tax professional or use software to file on time.
Conclusion
Avoiding tax pitfalls is essential for every poker pro to avoid compliance issues and ensure financial well-being. Keeping proper and accurate records, understanding both state and local tax obligations, and consulting a tax professional can help players maximize their winnings while staying compliant. Play smart both at the poker table and with your finances, plan ahead and do not allow tax mistakes eat your poker bankroll.
Disclaimer
This article is solely for information purposes and should not replace a professional tax advice. The laws related to poker winnings may vary from country to country, make sure to research and understand the laws or seek professional help to avoid tax pitfalls.
Keep following PokerProNews for more updates related to poker taxation.
