The Poker Player’s Manifesto: Thou Shalt Pay Taxes

A dozen years ago, I lived in a tent a stone’s throw from the banks of the Kings River. Life was easy, taxes were nonexistent, and I was on my third year of profitable poker. I had been keeping records since 2000 and dutifully reporting my winnings with poker as a hobby, hopefully setting up some consistency for someday being a professional gambler. By 2003, poker had blown up and I was making more money playing poker than I was working as a guide, but I still had enough of a wage income to not be defined as a professional gambler yet. I continued to keep good records and continued to report my winnings. Then, in 2006, I won a bunch of money in a tournament and my dutiful accounting got left in a Vegas trash can. I was rich now with $50,000, which is filthy rich when 11 months prior the state of California legally defined me as homeless in a hospital bed (because I lived in the bed of a truck by a river) rather than as a professional gambler.

I crushed Vegas until December of 2006, did a poor job of keeping records, and a worse job of keeping receipts. Then Vegas crushed me for five straight months, and, come tax day, I was back to my minimum bankroll, which was somewhere around my assumed tax liability, and I panicked into doing nothing. Here I was, a raft guide trying to make it as a Vegas big shot, and I failed miserably. I ended up breaking out of that downswing and had a great 2008, but instead of using that money to fix my tax situation, I played bigger and lost it all. I wish I could say that I didn’t repeat my mistake of not filing taxes for 2007, but I can’t. I didn’t file in 2008 or 2009 either. Big mistakes.

I don’t know what I was thinking, but I wasn’t. I was frozen into inaction by ignorance and a fear of damaging a fragile bankroll, I guess. After my World Series of Poker main event run in 2011, I went about fixing things, and let me tell you, it hasn’t been fun. I’ve learned a lot in the process, and I’ve realized that poker players, in general, are bad at life maintenance, especially taxes. Here’s a few things I’ve learned:

File Your Taxes Even if you can’t afford to pay now, that’s okay, they will work with you. They are not happy with people who do not file. If you’re anything like me, then you need somebody to hold your hand. Hire an accountant and use them. If you can figure out how to do everything yourself, then well done.

Log Your Cash Game Results This is what the IRS wants to see to verify winnings and losses. If you want to deduct losses, you need this. If you ever get audited, they’re going to want to see this. Don’t fall behind on you log. Get yourself into the habit of keeping a record of what game you played, where, and on what date with profit or loss. Might as well add hours for personal information too. This is done easily with a smart phone, and if you don’t have a smart phone, then I assume that you still write down notes to yourself, so you will have no problem making a note at the casino and then putting it into a spreadsheet at home later.

Keep Track of Your Expenses The IRS regards you as a small business and, consequently, you can deduct your business expenses. Common things you can deduct include but are not limited to accounting, bank charges, automobile expenses, dues and subscriptions (like Card Player magazine!), health insurance, interest on debts owed, janitorial supplies for your home office, laundry, office expenses, parking and tolls, postage, rentals, office rent, security, startup costs, taxes, telephones, travel, meals and entertainment, and (phew) utilities. Those are from the list from my accountant, omitting the irrelevant things to poker players, like tools, but one could certainly write off Poker Tracker. The problem with this goodness is that if, in our laziness we forget to document these expenses, then we cannot write them off. I have a long list of those behind me and I am paying for it now.

Set Cash Aside For Your Tax Expenses Don’t let yourself get to the point that I got to of having a tax liability and no ability to pay it. Thirty-five percent of your year-to-date net is the right number after a bink of any magnitude. If you’re stuck on the year, there is no reason to set aside money for tax liability, because you don’t have any. Do not touch that money set aside unless you lose your way back to zero tax liability!

The IRS will advise you to pay taxes quarterly, I strongly advise against this. The reasoning is simple in the volatility of our profession. It is very easy to lose three quarters in a row, and losing years happen. Granted, if you pay in the first quarter and end up losing on the year then you are entitled to a tax return, but it’s much harder to get money from the IRS than it is to give it to them. It is important to note too that losses in a year cannot be deducted from the following year. Therefore you can win $1 million in 2014, lose $1 million in 2015, and still owe them about $350,000 on the first day of 2016 (plus penalties and interest).

Unfortunately, taxes are not like credit card bills. They won’t eventually go away as a charge-off only damaging your credit. Taxes will get bigger and worse and also damage your credit. The credit card company can’t put you in jail for not paying, but the IRS can. Good tax habits start with good record keeping and then continue by simply filing tax returns accurately. It’s not fun and can be hard to do, but getting out of a hole later is harder to do. Take care of yourself and stay ahead of the game, it’s part of being self-employed, it turns out. Don’t let your business be ruined by tax problems.

Disclamer: This is far from professional advice and I am not liable for any tax problems you may encounter after reading this article. This is a record of lessons I have learned the hard way and things I have learned since that I wish I knew a decade ago. ♠

Bryan Devonshire has been a professional poker player for nearly a decade and has more than $2 million in tournament earnings. Follow him on Twitter @devopoker.