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IRS ups ante in reporting tournament winnings
IRS ups ante in reporting tournament winnings | The Guide | PE.com | Southern California News | News for Inland Southern California
05:44 PM PST on Thursday, December 6, 2007
By BRUCE CAMENGA
Special to The Press-Enterprise
Poker tournament sponsors and players will be facing some monetary changes beginning in March, courtesy of the Internal Revenue Service.
The IRS claims this is a clarification of how to report tournament winnings. Sometimes when clarification is the attempt, the result further mucks up the picture. The IRS has been accused of this in the past.
After years of advising the casinos and players that tournament winnings were actually prizes and reportable , the IRS is changing its stance. After March 4, a new procedure will be in effect. This will require all sponsors to report tournament winnings of more than $5,000. The sponsor does not need to withhold any amount for taxes if the winner provides the sponsor with a valid Social Security number. If the winner cannot or will not do so, the sponsor must withhold funds for federal income tax at the rate of 28 percent.
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2004 / The Press-Enterprise
After March 4, the IRS will require all poker tournament sponsors to report winnings of more than $5,000.
If the sponsor (casino) fails to make the report, it is responsible for the taxes on the winnings at 25 percent of the gross win. This doesn't relieve the winner of reporting the win as income. The result is that the IRS can possibly double dip on the tax.
All gambling winnings, including tournament winnings, have to be declared by a taxpayer as taxable income but there is variety in the way that tournament winnings can be reported. Even tournament winnings won outside of the United States must be reported by U.S. taxpayers.
Currently, because tournament winnings are classed as prizes, the taxpayer cannot just claim the net win (win amount less entry fees). The gross win is reported as other income, hobby income, or Schedule C income (for self employed). The last category can only be used by a select few who claim to be either professional gamblers or tournament players.
Tournament players are those who play at a level higher than a hobby. IRS hasn't ruled on whether a tournament player who files a Schedule C can have a loss, so it is a favorable selection to use. If there is a profit of more than $400, the player will have to pay self-employment taxes on net income.
If a tournament player currently receives a "prize" of more than $599, the casino should issue the player a form showing the winnings. If the player claims this as hobby or other income on his federal tax form, the entry fee may be added to itemized deductions . If the taxpayer does not have enough itemized deductions , the entry fee is "lost."
If the tournament player files a Schedule C for tournament play, all winnings are shown as income and expenses can reduce the income for taxable purposes.
With the new IRS directive in place, it will effectively eliminate tournament winnings from being shown as anything other than gambling winnings on the front page of the player's 1040, or as income on a professional gambler's Schedule C.
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