The fall often offers poker players a brief reprieve. The craziness of the WSOP is behind us and while there are other tournament series across the United States, there is a bit of break before the hallmark year-end events in Las Vegas, Prague, and the Bahamas. This is the perfect time to ensure your 2022 taxes are complete and look ahead to begin your 2023 year-end poker tax planning.
Extended Tax Return Deadlines
Personal Tax Return
If you extended your 2022 personal tax return, you must have it filed on or before October 16th to ensure timely filing. You do not want to miss the deadline. If you do, you will be subject to late penalties and interest retroactive to April 18th. As a reminder, the extension only applies to your tax return, not any tax owed. If you owe tax with your 2022 filing, you will be subject to penalties and interest on any amount paid after the April deadline.
If you are required to file a report of Foreign Bank and Financial Accounts (FBAR), you must also have it filed on or before October 16th. This form, filed with the Financial Crimes Enforcement Network (FinCEN), could be required if you have an interest in a foreign bank account. Unregulated gambling and poker sites are sometimes considered foreign bank accounts. It is important to consider filing an FBAR if you meet the requirements.
If you are a professional poker player, you may still be eligible to contribute to your retirement account for 2022. Certain plans, such as a Self-Employed Pension (SEP) plans allow for contributions up to the taxpayer’s tax filing deadline, including extensions. If you are interested in making such a contribution, you will need to act quickly to determine your eligible contribution, or establish a SEP, before the deadline.
The IRS granted an automatic extension of time to file a tax return AND pay any tax owed to those in Alabama, California, or Georgia affected by a natural disaster (click here for the complete list of affected areas). This differs from a traditional extension, since taxpayers also have an additional six months to pay any tax owed without penalty. An extension of time was also granted for IRA and Health Savings Account contributions.
If you didn’t file for an extension, but still haven’t filed your 2022 tax return, you should file a return as soon as possible. While you may already be subject to penalties and interest, the accrual of such fees can be mitigated by filing your return. Even if you are unable to pay the tax due, it is critical to file. The IRS provides multiple options for taxpayers to pay any tax owed, including installment agreements.
Do not forget about your state tax return! Depending on where you reside, or earned income, you may have a filing requirement in multiple states.
Poker Tax Planning for 2023
Whether you have filed your 2022 tax return, or not, you can still look to do a bit of planning before the end of the year.
Estimated Tax Payments
Now that the 3rd quarter is coming to a close, a majority of the year’s variance has played out (statistically speaking). While there is still one quarter to go, many poker players will have a better projection of their net income for the year. This figure can be used to determine year-to-date tax owed in order to make federal and state estimated payments (if you haven’t done so already). This will prevent penalties and interest from accruing for underpayment of tax.
There is a “sweet spot” to ensure you are not overpaying your estimates (and unnecessarily depleting your bankroll). It is important to do some due diligence before making these payments.
Keeping accurate records is essential as a professional poker player. If your recordkeeping hasn’t been great throughout the year, this is the time to improve your process. I would also recommend reviewing your previous sessions to ensure accuracy. Complete records can be easily relied upon for tax reporting purposes and give you an exact profit and loss figure at any point throughout the year. This will make the planning process easier and more beneficial.
If you are a professional gambler, your poker earnings are eligible for retirement contributions. Now is the time to consider the benefits or drawbacks of these contributions to see if it helps to achieve your short and long-term goals. The two most popular options, Solo 401(k)s and SEP plans, can be opened with any brokerage. There are certain restrictions on the type and amount of contribution, but both are a great option to defer your tax liability.
Act Before Year-End
Tax planning isn’t always fun, but when used correctly, it can greatly reduce your tax burden. Most advantageous tax strategies can only be utilized before year-end. That’s why it’s important to meet with your tax professional, or do some self-planning, while you have the time. The end of the year will be here before you know it and you may have missed some critical planning opportunities!