The 2023 World Series of Poker is almost upon us. Players will soon be descending upon Horseshoe Las Vegas (formerly Bally’s) and Paris for the summer to play in over 100 WSOP bracelet events. Although it’s considered the marquee tournament series of the year, almost every other poker room in the city will host their own events that coincide with the WSOP. If you are a fan of playing poker, there will always be a game when the WSOP is in town.
Of course, it is important to consider every part of your trip before heading to the WSOP, including “poker taxes.” In this article, we will cover best practices and provide a few updates regarding changes that could impact you tax-wise after cashing a WSOP event. Specific topics we’ll address include ITIN issues, selling and swapping action between U.S. residents, the importance of tracking results, and more.
No More Lammers
If you have been to the World Series of Poker in the past, you are probably familiar with tournament lammers. They were awarded to winners of most satellite events and were (we believe) a cause of tax issues in the past. While they had “no cash value”, each lammer could be redeemed for $500 of tournament buy-ins. Without an assigned cash value, the WSOP would not issue any W-2Gs to satellite winners.
This year, the WSOP has ended single-table satellites and with that, has ended the issuance of lammers. Instead, there will be more mega satellites, awarding casino chips or direct-entry seats to select events.
There is a lot to unpack about this development from a tax side of things, so I encourage you to read this post that outlines the payout structure and tax consequences of cashing a satellite.
Individual Taxpayer Identification Number (ITIN) Issues
The 2022 WSOP marked the first year the event was held on the Las Vegas Strip. Moving an event of this size came with a lot of logistical issues, all of which, if you ask most people who attended, were handled quite well. However, neither Bally’s nor Paris was able to become a Certified Acceptance Agent (CAA) with the IRS throughout the duration of the event. This meant that they could not help nonresident players apply for ITINs with the IRS.
As a result, the World Series of Poker was required to withhold 30% tax from any nonresident without an ITIN who cashed for more than $5,000 (less buy-in). This applied to all nonresident players, including those residing in a tax treaty country.
This was a big issue in 2022, as the WSOP attracts a large field of international players. It is expected that this will no longer be an issue in 2023, but it is something to monitor and confirm before your trip. Assuming the WSOP can process ITINs, here’s what you need to know:
- The WSOP can only issue ITINs for players residing in a tax treaty country. If you do not live in one of the following countries, you will not be able to apply for an ITIN at the WSOP and will automatically have 30% tax withheld:
Austria, Belgium, Bulgaria, Czech Republic, Denmark, Finland, France, Germany, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, Russia, Slovak Republic, Slovenia, South Africa, Spain, Sweden. Tunisia, Turkey, Ukraine, United Kingdom
- You will be required to prove your residence using a passport or other supporting documentation (utility bill, foreign ID card, etc.). This documentation can be presented to the cage prior to claiming your winnings. If you are unable to verify your residency in a treaty country, the WSOP will withhold 30% tax.
- You do not need to claim your winnings right away. If you do not have the proper documentation to prove your residency, you can return to the cage and present your proof of residency when you have it. This could prevent withholding and a lengthy tax refund process.
Swapping, Selling or Buying Action: Poker Tax Implications
The most important thing to remember before swapping action: always produce a paper trail. When making any deal, send a text message or email that confirms the event and amount of action sold. When paying out backers, pay them via bank transfer or through a third-party payment processor.
If you must pay someone in cash, have them sign a statement or send a text verifying the payment was received. It is extremely difficult to prove cash transactions in an audit, so the more evidence you have, the better. This will not only help verify each backer is paid the correct amount, but will also provide substantial documentation for your tax records.
However, before any payments are made, it is necessary to understand the tax requirements of backing agreements. The ramifications of such agreements depend on the residency of each player.
U.S. Resident Sells Action to U.S. Resident
If a U.S. resident pays more than $600 in net profit to another U.S. resident, it must be reported on Form 1099-MISC. You should obtain a completed Form W-9 from your backer before you remit payment. This form formally requests their Social Security Number, address and signature to confirm that all information is accurate.
Form W-9 must be kept for your records (it is not submitted to the IRS). You can then use the information provided on the form to file a 1099-MISC at year-end, transferring the poker tax burden of the net yearly profit from you, to your backer.
U.S. Resident Sells Action to Nonresident
If the nonresident is a resident of a tax treaty country and has an ITIN, the process is relatively simple. The nonresident will complete Form W-8BEN, citing the correct treaty exemption, and include their ITIN. Once your backer gives you completed form, you can pay the nonresident 100% of their winnings.
If the nonresident is a resident of a tax treaty country, but does not have an ITIN, you must withhold 30% of the winnings and remit it to the IRS on the nonresident’s behalf. This must be done using the EFTPS website. The nonresident can then file Form W-7 and Form 1040NR at the end of the year to apply for an ITIN and claim a treaty exemption to receive a tax refund.
If the nonresident is not a resident of a tax treaty country, you will follow the same procedure outlined above, withholding 30% of the winnings and remitting it to the IRS (this applies if they have an ITIN or not).
In each of the three instances above, you will also file Form 1042, Form 1042-S and Form 1042-T to denote payments to a nonresident. These forms are filed separately from traditional income tax returns to the IRS.
Nonresident Sells Action to U.S. Resident
If the nonresident is a resident of a treaty country and has an ITIN, they will receive 100% of the winnings and you will not have any issues. However, if the nonresident does not have an ITIN, or is not a resident of a treaty country, they will only receive 70% of the winnings. Since 30% was withheld for taxes, it would be up to the players to decide how to split the winnings based on the lesser payout (or the pending tax refund the following year). I recommend including the payout structure in your original backing agreement to lessen issues after the fact.
If you are a U.S. resident, this is something to consider before buying the action of a nonresident without an ITIN or residing in a non-treaty country.
If you plan on buying or selling action during the WSOP, I highly recommend becoming familiar with the above processes and forms. The WSOP is hectic, and players often have little downtime to address important tax deadlines between tournaments. Some of the required actions, such as remitting tax payments via EFTPS, have time-sensitive deadlines, so it is important to stay in compliance.
Track Everything You Do
Whether you are an amateur or professional gambler, track the net result of every cash game session and tournament played. This is always critical, but with the number of games available during the World Series of Poker, players can rack up sessions quickly and easily forget their results.
As a quick refresher, each tournament is considered its own session. If you enter a tournament multiple times, each buy-in is considered a unique session. For example, if you buy-in four times to a $500 event, ultimately cashing for $4,500, it will result in gross winnings of $4,000 and gross losses of $1,500.
For cash games, each continuous period of play at the same game type (NLHE, PLO, etc.) is considered a session. If you leave for dinner and return to the same table or change tables within the same game type, you do not need to start a new session. However, if you change game types, or move from one casino to another, that is considered a new session.
In addition to tracking your session results, professional gamblers have the additional task of tracking all their business-related expenses (and keeping proper documentation). But which expenses are deductible?
As with all self-employed individuals, professional gamblers can deduct all ordinary and necessary expenses related to their business. This includes, but is not limited to, hotel, airfare, ground transportation and meals while traveling (note: there is no longer a deduction for entertainment expenses).
Since many players are in Las Vegas for an extended period, it is important to contemporaneously track expenses each day. To do so, I would recommend using one credit card (preferably a business card) for any business-related expenses and minimizing cash payments. If you do pay for an expense in cash, you must keep the receipt, which can get burdensome.
So, you’re saying I can deduct my entire trip to Las Vegas as a business expense?
Maybe, but probably not.
You can only deduct the expenses from days you conducted business-related activities. If you travel to Las Vegas for 20 days, but only conduct business (poker-related activities) for 10 of those days, you will only be able to deduct 50% of your aggregate expenses (hotel, airfare) and only meals on the days you conducted business. There is a bit of nuance when weekends get involved, so it is best to track all activity and days played to ensure you are deducting the correct percentage of your expenses.
As evidenced by what we’ve covered in this article, there are a lot of poker tax issues that can arise during the WSOP. However, if you are aware of them, and know the steps to mitigate their impact, you will have a less stressful (and hopefully more profitable) summer.