Have you read this post from the one-and-only F-Train? It seems the Tax Man dropped a $636 past due bill on him this week for tournament winnings from 2006.
Well, I can report that F Train isn't alone. I, too, forgot a few thousand dollars in tournament winnings from the Coushatta Casino back in my crazy rush of 2005/2006. In fact, in my post, I included a picture of the very W-2 that would doom me.
And the government wanted a big piece.
Thanks to a total of $4,246 of unreported tourney winnings from the Coushatta, I owed the government $1062 in taxes and an additional $82 in penalties and interest. If F-Train and I haven't made it clear, forgetting W-2-recorded poker winnings doesn't pay. I'm really curious if this was a specific crackdown on gambling-related W-2's or if this was a general roundup of unreported income.
Either way, the IRS wasn't playing games and there was no way to Luckbox my way out of this one.
In fact, you can expect this to get even worse. Starting this month, the IRS began requiring casinos and other poker tournament sponsors to report some winnings to the Internal Revenue Service.
Since March 4th, all poker tournament winnings of $5000 or more will be reported on a W-2G form. That doesn't mean, however, that your winnings of less than $5000 won't come under any scrutiny. Many casinos, like the Coushatta, will require W-2Gs on any amount.
As the IRS likes to remind us, "Tournament winners, by law, must report all their winnings on their federal income tax returns. This rule applies regardless of the amount and regardless of whether the winner receives a Form W-2G or any other reporting form."
Specifically, "Generally, gambling winnings are reportable if the amount paid reduced, at the option of the payer, by the wager is (a) $600 or more and (b) at least 300 times the amount of the wager." And that rate you'll pay? Try 25%.
If the casino elects not fill out a W-2G for your winnings, you can try to slip it by the IRS, if you want. Again, you do that at your own risk. Any unreported winnings will be subject to late tax penalties and interest. And if you decide to try and counter any taxes you pay on winnings by deducting your gambling losses, you better have some pretty good records to back up your claims. If the IRS auditor arrives, failure to have that information could again result in some pretty serious late taxes, penalties and interest.
So if the federal government is cracking down on tournament winnings at casinos and elsewhere, that must mean they are interested in profiting off the poker boom. If so, why wouldn't the government turn towards a potential gold mine of taxes, the online poker room? We'll leave that question for another day.