Jamie Gold made history by winning the largest prize ever offered in tournament poker: A whopping 12 million dollars for taking first place in the main event of the 2006 WSOP. In doing so, he also set himself up for the largest tax bill in the history of tournament poker. Just like lottery winnings or income, poker tournament winnings are taxable. Although it is a problem we would all like to have, you should know the tax implications of winning a prize in a poker tournament, whether you win live or in an online casino.

Online Poker Tax Implications

When you win poker tournament online, you will not receive any kind of tax notice. This is because these poker sites operate outside of your native country (certainly if you live in the United States, and in many other countries as well) and are not subject to your country's tax laws. You, however, are subject to those laws. You are still obligated to report your tournament winnings to the IRS. If you do have a big tournament win, keep careful records of your tournament play, as carefully recorded losses may offset your wins. Furthermore, if you play casino games online, like blackjack or roulette, make sure that you study the tax laws in your native country.

Live Casino Poker Tax Implication

If you win a prize in a poker tournament of more than $600, you will be given a form which records the result for tax purposes. Hold on to this form, as you will be required to submit it with your tax return. For most of us, poker tournament prize money counts as casino winnings and you will find a spot on your tax return to record them accordingly. Some professional players can report tournament winnings as income, but you must be on record as a professional poker player and be able to prove that you derive the majority of your income from poker.

It is important that you keep all tournament entry receipts for the tournaments you play in years where you have significant wins. This is because you can often count those receipts as deductions, itemized on schedule A, which you can use to offset the amount you must pay on your win. Naturally, you cannot report more deductions than you have winnings.

It may also be possible to deduct cash losses from your tournament winnings. If you keep a portion of your prize money on account with the casino, and get a receipt when you withdraw money to play in a cash game and lose that money playing poker, you may be able to record this as a deduction. Tax rules regarding this may vary, so consult with a tax professional before taking any poker loss deductions. Also remember you cannot use losses in one year to offset wins in another.