Posts Tagged ‘WSOP’

Staking and the 2014 WSOP: Nothing Has Changed

Saturday, May 24th, 2014

The poker world is about to descend on Las Vegas. Over the next several weeks, many players who enter the myriad of poker tournaments from expensive tournaments at the World Series of Poker to more affordable tournaments at Binion’s and the Venetian will be “staked.” Instead of the player putting up 100% of his or her buy-in, he or she will have backers who have put up part of the entry fees. Since some tournaments will cost upwards of $10,000 (there are $25,000, $50,000 and a $1 million buy-in this summer), staking is commonplace.

There are rules you must follow when you’re staked. You must make sure proper IRS paperwork gets to your backers. A lot depends on where you will be playing. If you’re at the Venetian playing in their Deep Stack Extravaganza, you’ll find a cooperative cage ready and willing to accept Form 5754. (Form 5754 is used when you have backers). The same is true for Binion’s. However, if you are playing at a Caesars property–and this includes the Rio Hotel & Casino, where the World Series of Poker takes place–you are on your own; Caesars will issue one W-2G (or Form 1042-S) to the winner. This is a decidedly player-unfriendly attitude; it also violates IRS rules. What does this mean for the player?

Back in 2007 I wrote about this situation. It has now been seven years and nothing has changed. If you’re backed, you have to send out 1099-MISC’s or 1042-S’s for your backers:

  1. If you’re backed by an American get a signed and completed Form W-9 from him before you pay him. If someone refuses to complete a Form W-9, you are required to withhold.
  2. The issuance of 1099s is based on you backer profiting $600 or more for the entire year.  So realize that if you have backers who profit $600 or more, the onus is on you for sending out Form 1099-MISC’s. (The 1099s are not sent until year-end.)
  3. If you’re backed by a non-American, the situation is far more complex.  You will need to obtain a Form W-8BEN; make sure it’s the new version that was released this year.  The form must be complete in order for you not to withhold.  It must have an ITIN, a Tax Treaty Article noted, with reasoning why there is no withholding, and it must be signed and dated.  If you don’t have the complete paperwork, you must withhold even if your backer is from a Tax Treaty friendly (for gambling) country.  If you don’t, you could be held liable for the tax plus penalties and interest!  For specific scenarios, see this article I wrote in 2011.

As I’ve said before, eventually Caesars will be called on the carpet for their policy. Until they are the onus is on you to obey the law. When the casino ignores the rules, you effectively become the casino for your backers.

The Real Winners of the 2013 World Series of Poker

Tuesday, November 5th, 2013

Nine individuals came to Las Vegas on Monday and Tuesday to compete for the championship at the World Series of Poker (WSOP). Who would be the lucky winner? And who really got to keep the money?

Congratulations to Ryan Riess of Las Vegas. Mr. Riess, a professional poker player, beat out amateur player (and casino VIP host) Jay Farber and took down $8,359,531…before taxes. Mr. Riess, who went by the nickname “Riess the Beast,” kept holding good hand after good hand and came from behind to beat Mr. Farber. Riess’s final hand was AK (which dominated his opponent’s Q5). When neither player made a pair, Riess’s Ace-high won him the hand, and the tournament.

Gambling winnings are taxable in the United States for both amateurs and professionals. Mr. Riess doesn’t have to deal with state income tax (Nevada doesn’t have a state income tax). However, he does have to pay both federal income tax and federal self-employment tax. I estimate that Mr. Riess will owe $3,478,818 to the IRS (a 42% tax rate). Mr. Riess, who in interviews say he has trouble in the past saving money, will hopefully save up the $3.5 million he’ll owe in taxes.

Mr. Farber didn’t do badly by finishing second; he earned $5,174,357. As an amateur gambler he doesn’t have to worry about self-employment tax. Still, he’ll have to fork over an estimated $2,026,527 in tax (39%)

In third place was professional Amir Lehavot from Weston, Florida. Mr. Lehavot will have to be satisfied with the $3,727,823 he received (before taxes). A professional gambler, Mr. Lehavot (who is married) will lose an estimated $1,549,200 to federal taxes. Mr. Lehavot, a resident of Florida, does not have to worry about state tax on his winnings.

A note before I move on: Mr. Lehavot sold pieces of his action (backing). It’s likely that his true winnings will be significantly less than the amount shown above. Unless I know with certainty from public sources regarding backing, I ignore it for this analysis.

Finishing fourth was the man who I think was the biggest winner, Sylvain Loosli. Mr. Loosli, a Frenchman, relocated to London, England. I suspect taxes were definitely one of his motives with his move: The United Kingdom does not tax gambling winnings from its residents including professional gamblers (Mr. Loosli is a professional). The tax climate in France is anything but pleasant; Socialist President François Hollande has asked for a 75% marginal tax rate! While President Hollande has been rebuffed on that rate, the current maximum French marginal tax rate is 49%. That nice round zero in the United Kingdom sure sounds good in comparison to that! While Mr. Loosli finished fourth, his net winnings put him into third place. (The US-UK Tax Treaty exempts gambling income from UK residents from US tax.) His gross (and net) winnings were $2,792,533.

J.C. Tran, a professional poker player from Sacramento, finished fifth for $2,106,893. Mr. Tran led the final nine players going into final table action but had a disappointing day on Monday. Mr. Tran may also be disappointed when he learns how much of his income will go toward taxes; he faces the highest tax bite for an American at the final table (47.56%). Mr. Tran will end up with a very high 13.3% marginal tax rate on his California taxes; he must also pay federal tax (including the new 39.6% rate) and self-employment tax. Mr. Tran will owe an estimated $1,001,977 in tax.

The sixth place finisher was Marc-Etienee McLaughlin of Brossard, Quebec. Mr. McLaughlin will lose 30% of his winnings “off the top” to US tax withholding (though he can file a return to recover some of this based on his other US gambling losses). Additionally, he probably owes Canadian and provincial tax on his winnings.

The tax regime in Canada for gamblers is not as certain as it is in the US. The Quebec tax authorities are more aggressive than other provinces in collecting income tax from professional gamblers. Additionally, the rulings of Canadian courts on the taxation of gambling have not been consistent. For example, a professional gambler in British Columbia was recently found not to owe Canadian income tax on his gambling winnings. (That ruling may be appealed, though.)

Still, given that Mr. McLaughlin lives in Quebec I think he’ll end up having to pay tax on his winnings. He should get a full tax credit for the tax withheld by the US. Unfortunately, Quebec has the highest marginal tax rate in Canada for income–50%. Overall, Mr. McLaughlin will likely owe over 49.5% on tax ($792,935 of his $1,601,024 of winnings).

Michael Brummelhuis of Amsterdam finished seventh. The US-Netherlands Tax Treaty exempts his income from US taxation. The Netherlands taxes gambling winnings at a flat 29%; thus, Mr. Brummelhuis will owe $355,353 on his winnings of $1,225,356. Note that while Mr. Brummelhuis finished in seventh place, on an after-tax basis he finished in sixth.

Finishing eighth was David Benefield of New York City. Mr. Benefield, a student at Columbia University, is a former professional poker player. While he won’t owe self-employment tax, Mr. Benefield does have to pay both state and city income tax on his winnings. Of the $944,650 he won, I estimate he’ll owe $437,201 in tax (46%).

Mark Newhouse of Los Angeles finished in ninth place. A professional poker player, Mr. Newhouse did not win anything additional to the $733,224 he took home in July. I estimate he’ll lose just over 44% to tax ($322,879)

Here’s a table summarizing the tax bite:

Amount won at Final Table $25,932,167
Tax to IRS $8,626,311
Tax to Belastingdienst (Netherlands) $355,353
Tax to Franchise Tax Board (California) $321,611
Tax to Canada Revenue Agency $312,628
Tax to New York Dept. of Taxation & Finance $78,394
Total Tax $9,642,011

That’s a total tax bite of 37.18%.

Here’s a second table with the winners sorted by their estimated take-home winnings:

Winner Before-Tax Prize After-Tax Prize
1. Ryan Riess $8,359,531 $4,880,713
2. Jay Farber $5,174,357 $3,147,830
4. Sylvain Loosli $2,792,533 $2,792,533
3. Amir Lehavot $3,727,823 $2,178,623
5. J.C. Tran $2,106,893 $1,104,916
7. Michael Brummelhuis $1,225,356 $870,003
6. Marc-Etienee McLaughlin $1,601,024 $808,089
8. David Benefield $944,650 $507,449
9. Mark Newhouse $733,224 $410,345
Totals $25,932,167 $16,290,156

Once again the big winner was not the man who came in first; rather, it was the Internal Revenue Service. The tax agency has been rocked by scandals this past summer but it did very well at the Rio. The IRS will collect $8,626,311 for the United States Treasury. That’s more than the pre-tax first place prize of $8,359,531, over $3 million more than the after-tax first place prize, and more than the combined first and second place after-tax amounts. That’s because we all know that the house–the IRS–always wins.

Who Gets the Charitable Donation for the WSOP’s One Drop Events?

Monday, July 1st, 2013

At this year’s World Series of Poker, there are two events where money is donated to the One Drop Foundation: the high rollers event with a $111,111 buy-in (won by Tony Gregg for $4.8 million over the weekend), and the “Little One for One Drop” later this week with a $1,111 buy-in. I received an email over the weekend:

I played in the High Rollers No-Limit Hold’em over the weekend, and was wondering if I got the charitable donation or if Caesars [the owners of the WSOP] did? According to the WSOP, $3,333 of the entry went to One Drop.

The Tax Code (which is law) requires that charitable donations be substantiated. This can be done through a written statement provided by the charity. These can also be proven through copies of cancelled checks, credit card statements showing the donation, and cellphone statements. However, anyone claiming a donation of $250 or more must obtain the written acknowledgment from the charity.

The individual who sent me an email also sent a copy of his buy-in receipt. It clearly shows he entered the High Roller event for $111,111; however, nowhere on the receipt does it show a donation receipt to any charity for any amount–just that the individual paid $111,111 to enter the tournament. An individual player does not meet the Tax Code’s substantiation requirements for a charitable donation.

As to who gets the donation, that’s clear: Caesars does. They have taken $3,333 from each of the 166 entries and donated $553,278. Caesars will be able to take the donation on their corporate tax return (subject to the restrictions on charitable donations made by corporations).

I assume the entry receipts for the Little One for One Drop will be similar (nothing being shown on the receipt acknowledging the charitable donation). Thus, the charitable donation of $111 per entry in the Little One for One Drop is rightly taken by Caesars. However, poker players entering the Little One for One Drop (and those who entered the One Drop High Roller event) do have a gambling loss if they do not cash in the event.

Why Saying No to wsop.com If You Win the $111,111 “Free” Seat Is a Good Idea

Tuesday, June 25th, 2013

Tonight, wsop.com will be giving away a “free” entry into a $111,111 buy-in tournament that begins on Wednesday. To be eligible for the free entry, you had to sign-up in person for the new online poker site wsop.com at the World Series of Poker at the Rio Hotel and Casino here in Las Vegas. (You also had to sign-up no later than yesterday.) wsop.com will open for “real money” online poker play to individuals within Nevada sometime in the coming weeks. The promotion is to gain signups for what will likely be Nevada’s second legal online poker site.

How can anyone turn down a free entry into an event where first prize figures to be over $1 million? Taxes.

What, you say? If I were to win $1 million, paying taxes wouldn’t be an issue.
And you’re right, of course. As long as you put aside about 40% of what you make (more, if you reside in a tax-disadvantaged state like California), you should be fine. The problem is that no matter how good a poker player you are, your most likely result is a loss; only about 10% of the entrants will “cash” (win money in the tournament). Even the world’s best tournament poker players lose most of the tournaments they enter.

What’s the issue, you might ask? After all, I was “comped” the entry, so who cares if you win or lose.
The problem is that you won a prize with a value–the value is clearly $111,111. Under the Tax Code, Caesars (owners of the World Series of Poker and wsop.com) will have to send you a Form 1099-MISC for $111,111. And that’s income to you. If you’re in the 25% tax bracket, that’s $27,778 of tax you will owe (plus state income tax, if applicable). Is playing that tournament worth that to you?

Well, it’s a gambling loss, so I’ll be able to offset it with my loss in the event. No, you can’t. Your winning the entry was not the result of a wagering activity. Instead, it was a contest. wsop.com will be randomly selecting one of the people who signed up for their site to win the prize. I personally went through a similar situation when I won a free trip to the Bahamas. My tournament entry was a prize, and could not be offset by the loss in the event. (And yes, I didn’t win any money in that event.) However, I could use the gambling loss to offset other gambling winnings from that year. If the winner has other gambling income and doesn’t cash in the event, he or she can use the $111,111 as a gambling loss.

I suspect that the individual who wins the entry won’t consider the tax impact of accepting the prize. Caesars likely won’t issue the 1099-MISC until December or January, so the lucky winner will likely savor his experience of playing with the high-stakes pros…until next January when he gets the bill.

German Court to Decide Whether Poker Is Taxable for a Professional

Thursday, August 23rd, 2012

In 2011, Pius Heinz of Germany won the main event of the World Series of Poker and a nice tax-free $8,715,638. Well, maybe it’s not tax-free.

Via @Taxdood and @Taxnews1 comes word that a German court in Cologne will be hearing the appeal of a former professional poker player. The German tax agencies are claiming that the player was in a “commercial activity” and thus owes taxes on the approximately $1 million that this player won. The news story alludes to other German professional poker players receiving tax notices so the verdict in the test case will matter.

As Taxdood noted, “Ironically, in order to prevail the taxpayer must demonstrate success in poker relies mainly on luck, not skill.” Hopefully for German poker players the German court will not see the recent court ruling in New York that found poker to be a game dominated by skill, not luck.

Current German tax rates range are 14% (€8,005 – €52,881), 42% (€52,882 – €250,730), and 45% (€250,731 or greater). If Mr. Heinz owes tax on his winnings that would shave €2,993,502 off his winnings (he would have netted about €3,710,835, or $4,824,085). That’s not bad, but clearly $8.7 million is better.

I’ll report on the decision when it’s announced.

Tournament Deals at the WSOP: A Primer

Sunday, June 17th, 2012

This past week I received the following question:

I was playing in the daily Deep Stack tournament at the Rio during the World Series of Poker. With seven players left we decided to chop the prize pool, but Caesar’s [the owner of the Rio Hotel and the World Series of Poker] refused to facilitate the deal. In fact, they required players to take the posted prizes on their W-2Gs. What should we have done?

The World Series of Poker is not just the televised main event. There are 61 “bracelet” events, side tournaments, and cash games. Caesar’s is well known for their policy of not accepting Form 5754 even though IRS regulations require them to do so. Less well known is their policy of not doing anything to facilitate deals in the daily tournaments.

For the non-poker players who are reading this, here’s a very brief description of deals. Most poker tournaments takes a long time to complete. By the time the final table is reached there may not be much play left: None of the players may have many chips in comparison to the blinds and antes. That means that luck plays a preeminent role in deciding the winner. Players often desire to make a deal (change the prize pool) so that instead of, say, first place winning $20,000 and second place winning $10,000, both players receive $15,000. The casino doesn’t lose any money (it’s the same $30,000); the prize pool is just redistributed. All players involved in a deal must agree to it.

I was unaware that Caesar’s had this policy. I’m used to the policy at the Los Angeles cardrooms (Commerce Casino, Bicycle Casino, and Hollywood Park Casino) and at the Venetian here in Las Vegas where they facilitate deals and will adjust tax paperwork to match the deals. Caesar’s policy is decidedly player-unfriendly and there are definite tax ramifications to it.

First, a fundamental rule of US taxation is that you are taxed on your actual income, not someone else’s. Let’s assume you make $25,000 in a poker tournament but the W-2G you receive states you made $10,000. You owe tax based on the $25,000 you actually made. The converse is true, too: If your W-2G states you made $25,000 but you actually made $10,000 you owe tax based on $10,000, not $25,000.

Unfortunately, the latter situation is full of gotchas when you are dealing with the IRS. Suppose this happens, and you correctly complete your tax return showing $10,000 of income. You received a W-2G noting the $25,000 of income and the IRS automated underreporting unit (AUR) will send you a notice stating you left off $15,000 of income. You would respond back noting that the W-2G was wrong. I wish you the best of luck in getting the clerks at the AUR who in the best of situations have trouble understanding gambling issues to grasp this issue.

One way around the problem is for those who have paperwork issued for more than what they earned to issue Form 1099-MISCs to the other players. That means the players involved need to exchange social security numbers on Form W-9. Not many individuals carry this form with them for a daily poker tournament. And this issue gets further complex if one of the individuals in the deal is from Canada or a non-tax treaty country where withholding is required.

There are other means of dealing with this issue. You could get every other player involved in the deal to sign an affidavit (a swearing under oath in front of a Notary Public). That would likely be proof that the prize pool was adjusted. Unfortunately, the odds of poker players taking the time out for this is not high. Another possible means of dealing with this issue is to either add extra gambling losses so that the actual amount on the tax return matches the true prize won for those who won less money than shown on the W-2G. I can’t endorse that method as the return itself would not be completely accurate.

This entire situation could be prevented if Caesar’s would adopt a more player-friendly relationship in regards to deals. Unlike the Form 5754 issue, the number of tax forms required to be issued is unlikely to change because of a deal. It would make Caesars’ customers happy, and would not cost Caesar’s. It’s a win-win situation that Caesar’s refuses to implement.

Caesar’s is a casino chain that states:

Caesars Entertainment is focused on building loyalty and value with its customers through a unique combination of great service, excellent products, unsurpassed distribution, operational excellence and technology leadership. We concentrate on building loyalty and value for our customers, employees, business partners, and communities by being the most service-oriented, technology-driven, geographically-diversified company in gaming.

Caesars’ actions speak quite differently about providing great customer service and value for these customers.

Consistency: WSOP Still Not Accepting Form 5754

Sunday, May 27th, 2012

Back in 2007, I wrote this post regarding staking and the World Series of Poker. Five years have elapsed and nothing has changed. Caesar’s (Harrah’s changed their name a year ago), which operates the WSOP at the Rio Casino here in Las Vegas, still refuses to accept Form 5754. While this is an inconvenience to some, it can cause tremendous tax headaches for others.

For those wondering about the headaches, you can read this post I made last year. The three situations I noted regarding backing (staking) remain the same for 2012 as they were in 2011.

The only update isn’t a good one: The IRS is moving towards strict compliance regarding the issuance of Form 1099s and withholding requirements. I strongly urge anyone who is backed to have your agreements in writing. Further, if there’s a possibility you will need to withhold enroll in EFTPS and obtain an Employer Identification Number (EIN) as soon as possible. (Note: You can only apply online for an EIN from 7:00am – 10:00pm EDT on business days.)

Hopefully, Caesar’s will see the light and begin to accept Form 5754. After all, IRS regulations state they are required to accept the form. Until then, Caesar’s actions will continue to make sure that I’m fully employed.

The Other Winners at the World Series of Poker, Part 2

Tuesday, November 10th, 2009

There’s another part to the story of this year’s World Series of Poker main event winner: backing. And it has one tax agency smiling even more, while another will miss out on 50% of an unexpected bounty.

This year’s main event winner, Joseph Cada, was backed when he entered the main event of the World Series of Poker according to this news story in the Detroit News.

Backing is fairly common in large buy-in poker tournaments. Playing poker professionally, especially tournaments, involves a lot of what poker players call variance. No matter how good a player you are, sometimes luck is not with you. Your aces may lose to kings, as will happen about one in seven times. Most poker players do not have enough money in their bankrolls to handle the variance, so they seek investors who have large bankrolls to help finance their entries. In return, the investors demand a percentage of the player’s winnings.

Mr. Cada was backed by a pair of investors from New York, Eric Haber and Cliff Josephy. The pair will receive 50% of the winnings of Mr. Cada. That’s good news for the New York Department of Taxation and Finance which will receive an extra windfall of $383,335. It’s bad news for the Michigan Department of Treasury which loses $185,898.

Here are the adjusted numbers for the various tax agencies:

Amount won at Final Table $27,220,989
Tax to IRS $8,150,527
Tax to French Tax Agency $1,391,868
Tax to NY Dept of Taxation $743,492
Tax to MD Comptroller $319,637
Tax to MI Dept of Treasury $185,898
Total Taxes $10,791,421

That’s a total tax bite of 39.64%.

Here’s a second table with the winners sorted by their estimated take-home winnings:

Winner Before-Tax Prize After-Tax Prize
2. Darvin Moon $5,182,198 $3,067,595
1. Joseph Cada $4,273,521 $2,500,660
1A. Mr. Cada’s Backers $4,273,521 $2,292,210
3. Antoine Saout $3,479,670 $2,087,802
4. Eric Buchman $2,502,890 $1,332,123
5. Jeff Shulman $1,953,452 $1,281,757
9. James Akenhead $1,263,602 $1,263,602
7. Phil Ivey $1,404,014 $879,018
6. Steven Begleiter $1,587,160 $878,921
8. Kevin Schaffel $1,300,231 $845,150
Totals $27,220,259 $16,428,838

The New York Department of Taxation and Finance should send a thank you card to Mr. Cada. After all, he could have chosen backers from a state like Nevada (which has no income tax). Instead, because of Mr. Cada’s good fortune and his choice of backers, New York ends up with an extra $383,335. I’m sure the politicians will spend that money in two seconds or so….

The Other Winners at the World Series of Poker

Tuesday, November 10th, 2009

Nine individuals came to Las Vegas this past weekend to compete for the championship of the World Series of Poker. Who would be the lucky winner? And who really got to keep the money?

This year’s World Series of Poker concluded early this morning at the Rio Hotel and Casino in Las Vegas. The winner of the main event won $8,547,042 but would he actually end up with all that money?

A Michigander, Joseph Cada of Shelby Township, is this year’s champion. Mr. Cada is the youngest main event champion ever. Congratulations to him on his victory and his $8,547,042.

Let’s see how much of the prize Mr. Cada will actually keep. Mr. Cada is a professional gambler so he’ll have to pay self-employment tax. Michigan has a flat income tax of 4.3%. Michigan also has a business tax. However, given that Mr. Cada earned this income outside of Michigan it is unlikely that he will owe the Michigan business tax on this income. The business tax has both gross receipts (0.8%) and net income (4.95%) components, along with a surcharge of 21.99% of the business tax. This would effectively increase his Michigan tax rate from 4.3% to 11.31%. Again, I do not believe Mr. Cada will owe that tax and I am not including it in my estimate. Overall, I estimate Mr. Cada will owe $371,796 to the Michigan Department of Treasury. He’ll also owe about $3,184,940 to the IRS. His actual take-home winnings are $4,990,806—almost 42% of his winnings went to taxes.

Darvin Moon from Oakland, Maryland finished in second place. Amazingly enough, this was Mr. Moon’s first poker tournament. When he traveled to Las Vegas in July to participate in the first stage of the World Series it was the first time he had ever flown on a jet plane. Mr. Moon is part owner of a logging company and is an amateur gambler and won $5,182,190. I estimate that he will owe $1,794,966 to the IRS and $319,637 to the Maryland Comptroller of the Treasury. That’s an overall tax bite of just under 41%.

Antoine Saout of Saint Martin des Champs, France, finished in third place. The United States and France have a tax treaty; under this treaty the IRS will not get any of Mr. Saout’s winnings. France does tax gambling income and does tax the worldwide income of its citizens. The French income tax, like that in the United States, has progressive rates; Mr. Saout will owe 40% of his income in taxes. That works out to $1,391,868 of his $3,479,670 prize.

Eric Buchman of Hewlett, New York finished fourth. Mr. Buchman is a professional poker player, so he must pay self-employment tax as well as income tax. Of the $2,502,890 he won he’ll likely have to pay $949,618 to the IRS and $221,149 to the New York Department of Taxation and Finance. It’s likely I’m underestimating his New York Tax; because his income is over $500,000 Mr. Buchman will lose half of his itemized deductions. Mr. Buchman will lose at least 46.78% of his winnings to taxes. Mr. Buchman is the winner who will lose the most (by percentage) to tax.

Jeff Shulman, the publisher of CardPlayer Magazine, finished fifth for $1,953,452. Mr. Shulman is a resident of Las Vegas so he won’t owe any state income tax. He also is an amateur gambler, so he won’t owe self-employment tax. I estimate he’ll owe $671,695 to the IRS.

Sixth place went to another New Yorker, Steven Begleiter of Chappaqua. Mr. Begleiter, who use to work for Bear Stearns, won $1,587,160 for his efforts. Mr. Beglieter is an amateur, so he won’t have to pay self-employment tax. Still, he’ll likely owe $569,231 to the IRS and $139,008 to New York. That’s a 44.62% tax rate. The New York Department of Taxation and Finance is especially pleased with the performance of New Yorkers in the WSOP this year.

Finishing in seventh place was perhaps the most well known of the November Nine, Phil Ivey of Las Vegas. Mr. Ivey is a professional gambler, and is widely considered the best player in the world. However, even the best player doesn’t win every tournament he enters and Mr. Ivey must make do with $1,404,014 for finishing seventh. Of this prize money I estimate he’ll have to fork over $524,996 to the IRS.

The eighth place finisher was Kevin Schaffel of Coral Springs, Florida. Mr. Schaffel is a retired business owner. As a Floridian, he doesn’t have to deal with state income tax. He’s an amateur gambler, so he also doesn’t have to worry about self-employment tax. I estimate that the IRS will grab 35% of his $1,300,231 prize, or $455,081.

James Akenhead of London, England finished in ninth place. Under the U.S.-U.K. Tax Treaty, Mr. Akenhead won’t owe a penny to the IRS. Currently, the United Kingdom considers poker a game of chance; there is no tax on games of chance in the U.K. So Mr. Akenhead’s take-home winnings will be equivalent to his prize money: $1,263,602. Interestingly, if you look at net income after tax, Mr. Akenhead effectively finished in sixth place despite actually finishing ninth.

Here’s a table summarizing the tax bite:

Amount won at Final Table $27,220,989
Tax to IRS $8,150,527
Tax to French Tax Agency $1,391,868
Tax to MI Dept of Treasury $371,796
Tax to NY Dept of Taxation $360,157
Tax to MD Comptroller $319,637
Total Taxes $10,593,985

That’s a total tax bite of 38.92%.

Here’s a second table with the winners sorted by their estimated take-home winnings:

Winner Before-Tax Prize After-Tax Prize
1. Joseph Cada $8,547,042 $4,990,306
2. Darvin Moon $5,182,198 $3,067,595
3. Antoine Saout $3,479,670 $2,087,802
4. Eric Buchman $2,502,890 $1,332,123
5. Jeff Shulman $1,953,452 $1,281,757
9. James Akenhead $1,263,602 $1,263,602
7. Phil Ivey $1,404,014 $879,018
6. Steven Begleiter $1,587,160 $878,921
8. Kevin Schaffel $1,300,231 $845,150
Totals $27,220,259 $16,626,274

As you can see, taxes make a big difference in the true amount of winnings. The real winner at the World Series of Poker was the Internal Revenue Service with Mr. Cada finishing over $3,160,000 behind.

So congratulations to the winners. Just remember that a winner—perhaps the biggest winner of all—is the taxman. As we all know the house always wins.

The Other Big Winners at the World Series of Poker

Wednesday, July 18th, 2007

Congratulations to this year’s winners at the World Series of Poker, run by Harrah’s, and hosted at the Rio Hotel & Casino in Las Vegas. The Main Event, the World Championship of Poker, has just been completed. This year, 6,358 contestants ponied up $10,000 each to enter the event. The total prize pool was $59,784,954 and is the largest prize pool in a sporting event held in the United States.

Jerry Yang, of Temecula, California won $8,250,000. That’s what you will read on the Internet and in tomorrow’s newspapers. But did he really win all of that money?

Well, that was his gross win. However, there’s the matter of taxes. Tournament poker falls under other gambling in the tax regulations, so withholding is required if the win is both more than $600 and at least 300 times the entry fee. So first through third place must have 25% of the prize withheld for US taxes (unless a tax treaty overrides this provision).

Mr. Yang, hailing from California, had $2,062,500 withheld to the IRS right off the top of his prize. Given the marginal tax rate he will likely face, he will probably owe another $825,000 in federal taxes (a total of $2,887,500 to the IRS). He will also California tax, so the Franchise Tax Board figures to rake in $849,750 of the win. Mr. Yang’s actual win is probably $4,512,750 or so. The Franchise Tax Board is especially grateful. This is the second year in a row that a Californian has won, and given California’s budget issues, any and all revenues will be quickly spent.

Tuan Lam of Mississauga, Ontario finished second. He won $4,840,981 for his efforts. Under the US-Canada tax treaty, he had $1,452,294 withheld. He may be able to get some of that back, if he can show other gambling losses. He also faces Canadian tax on his win–as a professional gambler, his winnings are taxable under Canadian law. Luckily for Mr. Lam, he will likely not owe any Canadian tax because he will probably get a credit for the US tax paid (at 30%) on his Candian tax return (a tax rate of 29%).

Raymond Rahme of Johannesburg, South Africa, finished 3rd and earned $3,047,025. He’s the luckiest winner. He faces no US withholding per the US-South Africa tax treaty. He’s also an amateur, and it appears he does not owe any tax under South African law.

Alex Kravchenko of Moscow, Russia, finished 4th and walked away with $1,852,721. Like Mr. Rahme, the US-Russia tax treaty allows him to head home with all of his funds. Russia has a 13% flat tax, so he will probably owe about $240,854.

The other final table participants owe tax to Inland Revenue (United Kingdom), the IRS, and two state tax agencies (Virginia Department of Taxation and the New York Department of Tax & Finance). Here are the totals for the various agencies:

Amount won at Final Table $22,019,901
US Tax Withheld to IRS $3,514,794
Add’l Tax Owed to IRS $1,611,510
Total Tax to IRS $5,126,304
Tax to California FTB $849,750
Tax to Inland Revenue (UK) $712,402
Tax to State Taxation Service (Russia) $240,854
Tax to NY Dept of Tax & Finance $65,503
Tax to VA Dept of Tax $40,198
Total Taxes $7,035,011

That’s a total tax bite of 31.95%.

So congratulations to the winners. Just remember that a big winner—perhaps the biggest winner of all—is Uncle Sam. Because we all know, the house always wins.