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What Winning $250k at Poker Taught Me About Money

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Re: What Winning $250k at Poker Taught Me About Money

#11

Post by kadabra9 »

Tournament poker is just brutal. It's entirely common to go 15, 20 tournaments without cashing. You can play great poker, sometimes over the span of a few days, and suddenly get hit with a cold deck or get unlucky and poof you are eliminated with nothing, along with your chance at a 5 or 6 figure top prize. Then you have to suck it back up and move on to the next one. The variance is just insane, which is why a lot of professional players are backed, or sell some of their action or swap with other players.

I played a ton online before the Black Friday days and did pretty well, and will usually try to play a few big live tournaments a year, but these days I mostly just play cash games as a fun hobby and a way to grind out some extra income. There's less variance and the money is more consistent.

That being said, as brutal as the swings in tournaments are, cash games have nothing like the rush of running deep in a poker tournament. The intensity and increase in stakes/prizes as the blinds move up and more players get knocked out and you inch closer to the big money is almost like chasing a high. So for me, cash games are the way to go if your goal in poker is to make money, but tournaments are a fun way to chase the dragon from time to time. I personally don't think I would have the stomach to play tournaments full time though.

Re: What Winning $250k at Poker Taught Me About Money

#12

Post by splonk »

RyanRies wrote: post #6

In the article, she is quoted as saying that winnings from poker can be taxed at 60%. But I Googled it and the first few sites that I clicked on say more like 25%. What am I missing?

Depending on whether you're filing as a professional or not, you may be paying self-employment tax. But in general, gambling winnings of that nature (big tournament scores) are pretty likely to put you in a high tax bracket and/or trigger AMT. You can deduct losses but it's a bit of a fight with the IRS every year, since they have records of every time you've won $1200 or more, but no records of every time you've lost $10k entering a tournament and not cashing.

Re: What Winning $250k at Poker Taught Me About Money

#13

Post by cjlars »

RyanRies wrote: post #6

In the article, she is quoted as saying that winnings from poker can be taxed at 60%. But I Googled it and the first few sites that I clicked on say more like 25%. What am I missing?

Professional gamblers are supposed to pay self employment tax, which is 15.3% (half is deductible), and then all ordinary income taxes. So that's a top federal rate of 37%, plus -- she's presumably a New York City resident -- another 8.82% at the top rate for NY and 3.82% for NYC. That's about 65% gross, then once you factor in the deduction... about a 60% net marginal tax rate.

So she's not wrong, but she'd only be hitting those numbers if she won a really big tournament or two.

Edit: I forgot that the self employment tax phases out at ~$120k labor income, so she'd need a lot of investment income (or a high earning spouse) to pay both the top marginal income tax rates and the and 15% employment tax.

Re: What Winning $250k at Poker Taught Me About Money

#14

Post by baking »

splonk wrote: post #12
RyanRies wrote: post #6

In the article, she is quoted as saying that winnings from poker can be taxed at 60%. But I Googled it and the first few sites that I clicked on say more like 25%. What am I missing?

Depending on whether you're filing as a professional or not, you may be paying self-employment tax. But in general, gambling winnings of that nature (big tournament scores) are pretty likely to put you in a high tax bracket and/or trigger AMT. You can deduct losses but it's a bit of a fight with the IRS every year, since they have records of every time you've won $1200 or more, but no records of every time you've los…

If you fail to keep a receipt for a $10k entry fee I think that's on you.

Edit: I think you can't carry over losses from prior years, so if you lose money one year and make money the next, your taxes on your net earnings can be higher. Rule of thumb for professional poker players: If you don't have a profitable tax year, it is time to quit.

Re: What Winning $250k at Poker Taught Me About Money

#15

Post by RyanRies »

cjlars wrote: post #13
RyanRies wrote: post #6

In the article, she is quoted as saying that winnings from poker can be taxed at 60%. But I Googled it and the first few sites that I clicked on say more like 25%. What am I missing?

Professional gamblers are supposed to pay self employment tax, which is 15.3% (half is deductible), and then all ordinary income taxes. So that's a top federal rate of 37%, plus -- she's presumably a New York City resident -- another 8.82% at the top rate for NY and 3.82% for NYC. That's about 65% gross, then once you factor in the deduction... about a 60% net marginal tax rate. So she's not wrong, but she'd only be…

Dear god... that means that the government will win more from your poker playing than you _ever_ will!

Re: What Winning $250k at Poker Taught Me About Money

#16

Post by splonk »

droithomme wrote: post #2

Interesting article. Interesting that her net take was $10,000 after subtracting expenses from the $200k win. I wouldn't say she won that money, I'd say she earned it. Lottery one wins at and is pure luck. Poker is some luck but mostly skill and persistance. FWIW, she refers to it as earnings and income in the quotes in the article.

Yeah, the important thing is to ignore any number you ever see in a headline about poker winnings, because it basically just means gross revenues. It says nothing at all about whether someone actually made money. (Okay, so it's pretty hard to lose all of a really big score, but the sort of people who make them are also disproportionately likely to be able to lose them in a hurry as well).

Re: What Winning $250k at Poker Taught Me About Money

#17

Post by [deleted] »

misterprime wrote: post #7
RyanRies wrote: post #6

In the article, she is quoted as saying that winnings from poker can be taxed at 60%. But I Googled it and the first few sites that I clicked on say more like 25%. What am I missing?

Perhaps it's adding local, state, federal, and sales tax altogether? I don't know.

[deleted]

Re: What Winning $250k at Poker Taught Me About Money

#18

Post by howard941 »

cjlars wrote: post #13
RyanRies wrote: post #6

In the article, she is quoted as saying that winnings from poker can be taxed at 60%. But I Googled it and the first few sites that I clicked on say more like 25%. What am I missing?

Professional gamblers are supposed to pay self employment tax, which is 15.3% (half is deductible), and then all ordinary income taxes. So that's a top federal rate of 37%, plus -- she's presumably a New York City resident -- another 8.82% at the top rate for NY and 3.82% for NYC. That's about 65% gross, then once you factor in the deduction... about a 60% net marginal tax rate. So she's not wrong, but she'd only be…

The big self employment tax hit is for SS, and that maxes out well before she gets anywhere near the 37% rate. And it's not 37% for entire ride. Nevertheless I'd wager that you're mostly spot on and she's adding in the top local rates and applying it to the first dollar of income.

Re: What Winning $250k at Poker Taught Me About Money

#19

Post by Tangokat »

I used to play a lot of poker online back in the day, two lessons stuck with me:

Speaking to the variance of the game: "Eventually you will run worse than you ever thought possible"

Poker teaches, contrary to most business literature, to not be results oriented. It is the decision not the result that matters. "You can do everything right and still lose".

Re: What Winning $250k at Poker Taught Me About Money

#20

Post by kaycebasques »

Tangokat wrote: post #19

I used to play a lot of poker online back in the day, two lessons stuck with me: Speaking to the variance of the game: "Eventually you will run worse than you ever thought possible" Poker teaches, contrary to most business literature, to not be results oriented. It is the decision not the result that matters. "You can do everything right and still lose".

What’s the opposite of results-oriented in this case? I.e. what should you orient toward, if not results?
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