• How Do Casinos Make Money On Poker Tournaments Winnings
• How Do Casinos Make Money On Poker Tournaments Real Money
• How Do Casinos Make Money On Poker Tournaments 2020
• How Do Casinos Make Money On Poker Tournaments 2019

At a regular casino (one that has table games and slots), Poker Rooms are an amenity. It's just something there to bring in some more people that wouldn't normally come otherwise. Hoping they bring their wives/friends/whatever. Does it lose money? Does it make money? Yes, but not enough to make it worth it if the profit is the sole purpose. There are 2 ways a casino makes money on poker.In cash games, they take a small amount of the pot called a 'rake.' If the casino is hosting a poker tournament, then the casino takes a percentage of the total prize pool to pay the casino workers, tournament directors, etc. To understand how casinos manage to make so much money from poker, we need to break down the concept of the rake in poker. In the simplest terms possible, the rake refers to the commission that a casino or poker operator takes from every hand in poker, thus creating a house edge of sorts.

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Many poker players in the United States are unaware of the tax laws that cover their winnings. Poker winnings are taxable whether they are from cash games or tournaments. This is true for brick and mortar, as well as online poker rooms. Even if a player lives in a state where online poker is explicitly illegal there is still a responsibility to pay taxes on those winnings.

Online poker taxes in the United States

Many players may think that they can get away with not paying taxes on winnings because it was not won in a traditional casino. This could not further from the truth. Just as the technology for online poker has advanced over the years, so has the technology that helps the US Government monitor banking transactions. This is not just true for money that you deposit into a bank account. It goes well beyond that.

While depositing a check or receiving a wire from an online poker room may draw some scrutiny from the IRS, the government has other ways of tracking your online poker winnings down too.

The Neteller bust in 2007 was the first time it became obvious to online gamblers that the US Government could monitor their transactions. Many players thought that the IRS would never gain access to this information. They were proven wrong. Many players were forced to scramble to pay taxes on their winnings before they got a dreaded tax bill. Many players learned a lesson here, while others did not.

Neteller was just one of many US facing ewallets to fall. The government seized UseMyWallet, QuickTender, eCheckUS, eWalletXpress, PrePaidATM and many fly by night processors that processed US online gambling payments. The Department of Justice even created a bogus processor called Linwood Payment Solutions and received countless information about player payments that passed through their processing center. This gave the feds unlimited access to online poker player’s transactions that were once thought to go under the radar.

Ewallets were not the only companies handing over their player records to the US Government. Busted online poker rooms and other online gambling companies were doing the same thing. PokerStars, Full Tilt Poker, Absolute Poker and Ultimate Bet are just a few of the names that were forced to turn over player records to federal authorities. The lesson learned here is that there is always a chance that the information that you thought was private can fall into the hands of the IRS.

Brick and mortar poker taxes

Brick and mortar wins are a bit it easier to hide, but there is still an obligation to report your winnings. Each cash game session must be logged. The IRS does not define what a session is. Keeping a daily journal of wins and losses should suffice. Tournament players should log each tournament entry. A poker room will be happy to give you a receipt for any tournament entry upon request. Large tournaments will automatically provide one.

A casino will issue a W2G any time that a player nets $5,000 or more in a brick and mortar tournament. A W2G is a tax form that will be submitted to the IRS with the player’s Social Security Number and other personal information. Players can refuse to provide this information. If they do, the casino is required to automatically withhold taxes on the win.

Brick and mortar players should also be aware that a casino is obligated to create a Currency Transaction Report any time a player crosses more than $10,000 through the casino cage in a 24 hour period. Poker players should also know that the casino may report any transaction that they consider to be suspicious as this is required by federal law.

Should you file as professional or recreational gambler?

There are two ways to declare poker winnings. One way is to enter the income under miscellaneous income. This is what most players will do. A player that files as a recreational player will pay their standard tax rate on this money, but will not have to pay Social Security or Medicare taxes on these winning. Most players that have full time jobs will file this way.

Players that have demonstrated a pattern of winning can claim their winnings as a professional gambler, regardless of whether the player has a full time job or not. A pattern of winning is not defined by the IRS, but many believe it means the player has gambling wins in two of the last three or three of the last five years. This is where it gets complicated, as this type of filing requires a Schedule C tax form. This is the same tax form used by self-employed business owners. There are many advantages to filing this way and one large drawback.

The drawback is that a player that files as a professional player must pay the self-employment tax on that money. When someone has a standard job they pay 6.2% of their income for Social Security and their employer matches this. This means that since you are filing as self-employed, you pay both sides of this tax because there is no employer to pay the other half. The percentage for the employee side was 4.2% in 2012, but it went back up to the traditional level of 6.2% for the 2013 tax year. There is also a 2.9% Medicare tax. This means that you will pay 15.3% in taxes placing poker income under a Schedule C, where adding it on a 1040 as Other Income will not trigger this tax. The total percentage in 2012 was 13.3% due to the Social Security tax reduction during the recession. Schedule C filers will be able to deduct 6.2% of the tax as a business expense. This adds some tax relief.

Professional poker player tax deductions

The good news is that professional players that file a Schedule C may deduct all expenses that are related to their poker business. Travel expenses tend to be the largest for professional poker players. The mileage expense for 2012 was 55.5 cents per mile. That number will be 56.5 cents in 2013. This includes miles driven to and from any casino or other gambling establishment in your personal vehicle as long as your intention was to win money. Players that think they may file this way should keep a log of how many miles that are driven to and from any poker game, even if the game was not in a traditional casino. You will need this information to decide which way to file at the end of the year.

Other travel expenses may be deducted as well. This includes airfare, hotel and rental car expenses when you take a trip where your primary purpose is to win money playing poker or some other gambling game that requires skill.

Online poker players may also have other expenses related to their work. Computers are deductible as a business expense. If you bought a computer with the sole purpose of using it for your poker business, then it qualifies as a tax deduction. So does that monitor setup needed to 24-table.

There are also some expenses that get overlooked. Your internet connection may be deductible up to the percentage of its use that is used for online poker. If you bought a computer desk, chair, floor mat or anything else office related, then that is deductible too.

How Do Casinos Make Money On Poker Tournaments Winnings

You can even take the home office exemption, although this may start to push the limit. A business owner can deduct a percentage of their rent that is based on the percentage of their apartment or home devoted entirely to their business. This can be risky though. First, this has been known to send a red flag to the IRS. Second, people that do not rent may find problems down the road when they sell their home. It may create a taxable event when the home is sold if the home is considered to be a primary residence.

State income taxes

Many states tax gambling winnings. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming have no state income tax. Players in other states should expect to pay taxes to their state beyond what is paid to the IRS.

How should a poker player tax plan?

If a player has a net cash win of $5,000 in a poker tournament in a brick and mortar casino they will receive a W2G. A player will also receive a W2G for a $1,200 gross slot win. A player has the option of having an amount withheld from their win of up to 39.6% to cover taxes in 2013. If you are the type of player that has bankroll management problems, then having the casino withhold a percentage of your win is probably a good idea. This will prevent a nasty surprise when tax time comes in 2014. There is nothing worse than owing the government money that you do not have. Do not let yourself get into that situation.

One exception to asking for a tax withholding is if you are a net losing or break even player. Even then, there is still a disadvantage to receiving a W2G.

A player can write off their gambling losses up to the amount that they won. Gambling losses are an itemized deduction though. A player that typically takes the standard deduction will not be able to write off all of their losses. Most people that do not have a home mortgage interest deduction or donate a lot of money to charity will take the standard deduction. The standard deduction for 2013 is $6,100 for single filers and $12,200 for married couples filing jointly. If you do not itemized deductions normally then you will end up getting taxed on the applicable amount, even after itemizing gambling losses, because you could already deduct the standard deduction amount.

Tax planning for 2013

It is too late to plan for 2012, but it is not too late to plan for 2013. There are several phone apps that track sessions. These include Poker Journal and Poker Income Pro. Keeping an old fashioned paper notebook with poker sessions works too, especially for people that are prone to losing phones. Make sure to back up sessions entered into the app in case your phone should break or get lost. These apps may be used for online and brick and mortar poker sessions.

Poker players should also keep a mileage log for their car. A trip requiring long distance transportation should also be tracked. It may seem like a waste now, but it will not be if a big tournament win should come later in the year. You will then be prepared to demonstrate the expenses incurred to get you to that big win.

Disclaimer

This article is meant as an informational tool to help poker players. This article does not take the place of professional tax help. There are many tax attorneys that handle gambling winnings, especially in Las Vegas. Consult one of these tax specialists before filing your taxes if you have gambling winnings to make sure that your deductions are proper and you are filing your taxes correctly.

Image credit: Mark Van Scyoc / Shutterstock.com

They take a rate(a portion of each pot).....Like at a 3/6 table they will rate $3 from every pot.....progressively as the pot grows....for a max of $3 once the pot gets over $20...but different poker rooms have different rules as to how much the rack is and how it is progressively pulled out as the pot grows...

A $3 rake will be more common in Las Vegas; outside of competitive markets for poker (i.e. Vegas, California), the rake is usually at LEAST $4 (i.e. Missouri), but most places now in the Midwest are up to $5, with the highest being $6 in Detroit. That's the max rake, with 10% taken out if the pot is less than 40, 50 or 60 dollars respectively.
The other practice that gets me at some casinos is the rake before a flop. This is by law in West Virginia... what I mean is, say a player raises to $10, and another player raises to $40, the initial raiser goes all in to $200, causing the other to fold. The pot has 3+1+10+40=$54 before seeing a flop... in WV and Hollywood Casino in IN they rake $5 + $1 for the bad beat on that!!! And you didn't even see a flop.

On the flip side you need to keep those tables full.....and you need 15 or so dealers to service 10 tables....that's why a lot of casinos pay prop players to play so games doesn't break down...

I have never heard of prop players in use in any Midwest casinos. I know the casinos in Tunica used to do that, but I think even that's been limited.

Most poker rooms lose money off poker tournaments that's why they are so fast...like $25 buy in $3 entry fee with 20 min rounds.. and are over in about 2 hours or less...becasue the blinds get so high so fast.....they are just there to draw players in...in hopes they stick around for the 'live' game after they get busted out OR take their winnings to the 'live' game...or to another table game or slots.....

This is also no longer true in the Midwest. Casinos actually make a TON of money on tournaments now. Reason being, they bump the fees up to a ridiculous amount. Most tournaments here have a $10 fee for anything less than $100 buy-in, and up to $25 for more than that. Caesars properties has made an art of bilking the player for money in tournament fees. They have tournaments where players get paid less than 60% of what the true buy-in (fees + buy-ins) are.
Part of it is a public relations thing, but casinos around here can't open a poker room fast enough if they don't have one. Unfortunately, some 'markets' have one or two big dogs, and the smaller ones can't be profitable. The competition goes away for a while, then the big dogs get greedy. Players demand that the smaller casinos reopen their rooms, and the competition comes back, albeit not as good as before they left.

I'm not at all familiar with poker rooms or poker room operations but I have seen some ads for poker room prizes that start at a certain amount and climb. I assumed that starting amount was casino seed money and that the escalation was from a rake. As I understand it some of those bad beat jackpots grow to such figures that alot of players keep playing in the hopes that they will be there to qualify for a share of some jackpot distribution.

You're probably talking about Bad Beat jackpots. Because BOTH hands must have pocket pairs for quads, or use both cards for a SF, and the minimum hand is typically quads, the jackpot sometimes doesn't hit for months and can grow quite large.
Typically, the casino takes an extra $1 out of any pot over $20. Only hands where the pot is at least $20 qualify. At the end of the day, those dollars are added to the current jackpot prize.
That prize is typically divided as: Of the total prize posted, 50% goes to the 'loser' of the bad beat. 25% to the winner. 25% divided amongst the other players at the table. Some casinos divide the remainder amoung all players in the room. The four Caesars properties in AC are linked so that the remainder is divided amoung all players in all 4 rooms.
Note that the prize posted is only 80% of the total collected. 20% held in reserve to reseed the Bad Beat.
When a casino initially introduces the bad beat jackpot, they will fund it with about $20,000. While that's their own money, they are not really being generous. A small portion of the daily contribution is taken to repay the casino for the initial seed, until repaid. If the 20% in reserve be below that threshold, the casino will top it off, and again take a small portion.
Some casinos have a different type of jackpot. Mohegan Sun in CT does a High Hand every 4 hours. For 3 hours, they take $1 out of pots of over $20, and record and announce the highest qualifying hand. During the 4th hour, they empty the buckets, count the chips and award the prize. The qualifier announcements generally starts as 'quad __ with __ kicker.' Before it's done, the qualifier is usual 'SF __ high', and is often escalates to a Royal. Ties split the pot.
Last Christmas morning, with very few players in the room, and about 45 minutes to go, I qualified with quad sixes. Because there were so few players, I had high hopes. But with about 5 minutes remaining, I got beat. Sigh.
On the original subject, the casino takes, usually, 10% of the pot, for a maximum of, typically, $4. Some take $5. Some take as little as $3. If you read my review of Royal Caribbean Cruise, they take a maximum of $15. On the cruise, more than once we heard the phrase, 'Don't like it? Go to the casino next door.'

I've never played in one so I may be missing an obvious facet of playing Texas Hold'em, but where does the casino make money for hosting players for hours on end? Drink service? Entry fee? House commission?

In Ohio, we don't have casinos (yet, they are on the horizon). However, there is a law that allows card rooms to exist as clubs. In these cases, the 'house' charges a membership fee and then a 'daily use fee.' These are a bit higher on the front end, but then they don't rake the pot. (Most clubs are now taking a $1 or $2 out for a bad beat jackpot/jackpot hand scenario.) There were a couple clubs that did actually rake, instead of charging a fee, but that's illegal, and I think those operations get shut down by other card room owners trying to skim the competition.
It's a lot less seedy than it sounds. They are usually in strip malls near 'games of skill' slot parlors or internet cafes, although a few exist in nicer venues. These are legit games, and if you play a lot, it's much cheaper in the long run than having a rake taken out. There are three or four 'big' clubs that usually have at least 3 games going, then a bunch of medium sized clubs that have one or two sometimes going on. The places pop up for a while then disappear without any warning (except for the big ones; they have loyal followings and are usually the best run anyways).
The other caveat is that dealers are not considered employees, but rather volunteers. The players cannot pay them in actual money, so you buy 'chocolate chips' which are brown $1 chips to be cashed by employees only. Some clubs have put those on the table for the dealer to convert, while others require you buy them at the cage. The only club employees then are security and managers, limiting overhead.

On the original subject, the casino takes, usually, 10% of the pot, for a maximum of, typically, $4. Some take $5. Some take as little as $3. If you read my review of Royal Caribbean Cruise, they take a maximum of $15. On the cruise, more than once we heard the phrase, 'Don't like it? Go to the casino next door.'

How Do Casinos Make Money On Poker Tournaments Real Money

I'm not a cruise person so I didn't read that particular article, sorry...
I'm guessing you had to file a police report after getting off the cruise if you were playing poker... that's an open and shut case of RAPE!!

On the cruise, more than once we heard the phrase, 'Don't like it? Go to the casino next door.'

I should point out that the phrase was jokingly said by a player, not the staff.

I'm not a cruise person so I didn't read that particular article, sorry...

I understand completely. For what it's worth, I'm 52, and this was my first cruise. Before I sailed, I didn't think I was a cruise person either. Now I'm anxious to go again.
For what it's worth, I went into detail about the ship's casino in this post.

For what it's worth, I went into detail about the ship's casino in this post.

Actually in the meantime, I did find your review of the poker room on the cruise thread. I find it hysterical that they used an empty BJ table for poker. I'm guessing the rakes REALLY got screwed up on that table, as the dealer probably wasn't thinking that far ahead.
Depending on how it was dealt, I probably would have turned over an A-Face immediately, expecting to get paid 3:2.

How Do Casinos Make Money On Poker Tournaments 2020

How Do Casinos Make Money On Poker Tournaments 2019

I've never played in one so I may be missing an obvious facet of playing Texas Hold'em, but where does the casino make money for hosting players for hours on end? Drink service? Entry fee? House commission?

Out of 251 casinos in Nevada last year that made a minimum of $1 million in gaming revenue for the year all of them had slots, 155 had pit games, 99 had race and/or sports betting, and 94 had poker.
For smaller casinos poker only collects enough money from the rake to pay for the cost of the poker room and the dealers. The casino is hoping that these players will stick around and play more profitable games. Sometimes friends accompany the poker player and play slots or pit games. So it is basically a loss leader.
Poker brings in 1.6% of the total gaming revenue for NV, sports brings in 1.4%, and race book brings in 0.7%. So in general you can probably refer to them collectively as means to attract people into the casinos. There are some exceptions, casinos that do make a bigger profit on poker.