At the end of October 2012, the Cologne Fiscal Court ruled that poker players must pay income tax on their winnings in poker tournaments. This was a black day for poker players, because until that date, poker was a game of chance, like the lottery, and was therefore considered tax-free. However, this only works if luck alone decides whether a game ends in a win or a loss.
A few years later, the Münster tax court ruled that poker winnings were not only subject to income tax, but also to sales tax. These two decisions were then reviewed by the Federal Fiscal Court, the highest tax court in Germany for tax matters. The Federal Fiscal Court ruled that the judges in Cologne had ruled correctly and that poker winnings were subject to tax. They therefore confirmed that “winnings from participating in poker tournaments can be subject to income tax as business income.” The Federal Fiscal Court thus follows the 2012 ruling from Cologne.
Hobby gamblers play tax-free
The idea is that in poker, prize money is won by the player’s skill, not by chance. Winning therefore depends on the player’s skill. Thus, poker is not considered a game of chance, but a game of skill. In poker, the game is usually decided in favor of the player who has the best psychological and analytical skills.
According to the tax court, poker players are only subject to taxes if they have successfully participated “for years in prestigious tournaments endowed with high prize money.” Only then are the winnings taxable, the judges ruled. In the case of a hobby player, however, who won more by chance, the poker winnings remain tax-free.
Poker winnings are exempt from sales tax
In the case in which the judges from Münster decided that poker winnings were subject to sales tax, the following event occurred: a poker player had participated in online poker events and cash games for a period of at least nine years. He made a part of his living with these prize money, which he won in poker tournaments. In order to participate in these tournaments, he had to take unpaid leave from his employer. The winnings from the poker tournaments were not reported by him in his income tax return.
The poker player was caught because there was a video interview about him. A tax audit was then ordered. Since there were no written records, the officials calculated the player’s turnover. The player filed a lawsuit against this procedure, but the lawsuit was dismissed by the judges in Münster. They ruled that the Pokerspieler had made an achievement by participating in the tournament. In addition, there was an intention to make a profit, because he wanted to make money. For this reason, the poker player was a normal businessman and was liable for sales tax.
The Federal Court ruled in August 2017 that poker players do not have to pay sales tax on their winnings from games. The ruling was justified by the fact that the winnings are not paid for the fact that the poker player participates in tournaments, but for achieving a result in a competition. Consequently, no sales tax is due because the poker player is not a businessman.
The situation would be different if the tournament organizer paid the player for participating in the tournament. Even if poker winnings are not subject to VAT, they are still taxable and therefore income tax must be paid. What has not been clarified is whether, now that poker players are treated as a commercial enterprise, they can also deduct the expenses incurred from their income. This decision is still pending.
The effects for Pokerspieler
With the judges’ decision, the decision has significant implications for all professional poker players. Because everyone who sits permanently at poker tables or participates in tournaments and thus achieves profits through their skills, must pay tax on them. And not only when the tax authorities find out, but at the time when the game goes beyond a hobby and becomes professional.
It is therefore important to constantly check at what point the tax authorities could take over a transaction. In our experience, this is the case, for example, if no other profession is pursued and the livelihood is earned either entirely or at least mainly from poker. However, if the poker player pursues a professional activity and earns only a fraction of his income from poker, he cannot be considered a professional poker player.
Since the statute of limitations only kicks in after four years, and another three years later if the player has not filed a tax return, caution is advised. No one should wait until the tax authorities find them, because then it can be expensive, since poker winnings can be taxed retroactively for several years. In addition, there is annual interest that the tax authorities will add.
Conclusion: make money with online poker
If you want to play poker professionally, you must meet some requirements. For example, a certain financial reserve belongs to it. Finally, it must be taken into account that there is not always a regular income. If you want to know what tips there are and who wants to make money with online poker, you can find the right tips on a forum.
Poker income must be taxed if it is a commercial activity. This is when the poker game is played with the sole intention of earning a living and thus winning. Each individual case is examined differently. If there is an intention to make a profit, but the player still has losses, it is still a taxable activity.
The problem is that the IRS can still tax the winnings from a poker tournament many years after the event. In addition, interest is typically charged at a rate of 6% per year.
