Does anyone happen to know when they decided that players had to pay taxes on their winnings ? I also wonder if the same tax penalties to players as do regular tax paying Americans. I would assume so. I am curious to what everyone thinks of chess and paying taxes on winnings.
I think players have always been required to pay taxes on winnings. Certainly the past 35 years when I’ve been paying taxes.
Alex Relyea
Of course. Tax law on this is very clear. Such had been taxable as long as I’ve been in practice and that’s 40 years. What did change is reporting requirements for organizers to file Form 1099. But it’s taxable whether or not you get a 1099.
The real issue is the impact of hobby loss rules.
I am not an accountant so somebody else should clarify or correct my guess that for many (most?) winners the expenses for a tournament can be used to offset the winnings from that tournament.
Can’t you deduct expenses for other tournaments the same year as well? Go to National Open. Win zip. Go to Chicago Open. Win zip. Go to World Open, win $4000. Can’t the expenses for the first two also be used to offset the winnings? My understanding is that they can’t be deductible against other income, but can against the specific income from chess tournament winnings.
I have always acted on this assumption. I have never declared any of my chess tournament winnings as income, because: (1) I very seldom win anything (my total cash winnings for over 30 years of chess probably don’t amount to more than a few hundred dollars); (2) I avoid tournaments with huge entry fees and huge prizes (because they tend to attract unscrupulous people – i.e., cheaters – and I’d rather not deal with that), so on the rare occasions when I do win something, it’s generally less than $50; (3) I don’t know if I’ve ever won a prize that was more than the tournament entry fee, and if you factor in transportation and lodging expenses, I can just about guarantee I’ve never managed to break even on any tournament, let alone make a profit. So the thought of paying taxes on my meager “winnings” has never even crossed my mind. I don’t see a cash prize as income at all – it just means the tournament didn’t cost me quite as much.
Well that’s why you are required to report it. The IRS doesn’t know if you had any expenses. And the hobby loss rules come onto play. You cannot deduct expenses and create a loss and offset other income for a hobby. But for a hobby income is still taxable. On long here is gambling tax treatment.
Thank you all for your input. I feel that players should not have to pay taxes. Even with the deductions, it still does not escape the fact that chess players are being monitored by the government. I wonder if any GMs in the U.S owe the IRS for refusing to pay the taxes on their winnings.
The total winnings of all the chess players in the country, GMs or not, wouldn’t pay the government’s bills for more than a few minutes.
If the current administration has its wishes, every electronic or banking transaction you make, incoming or outgoing, will be reported to the government. Of course, all this data couldn’t possibly be misused. 
So tell us, Mr. Antonucci, why chess players should be treated differently from everyone else.
Alex Relyea
P.S. I don’t suspect GMs are more or less law abiding than anyone else.
Many people don’t like many parts of the tax code - usually the ones that require them to pay. There is one answer. Call your Congress representatives. They make the law. Otherwise, follow the law if you wish to avoid trouble.
As far as refusing to pay - that’s why there is withholding.
I was under the impression that chess organizers do not generally withhold as long as they get a W-4 from the prizewinner so they can issue a 1099. Certainly that’s what CCA’s policy is. For foreign winners (or those who don’t supply a W-4), then they withhold. Is that not correct?
I suspect it would be hard, but not impossible, for a frequent player to rack up enough in prize winnings to offset their costs from small events alone unless they win nearly every time out and there are multiple organizers involved. That’s less true for one who plays in one or two big events that didn’t require travel or hotel, of course. Now if an organizer runs events with a $500 first prize monthly, the same guy wins often and the organizer doesn’t know or doesn’t follow the tax rules and thus fails to issue a 1099, that’s another story entirely.
Chess players spend hours of study and money preparing for events and end up with a negative on a balance sheet. Why should chess players have to suffer? There needs to be a change.
Again: no one who ends up with a negative on the balance sheet has to pay taxes. Mr. Priest suggests that most of us aren’t able to deduct our chess expenses from our other income, if that’s what you mean by “balance sheet”. In that case, people who dine in fine restaurants spend some time studying and much money to end with a negative on a balance sheet. They pay taxes.
Alex Relyea
Isn’t this shifting the goal posts a bit? Mr. Antonucci’s original post spoke only about taxes on chess winnings. He didn’t mention “other income” at all (and he would presumably have no problem paying taxes on the income from his day job). If we’re only considering chess winnings vs. chess expenses, then there is a meaningful balance sheet. Mine has been negative for every single tournament I’ve ever played in – which is one reason why it’s never occurred to me to declare any of my winnings as taxable income. Admittedly, things might be different for someone who regularly plays big tournaments and occasionally (or regularly) wins big prizes.
I think Alex’s point was that few amateur chess players do pay tax on their chess winnings because their aggregate expenses for chess playing as a hobby exceed their prizes. So Mr. Antonucci is complaining about something that doesn’t really happen much in the real world anyway. Personally, I have never even reported chess winnings because i’ve never won more than $300, never received a 1099 and probably never won $600 in a calendar year. If I had, I’d have reported it and shown expenses far exceeding that, and while my net hobby loss wouldn’t have been deductible, it would have shown my taxable income from the hobby was zero. Even if picked up a prize in a modestly big event, say $1500, I’d still have the losses to offset it.
Bottom line is that the chess hobbyists don’t end up paying taxes on their prizes in most cases. The pros do, and should.
I thought Alex was getting ahead of another issue and saying that if you make, for example, $80,000 in your regular job, win $500 in chess prizes and spend $3,000 on chess tournaments (entry fee, travel, lodging) then your chess expenses exceed your chess income and you don’t have to pay taxes on the $500 (just the $80,000) but you cannot say you made money playing chess and deduct all your expenses to make a taxable amount of $80,000 + $500 - $3,000 = $77,500.
In my chess directing hobby I work as a TD and I’ll deduct mileage for tournaments I work where I’m not already being reimbursed for it all, but I don’t deduct expenses for events where I am a player.
The amount of time you do - or don’t - spend on something is generally irrelevant to the tax code.
Similarly one cannit take a tax deduction for time donated to a charitable cause. “Forgone income” is not a deduction.
Yes. Exactly. Chess hobbyists can generally deduct chess expenses from prize money, but not other income. Chess professionals should consult their tax professionals. I wasn’t quite sure where Mr. Antonucci was going with this, but generally accept Mr. Priest’s judgment.
Alex Relyea
Since at least 1939.
26 U.S.C. § 61