My Las Vegas based accountants who do not specialize in professional gambling, but represent a few professional gamblers; recommended I set up a S-Corp to tunnel my gambling income through. They said this would save me money, had some extra legal protections and make them more money (cost money to incorporate, cooperate taxes more expensive then schedule C). So this how I was planning on filing this year but now I have some cause for concern.

I recently finished reading “How to turn your poker playing into a business” by Ann Johnston, CPA. In the FAQ at the end of her book in the FAQ it says,

“Q: I am a pro. Can I incorporate myself?

A: A person that is a professional gambler cannot incorporate themselves. There are many court cases where professional athletes have wanted to do this. The IRS feels that you are a personal service that you cannot have someone else perform, such as Michael Jordan cannot get someone to take his place. The same goes a pro that is not able to “substitute” their ability with someone else.”

I for one think that successful poker/blackjack skills are learned skills and not one that requires that much innate ability. I think with enough studying (comparable to the amount to achieve a though college degree), anyone can become a successful gambler and take my place in the corporation. I’d say being a professional gambler is somewhat similar (albeit easier) to running an investment fund which obviously file as corporations (this is at least a closer comparison then calling me a professional athlete.)

But what I think doesn’t really matter; has there been any cases where the IRS has taken a professional gambler to court for incorporating themselves and any CPAs/Attorneys have anything to add? Also anyone know a better forum to post this?

talk to a CPA

I'm not a tax expert or anything, but I can't see what you gain my incorporating. My understanding was that corporations are subject to double taxation, i.e., the corporation is taxed on earnings, and the income drawn from the corporation is taxed as income tax. I might be wrong about that though.

Did you read my post? I did talk to and have a CPA. The CPA who authored this book and specializes in taxes for poker players disagrees (and i sent an email to my cpa simlair to this post). I am just wondering if anyone else had any information.

The main goal is to save money on self-employment taxes.

Just move to Monte Carlo. Its a nice place to live.

This doesn't really work. S-corps are for businesses where there are appropriate pay scales. For example, if you owned a dry cleaning business, you could pay yourself 60K/year because that is what a dry cleaning manager would make roughly. So if your business made 100K, you can shield 40K from self-employment taxes.

That doesn't work for poker because you can't go and get hired at a fair wage. There is no industry standard. I believe the IRS frowns on people incorporating as an S corp and paying themselves a salary well under the total income of the corp in situations like these. This is ahy pro athletes can't incorporate and pay themselves 100K when they earn millions.

I'm no expert, just sharing what I've learned.

Krishan

Oh and the legal protection is useless. IF you run a real business, you generally have some liabilities which under a LLS has some personal risk. That's not true of conventional professional gamblers. Ask you CPA the specific legal protections afforded by an S corp and you should see you don't need them.

Krishan

Sorry I wasn't clear. Either get a 3rd opinion and/or talk to one who knows for sure.

My initial feeling is to agree with Ann and Krishan (I have no tax accounting experience)

I’m starting to feel that my cpa had me incorporate just to make her some extra money (She also runs a business that sets up all the corporate papers). Needless, to say this makes me pretty angry. Will see what she says in response to my questions.

Krishan,

Great information, much appreciated.

The counter-argument would be that I work as more like an investor and trader. I am supplying capital to make trades as well as executing them. It’s standard in this industry for backers/stakers/investors to put up all the capital for professional players to play in exchange for 66% of the total profits (and eating all the losses if they do incur). So it would make sense for me to be only paid, "25-33%" of my winnings. This is quite different from a professional athlete who is merely paid a salary and can’t lose money.

are you sure you want to be a professional gambler. you probably make money at other things as well. and can be a professional at them.

I was thinking about doing this next year when I have to start paying taxes on my gambling income, but im pretty sure in Canada you wouldnt incorporate yourself but start a business for yourself. Pretty sure they are different, and since you will never have any liabilities I dont see the advantage of a limited liability setup (aka a corp.)

Heh. I thought those thought but from another line. I wanted to shelter the bankroll portion of my winnings. Because it's capital tied up in the business, and without it I wouldn't have a business, wouldn't it make sense for me to only pay taxes on winnings excluding a reasonable bankroll? Unfortunately, the IRS doesn't look at it this way. And it's the IRS that makes the rules.

I must point out that in the situation you describe, the backer would presumably pay taxes on the 66% of winnings. Since you are essentially your own backer wouldn't you still be responsible for the whole thing?

Krishan

krishan,

Any of this change if I incorporate offshore and hold my accounts there? I get the feeling this approaches an illegal tax shelter though.

I really want to truly expatriate myself more and more every day

I looked into this the other day. For IRS purposes I heard the phrase "disregarded entity" and everything passes through onto your Schedule C, so it really isn't that great. :/

I talked to my CPA and he said basically the lady who wrote the book is wrong. He went on to say if I make 400k this year, 300k of that would be corporate profit and the other 100k would be my "salary", upon which I'd have to pay self-employment tax on. (Saving me 12,000 which I will be giving to charity instead of uncle sam)

you only pay self employment tax on 100k anyway. so it saves u nothing.

Ray,

I have lots of expenses I like to deduct that I incur from traveling/playing the tournament circuit. If I don’t file as a professional I can’t deduct these.

Now whether or not I actually want to be a professional gambler is a much more interesting and complicated question.

actually I forgot you pay the medicare on all the money. so you save like a few $ on the 300k

good2cu,

You don't need to start a biz to file as a pro. You can just say you're a pro and boom... you are.

SE tax after like $90 is only 2.9%.

Why not try LLCs instead? I'm sure that in Nevada you can have Limited Liability Companies as C-Corporations. And you can own one by yourself.

There is a lot wrong with the above. Most of it has been pointed out but I'm going to reiterate.

SE tax is 12.4% of your first 94K and 2.9% of the total amount you earn. Half is deductible against your federal tax though so the real effective rate is less.

http://www.irs.gov/businesses/small/article/0,,id=98846,00.html

There is no [censored] way the government is going to let you shelter 300K and pay yourself 100K. But it wouldn't save you much in taxes anyway. Well, 300k * 2.9 so ~9K.

Krishan

Dunno, I didn't look at it to hard since I like living here.

Krishan