I file as a sole proprietorship. No documents or costs. Just file a schedule C and deduct expenses from winnings.

Krishan

I agree and disagree somewhat with this statement. What I'd recommend is going down to the library, finding a good librarian, and researching the tax law as it applies to your situation. This sounds pretty dull, and it is. But in the long run it will help you tremendously both in terms of understanding your tax liability and in terms of figuring out WHO you want to hire as a tax advisor.

It has been said somewhere in this thread that the IRS makes tax rules. This is not true. The Internal Revenue Code (IRC) is the rule book, and it is congress that gets to make the IRC. The IRS is charged with enforcing the IRC. A lot of the time the IRS likes to make up rules. Its up to you to NOT let them get away with that. You can fight the IRS in various ways. They CANNOT throw you in jail for disagreeing with them on relevant tax laws.

In my experience, most tax advisors will tend to give very conservative advice because they're scared of the IRS. Its far better, however, to be as aggressive as possible when avoiding taxes, as long as you have a solid rationale (coming from the relevant tax law) for why you're doing what you're doing.

Go to www.johntreed.com and buy the book "Aggressive Tax Avoidance for Real Estate Investors". Obviously the RE stuff won't apply to you. But the book clearly and concisely explains how and why aggressivness with the IRS is almost always to your benefit, how to pick a tax advisor, etc. The book has been a tremendous help to me for a long time and has saved me tens of thousands in taxes.

the way i understand it is that very rich people take the following angle:

hire an expensive lawyer to find some kind of loophole to manipulate

save money on taxes

hope that the IRS doesn't look you up

if the IRS does look into it, hopefully my expensive lawyers can argue a good case for me and keep penalties to a minimum.

so

taxes saved - (likelyhood of audit)(penalties) = EV

the simple answer would be to find examples of professional gamblers who incorporated, were taken to tax court and won. im guessing you don't find any. Russ Fox posts on 2+2 and is a gambling tax expert.

GL

filing as a professional isnt a prerequisite for writing off expenses.

This sounds almost entirely wrong and perhaps illegal. First of all, "self employment tax" is just the social security & medicare tax that is normally paid by an employer. If you make a corp and pay yourself, the corp would be responsible for those same taxes, so you aren't avoiding anything. Second of all, that 300k of corporate profit that you aren't paying as salary can only be spent on business expenses - if you use any of it on yourself you invalidate the separation of yourself and your S-corp as legal entities.



Now, there IS one reason why a professional gambling corporation is attraction : spreading out big wins over several years. But that doesn't work very well in practice for various reasons unless you do something very clever that I don't know how to do and probably isn't worth it.

Can you elaborate? I'm under the impression that filing as a pro/schedule C is required to write off expenses.

Krishan

Word.

Sorry Ray, gotta disagree with you here, unless you mean that it isn't a prerequisite unless you get audited. I researched this very carefully before I retired and moreso afterwards. Zero expense deductions for non-pro filing, you must use a schedule C and even then be able to prove you run your gambling like a true business. Complete with books, daily poker logs, concise mileage and auto expense logs. Keep your expense receipts, learn what travel, lodging and food expenses are deductible and to what limits.

Otherwise it just becomes another "hobby" and you cannot either claim expenses, net out your earnings nor carry forward losses to future years. For some it may not pay to file as a professional but in order to write off a single dime of expenses you must do so.


Jimbo

that quote was a reply to my first post.
you dont have to have as your profession on the tax return, professonal gambler, to write off expenses. having that may affect your chances of getting loans for a house or investment in the future.

Thanks Ray, I understand your reasoning now.

Jimbo

my accountant insists on the same thing as the OP.

i get the feeling that most replying in this thread dont know, but im not saying i know either.

maybe a call to the IRS will be best? i mean it seems a lot of CPAs say we can have an s-corp to save on SE tax.


anyone learn anything since this thread died?

There are a couple ways to go.

If you want a "salary", then one way to make it legal is in a partnership agreement with backers. You keep the first X% of profits as a "management fee", and the rest of the profits are distributed based on capital contributions. See Raymers WSOP deal.

Otherwise, if the main goal is to reduce self-employment tax then the key is to be able to report net winnings as opposed to gross winnings with a deduction for losses. Just form a sole proprietorship. Sole proprietors don't need to register with their state for purposes of franchise/sales tax like corporations and partnerships. Sole proprietors can set up Solo 401Ks where they can contribute $45.5K to retirement per year. Sole proprietors don't even need to file a D/B/A if your name is included in the business name (Binions Risk Management).

With your sole proprietorship, get a separate Fed Tax ID number, keep records, etc to show you are a professional poker player when the audit comes.

Here is the 2nd reason you do not want to form a sole S corp as a professional gambler unless your net income is extraordinarily high or you will not have any fringe benefits such as health, life, and disability insurance; company car; and so on. Perhaps an online gambler may be better off marginally but you also must keep proper minutes and file a corporate tax return among other detailed paperwork requirements.

In the OP example saving about $9k of medicare taxes some of that benefit should be offset by any potential fringe benefit deductions now being passed through as taxable income to the individual. In other words in an S corp instead of becoming tax saving business deductions the fringe benefits become taxable income to the S corp owner.

I assume you're not a lawyer? I don't mean that in a combative way--I'm not a lawyer either but I hvae studied some law.

I think your statement above is quite incorrect. As a simplified introduction to Administrative Law: in most regulatory areas, statutes from Congress don't get anyone very far. They are vague and overly generalized and are intended to be interpreted and applied--by administrative agencies (most commonly in the executive). The agencies do this by writing Regulations (following certain procedures). Reguations, when promulgated by proper procedures, do in fact have the Force of Law. It is true that if a Reg is inconsistent with a statute, the statute always controls and the Reg is struck. But 1. that is rare and hard to show, and 2. in the first place the Reg is presumed to be law. Ie, your interpretation does not start out on equal footing with an IRS interpretation given in a Reg.

Having taken tax law at a major US law school, let me assure you that you spend a lot more time reading regs than statutes.

The IRS also offers opinion letters and other kinds of positions on their interpretation of the Code (which, yes, does ultimately control). ALL of these positions receive some kind of deference from the courts.

If Congress says, "Tax payers shall be able to deduct a reasonable and prevailing rate per mile for using a car for work." And the IRS says, "Reasonable is $.10cents." and you say, "I think reasonable is $.20 cents." You will have a difficult uphill battle and very long odds all the way.

and the idea that "I can't be put in jail for willfully disregarding an IRS reg or opinion because it's not really the law", I think is dangerously wrong.

The book you're reading may be a crackpot book (a la income tax being unconstitutional).

edit: a little on the aspects of tax law:

http://www.irs.gov/taxpros/article/0,,id=98137,00.html

http://www.irs.gov/irs/article/0,,id=101102,00.html

bump for synth_floyd who forgot to search his topic before posting

I've asked multiple lawyers and CPAs and I've gotten conflicting answers split almost down the middle.

I've taken the safe route so far but I really would love to know if anyone's actually done this.

Yeah, my bad. Thanks for the bump.

I think the book is wrong.

Everything your accountant has told you is the same as what mine has told me, and I know several people who file as professional gamblers with S-corps.

The reason is, as you said, to save on self-employment taxes.

Ray Zee's comment about being able to write off your expenses regardless of what you file as seems a little suspect. There's definitely an advantage to having pro gambler status in this regard but I'm not sure what it is exactly. It may be something that only comes up during a losing year (like a non-pro can only net losses against wins, whereas a pro can net them against all forms of income?). I have NFI.

tl;dr - Pretty confident your accountant is right. He/she is definitely not just trying to rip you off.

Pretty sure Ray is saying file as self-employed, but just don't put down 'professional gambler'.

Becoming an S-Corp and filing as an S-Corp are two different things. I've filed as an S-Corp (getting permission from the state) while only having a single member LLC. Savings were a few % of medicare and whatnot. I had to pay myself a salary and take the rest of the profit (if I chose to remove it from the business) as a bonus. I saved approx 15k a year like this... I think you are a balla poka player, thus, you would do well the way they suggest.... But in all things business, there is risk/reward to consider.

I think that S-corp issue varies state to state as well. Single member S corps in AL don't get that benefit.

looooool at paying taxes on poker winnings...

say u lost it all live,,,,,,,

some people buy bigger things than a 50 bag with their winnings.