I've heard of a couple people that have done this - with the help of their accountant/CPA.

Has anyone else gone this route, or know anything about it? I'm interested in it but my accountant isn't extraordinarily savvy in this field.

It's not going to allow much, if any, additional deductions if that's what you're looking at it for.

Generally, you want to set up an LLC if there are risks for real liabilities from which you are trying to shield yourself. For example, I own a few rental homes and those are in an LLC, and I also do some other business through the LLC, so that if someone slips and falls, they sue the LLC and can't come against me or my assets directly. What is your Poker LLC going to shield you from? Nothing really.

Also, all these commercials you hear on the radio make it sound like it's a walk in the park to set up and run an LLC, with no downside. There, of course, is a downside. To get the benefits of the liability shield, you have to satisfy the corporate formailities (filing tax returns (it's taxed as a partnership, but you still have to complete the books and attach to your return), having meetings as required by whatever state you organize in (Delaware doesn't require them), filing forms to become authorized to do business in the states where you will work, etc).

Overall, it costs me probably $1,000 to $1,500 a year to keep up with the requirements for mine, between accountant costs, time/hassle, etc., but I have more operations than most do. Still it makes sense for me between the liability shield, depreciation, and being able to take a few deductions that I couldn't otherwise (you can sometimes pass expenses through an LLC that are harder to write off if you are an individual).

So don't set one up just because you think it will allow you to deduct that trip to Vegas. If you're a professional player you will probably be able to deduct those sorts of expenses anyway.

(If you do set one up, the generally accepted state to do it in is Delaware, but Nevada corporate law has actually made a lot of progress in the past 10 years or so, and so it's probably the #2 state now.)

Usual disclaimer: This is not legal or accounting advice. Talk to a lawyer and accountant.

GL.

thanks for the advice. I live in Vegas now so maybe it's something to consider.

I know next to nothing about this, but I've wondered about it.

It seems like a way to circumvent that godawful 15% self-employment tax, no?

I spoke to an account about this.

The deal is basically you *could* do this, but must pay yourself "fair" wages (no definition)... something around 50% of income. This money would be subject to the 15% self employment tax, while the other 50% would not be.

*however* my account ultimately advised me against this, as it is yet to be seen how the IRS will respond to someone doing this. As of now they "frown on it," (?) but should they decide to declare it illegitimate, you would owe tax retroactively on all that money, PLUS interest and penalties.

So basically it's a gamble. Yay government!

My financial advisor and my accountant had me do this last year. For 2010 I will be paying myself a small monthly salary, and the remaining profits will be distributed to the company "owner" (read: me) on a quarterly basis. The whole process has been interesting, and it is going to be fun to see exactly how much this saves me on my tax bill. Their reasoning was that my Adjusted Gross Income figure on my personal tax return is absurdly high when I include gambling winnings on my personal tax return, and the payroll and other taxes that my LLC will pay will be more than offset by the tax advantages that I will gain by reducing my AGI figure.

I also set up my LLC in the state of Delaware. It took me literally 10 minutes to do. I spent more time poking around on the Internet to verify that I hadn't missed anything than I did in actually filling out and mailing in the paperwork.

No ex post facto IMO!!!!!

I've always wondered if I can set up a corporation for my affiliate business.

I really want to be "ready" if we get legislation and stuff, but as of now Russ Fox says I shouldn't set up any corporation or anything with it.

Jesus, that is scary. My accountant acted like it was totally legitimate. I've been doing it for years. I need to get the story straight. Anyone know anything about this stufff? Russ?

There are numerous issues regarding LLCs for gamblers. You absolutely need to discuss this with your own tax advisor and an attorney before forming an LLC as a professional gambler.

A single-member LLC is generally a disregarded entity for tax purposes. That is, it files a Schedule C. That doesn't save you a penny in taxes.

What I suspect some of those who have LLCs have done is make a tax election to be taxed as an S Corporation. An S-Corp owner is required to pay himself a "reasonable" salary. The tax savings are from the non-salaried income that flows through to the owner; self-employment tax isn't paid on that income. There are additional costs: a second tax return, costs for forming the LLC, costs for maintaining it, etc.

There are many potential problems. First, professionals of any sort cannot form an LLC in California (where I live). My attorney advised me that a professional in a foreign (non-California) LLC wouldn't be legal in California, either. LLC law is not uniform among the states; you absolutely need to consult with an attorney in your jurisdiction as to whether or not you can form an LLC (or an S Corp) as a professional gambler.

There's also the problem with the purpose of the LLC: gambling. Some states (California is one of these) consider gambling to be against public policy. Except for licensed gambling, it may be against state law to form a corporation (or an LLC) for promotion of gambling. Business entities are creatures of state laws; you must consult with an attorney to see if it's legal.

Finally, there's the IRS. As JDalla noted,
The IRS hasn't challenged such an entity. However, that doesn't mean they won't in the future. Gambling income is considered personal income by the IRS; moving it to a business entity would likely be seen as having no economic substance. There's a fundamental rule of tax that any transaction must have economic substance or it is considered null and void. President Obama has said that in his health care plan he would strengthen the economic substance rules; we are likely to see those rules tighten in the future. JDalla's comment about what would happen if a business entity is ruled invalid is accurate.

Most business entities are formed for liability protection--to protect the owner's personal assets from a potential issue with the business. That's likely irrelevant for most gamblers.

Is forming an LLC or an S-Corp a possible path for lower taxation for a professional gambler? Absolutely. Is it legal? In some areas of the country, definitely not. In other areas, it might be. Is it right for you? This is definitely not a one size fits all type of plan; you need to discuss this with your own tax advisor and attorney.

-- Russ Fox

Isn't there a bigger issue at stake here? I thought that once you create an LLC+, you then you are then running a gambling business, subject to local and state (federal?) gambling laws (all(?)of which criminalize unlicensed gambling business). Am I way off here?

my cpa (missouri) also advised me not to do this

Guys, I wrote the book on How to Turn Your Poker Playing Into a Business. After much research, it is not advisable to do this. I totally feel that the IRS will not agree with an S-Corp and once they decide not to allow it, you are probably looking at several years down the road, which will be a lot of penalties and interest.

My issue with declaring as a professional gambler is that it looks bad if I want to get a job and they do a background check and see that my income for the last year was gambling income. Say what you want, but there's still a huge stigma associated with gambling in this country.

Additionally, I work on a startup that I may try to raise money for. If the venture capital firms or angels do their due diligence and see that I was self employed, they'd be fine with that. If they look at my past year's tax return and see that I pretty much supported myself gambling for a year, they might frown on that.

So, my question is, what is the final say on how legit it is to create an SCorp or LLC around poker playing, sports betting, and staking activity? From what I can gather, the IRS may or may not allow an entity to be formed around the soul purpose of "gambling", but what I do is a combination of poker, building tools to take advantage of market opportunities on betting exchanges, and building quant models to gamble on basketball games. Additionally, I do contracting work as a freelance programmer. I'd like to, if possible, bundle this up into one entity.

Sounds like an important tax and legal question that may greatly affect your future. Why don't you find some professional advice instead of the opinions of random forum posters?