Quote:
Originally Posted by PokerXanadu
I believe you are wrong. The crux of the matter is the interpretation of Section 165(d) of the Tax Code:
For 2017 and before, "Losses" for this paragraph of the tax code was interpreted (by the IRS) to mean gambling losses as well as related gambling expenses (e.g., the cost of an atm withdrawal for making a wager) for the recreational gambler (those not reporting taxable income as a pro player). For the pro player, "Losses" did not include ordinary business expenses and any such expenses beyond gambling wins could be carried over as a business loss.
The Trump Tax Plan has clarified this section to the code. For tax years 2018 thru 2025, "Losses" for the pro player now include normal business expenses that are incurred as part of the business of making wagers. So, for a pro gambler, you now add together your gambling losses and your gambling business expenses to figure your total "Losses" from gambling. If this figure exceeds your gambling wins, you can't carry over the extra amount as a business loss. This will apply to the sole proprietor as well as business entities such as an LLC, Partnership etc.
For example, if you form an LLC as a gambling business and your wins for the year total $100K, your losses for the year total $75K and your business expenses for the year (airfare, hotels, car rentals, etc.) total $40K, your net business income is $0 and your net business expense loss carryover is $0 (until this tax plan provisions expires in 2025).
In essence, the term "losses" for gambling has be redefined to include any related business expenses. Such expenses can not be deducted as normal business expenses for any type of business entity for the years 2018 to 2025. They only get counted as part of your gambling losses.
I agree with everything you say except it is all based on filing gambling winnings/losses (or other deductions) on an individual person's Schedule C and 1040. If a person is a shareholder of an S-Corp, they do not report business income/loss on a schedule C. The business entity itself files a return and any net income is reported as pass-through income on the individual's return in a schedule K. So,
the gambling business, would deduct the gambling-related expenses. Nothing in the info I have seen about the IRS clarification seems to indicate that a business would no longer be able to deduct these expenses in their returns. So, I think the distinction may just come down to... does your legal entity file a separate return? If the answer is yes, I think the business deductions will remain. If the answer is no (ie if your business activity is captured in your individual Schedule C/1040), then it appears the deduction will be limited until this provision expires.
Quote:
Originally Posted by Gramps
Anyone have a scoop on this "Qualified Business Income" deduction for pass-throughs?
Sounds like there will be significant tax reduction for many, but there's a ton of gobbly-goop to wade through. What trip-ups (if any) would there be for a professional gambler here?
https://www.greenbushfinancial.com/p...siness-owners/
This is sort of the crux of the matter of what PokerXanadu and I have been going back and forth on. It is my feeling that the business deduction limitation (not elimination... just limitation) which will be imposed on Schedule C/1040 filings does not apply to S-Corps, since S-Corp activity is not reported on schedule C/1040. This is not entirely clear based on info in this thread, so you may want to seek the advice of a tax expert.
Now, as to your general question, I'm not sure there are any trip-ups for a gambling S-Corp as opposed to any other similar S-Corp. I can tell you what I have learned in my research as an S-Corp (not gambling) owner myself. Again, this is just what I believe to be true, so take it with a grain of salt and do your own due diligence. I will be meeting with my tax preparer this month and if I learn anything new, I'll post it here.
The main purpose of the tax reform was to lower US business taxes to make it more appealing for companies to do business in the US, as opposed to elsewhere. So, corporate income tax rates were cut to 21% from their existing 35%. However, many if not most US business are actually organized as S-Corps or other pass-through entitles, which do not pay corporate income taxes. Instead the owners of these entities pay income taxes on the business profits according to their individual income tax rates, which are usually 28-39%, depending on the overall income level of the individuals.
So, Congress had a problem in that some corporations were getting a big tax cut, but many were not, which would defeat the purpose of the reform. So, they decided to help pass-through entities, by giving their owners a big tax deduction (20%) on their share of the businesses income. This is indeed a big tax break for the owners of companies because this deduction comes right off the top of their individual share of the qualified business income. The part that gets kind of hairy is that Congress realized that many individuals (doctors, lawyers, athletes, and yes... poker players) form S-Corps or other pass through entitles and these weren't exactly the sorts of companies that they were concerned about "stimulating", since these companies do not employ a lot of people. So they put provisions into the law which would limit or cap the deduction these individuals could take if they were essentially "service-based" companies. These limitations are on companies that don't make stuff, but rather rely on the talents of a few, and often times only one person.
The limits depend on whether you file individually, or jointly with a spouse. If individually, it basically means, you can take the 20% deduction on qualified business income up to $157,700. The limit is $315,000 when filing jointly. If your qualified business income is above the threshold, there is a formula which determines what you can deduct based on your w-2 salary. Its more complicated than I would be comfortable getting into, but the bottom line is , if your qualified business income is above the limit, your deduction will be less than 20%, and there is a new threshold limit above which you will not be able to deduct anything.
The following link has more detailed info about how the tax bill effects pass-though entities and has some examples on calculating the deduction which may be available to you. And, of course, you'll want to talk to a tax expert as well.
https://www.forbes.com/sites/kellyph.../#6fe5e9086de3