Gambling income/mortgages

[Quercus]

I am not a full-time professional poker player, nor do I intend to become one. My wife and I own a small manufacturing business that provides the majority of our income, but my poker winnings contribute a non-trivial amount as well.

I intend to pay my taxes, but am trying to figure out the best way to do it. One thing I am concerned about is my future ability to get mortgages and business loans with a minimum of hassle.

One of the downsides to being self-employed is that getting loans with decent rates require more documentation than it does for those that work for someone else. Part of that documentation is often year end tax returns.

While the most straightforward tax approach would be to just declare gambling winnings, I'm nervous that potential lenders might jump to incorrect conclusions if they see gambling winnings on the return.

Alternatively, I could run the poker winnings through the corporation that my wife and I own, though I'd have to be creative about how I classified the income, since its financial statements are also often needed.

Has anyone had experience with the treatment of gambling winnings from this perspective?

[dogsballs]

good question. Hope some answers come in.

[Acesover8s]

[ QUOTE ]
I am not a full-time professional poker player, nor do I intend to become one. My wife and I own a small manufacturing business that provides the majority of our income, but my poker winnings contribute a non-trivial amount as well.

I intend to pay my taxes, but am trying to figure out the best way to do it. One thing I am concerned about is my future ability to get mortgages and business loans with a minimum of hassle.

One of the downsides to being self-employed is that getting loans with decent rates require more documentation than it does for those that work for someone else. Part of that documentation is often year end tax returns.

While the most straightforward tax approach would be to just declare gambling winnings, I'm nervous that potential lenders might jump to incorrect conclusions if they see gambling winnings on the return.

Alternatively, I could run the poker winnings through the corporation that my wife and I own, though I'd have to be creative about how I classified the income, since its financial statements are also often needed.

Has anyone had experience with the treatment of gambling winnings from this perspective?

[/ QUOTE ]

I am a full-time gambler and claim so on my tax returns, have been doing so for 2 years. I purchased my first home this year with full disclosure to my mortgage broker. My credit is not terribly good, and I was pleased with the 6.25 interest rate I got with my no-doc loan. Everyone involved was interested in what I did for a living, and the process breezed right through. I was not required to submit my tax returns, only a letter from a CPA (that I found on this forum) stating that I have been self-employed for the past 2 years.

PS I credit this forum and its posters here for assisting me in coming up with the income to purchase my home, thanks to all.

[Sully]

Quercus;

I have been a mortgage lender (loan officer) for over ten years, and can understand your concern for the question, however I would say that you have absolutely nothing to worry about. When lenders are reviewing your tax returns, they look at certain income and expense areas to determine your yearly income.

Without being too specific, if you have another main source of income "Gambling Income" would not be likely to count as income at all, and most likely would be completely ignored in the calcualations. I can't say the same for "Gambling Losses", which could potentially be an issue, however I don't think you can claim more losses than gains, meaning that the income would always be either positive or a breakeven.

Also, you don't have anything to worry about as far as opinions on your choice of a hobby. Lenders don't judge you in that fashion...they look at the hard numbers and would be in a world of trouble if they were to decline a loan solely due to the fact that the borrower was a "gambler" - a legal activity.

Bottom line....lenders love "Additional Income" regardless of the source. They hate "Additional losses" regardless of the source.

On a related note, if "Gambling Income" was your only source of income and you could prove that you had consistently averaged a certain amount of that income over several years, I feel like I could make a case for that income to be included in your calculations. I've never run into this, but I'd go to the mat for a loan like this....and I think I'd have a pretty good case.

If poker is your only source of income, your best friend will be your credit score. If you can keep your score above 700, loans will be fairly easy, and won't require much documentation....as it gets below that number, loans will be much tougher to come by, and will be much more costly both in the short and long term. Another argument for keeping a big bankroll...pay those bills!

[Quercus]

Thanks for the feedback - looks like I should just choose the method that minimizes tax liabilities and not worry about lender issues.