Here is my life, what are my taxes?

[Jesse Kidd]

Hello, long-time lurker, rare poster. I've read everything I can find on this subject online, and still have a number of questions. I know the proper answer is to "seek the help of a professional", but I'd really love to be able to figure this out on my own.

I started playing full-time around September of this year, after playing 8 months as a hobby. My winnings for the year are approximately $20,000 before September, and $40,000 from September through the end of the year. (Note: Before I started playing full-time, I did not keep detailed records of my play. This may make a difference in the decision.) I plan to play full-time next year, and to continue the detailed session logs I have kept since September.

I have a number of questions:

1.) I plan on filing as a recreational gambler this year, and as a professional next year(estimated around $100-$120K income). I didn't really have any other income this year, as I was travelling and basically just screwing around. Would it make sense to file as a pro this year, or to wait until next year?

2.) I plan to open an online SEP-IRA at the first of the year, and contribute heavily to it during the year. Will this be a problem? Do I need to get a business license or anything to avoid problems with the creation of a SEP-IRA, or is it no big deal?

3.) Estimated Taxes - I want to do this for income and self-employment tax for the coming year, but everything I've read seems to base off of the previous year. If I haven't done this before, what sort of numbers should I use for the quarterly payments?

4.) I largely want to file as a professional because it seems like the right thing to do. I'm not interested in being sneaky with my return or anything, although I would of course like to keep my taxes to the minimum. Will my sudden change to "professional" status be a problem as long as I can back everything up? I saw the landmark case typically cited noted that gambling needed to show a profit 3 of the last five years. I can't imagine this is a strict requirement, but has anyone had any problems with it?

Thanks a ton,

Jesse

[GeorgeF]

Possibly worth $10:
http://www.amazon.com/exec/obidos/tg...ce&s=books

[Nightwish]

The book referenced by the other poster is indeed excellent, and I would highly recommend it. I would also recommend getting Turbotax, and probably Quicken as well, instead of struggling with your taxes on your own. You can get both pretty cheap off eBay.

Also, my understanding is that you'd be much better off with a solo 401(k) as opposed to a SEP-IRA. This is a new plan introduced with the Bush tax cuts in 2001. It's basically a 401(k) for the self-employed. Not many brokerages offer it yet, but the big boys (Fidelity, Salomon Smith Barney, etc.) do. Google for it.

As for pro vs non-pro filing, I think you have a great justification for filing as a pro this year since all of your income came from poker. If they really throw a fit about it, show them your collection of poker books, Poker Tracker and other software. At that point, I can't see them arguing with your claim that you have every expectation of making a profit.