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View Full Version : Gambling Winnings can't be used to fund a ROTH IRA?


climber
05-01-2005, 05:10 PM
ROTH IRA's may only be funded with "earned income."
This IRS page (http://www.irs.gov/businesses/small/international/article/0,,id=96811,00.html) of questionable relevance (ala Google) classifies Gambling winnings as "unearned income." Take that grinders! LOL

Anyways, I'm looking to fund a ROTH IRA this year and just want to make sure I understand the rules. Since I have another job at this point I'm cool but it sounds like if I ever was without a traditional job I might no longer be able to contribute to my ROTH IRA?

Whats your guys take on all this?

Misfire
05-01-2005, 05:33 PM
I think you're right. If I understand the rules right, you can't fund it with more than your earned income, which sucks if you don't have any. On the other hand, it wouldn't take much to earn $4k over the course of the year.

Maulik
05-02-2005, 12:17 AM
you could speak with an accountant, probably incorporate your poker as a business and then pay yourself 'earned income'

brilliant

DWarrior
05-02-2005, 04:31 PM
I was actually going to post that, but I wondered why noone else has suggested it. I have an S-Corp, so would it be possible to filter money that way?

climber
05-02-2005, 08:00 PM
I'm not sure of the intricacies but I read a reply recently to a suggestion like this in the zoo that the poster should "search the archives" as it had been "discussed extensively."

Apparently the conclusion of htese extensive discussions was that starting a business taht involved gambling was illegal.

The fact that the IRS doesn consider gambling wnnings to be "earned income" would add some credence to this argument.

midas
05-03-2005, 12:24 PM
That might work although you should check the definition of "earned income" you may have to pay yourself a salary and W2 yourself and pay all the other taxes like FICA and medicare.

Misfire
05-03-2005, 06:29 PM
[ QUOTE ]
I was actually going to post that, but I wondered why noone else has suggested it. I have an S-Corp, so would it be possible to filter money that way?

[/ QUOTE ]

I'd have to guess that would be laundering.

DesertCat
05-08-2005, 06:04 PM
[ QUOTE ]


Apparently the conclusion of htese extensive discussions was that starting a business taht involved gambling was illegal.

The fact that the IRS doesn consider gambling wnnings to be "earned income" would add some credence to this argument.

[/ QUOTE ]

Starting a business involving gambling can be very legal. The IRS basically tells you how to do it, since gambling is legal in many parts of the country.

I think the real concern is whether you want to report ONLINE gambling as income. It's unclear whether online poker is legal or not. The U.S. Justice department says it isn't, but it's aggressively interpreting a forty year old law (the wire act) that specifically forbids sports betting, not poker.

Honestly, I don't think the IRS is going to care whether your poker was played legally at a casino, or in a gray area online. They'll certainly care if you have numberous large transfers into your accounts that you refuse to report or explain.

DesertCat
05-08-2005, 07:07 PM
[ QUOTE ]
[ QUOTE ]
I was actually going to post that, but I wondered why noone else has suggested it. I have an S-Corp, so would it be possible to filter money that way?

[/ QUOTE ]

I'd have to guess that would be laundering.

[/ QUOTE ]

No, it's not. Money laundering is taking money from an illegal activitie and moving it through (laundering) a legitimate enterprise to hide it's source.

S Corps are a common method of taking legal unearned (i.e. other than wages) income and converting it to wages, usually for the purpose of creating large deductible retirement contributions. In my case, I'm a self employed investor, so my accountant helped me create and S corp that all of my capital gains are funneled through.

Some of those gains are converted into wages for myself and my wife. This allows us to contribute most of those wages into personal 401k accounts. Basically we are paying 15% self employed tax instead of 15-35% on state and federal capital gains, on money that goes into our 401k.

It also makes it simpler to deduct legitimate business expenses, and it enabled me to report my net poker earnings as professional. This was important since normally you have to report gross wins as income (pumping up your AGI and helping limit your deductions).

Anyone who runs a profitable business, even as a sole proprietor, should seriously investigate the benefits of forming an S corp.

DWarrior
05-09-2005, 03:58 PM
Very interesting.

I'm actually working in an Accounting firm part-time, and it looks like I'll be leaving next year to go to a different school. I'm seriously considering poker as means to pay for my expenses in college (better pay than normal college jobs, better hours, and more mentally stimulating, and more respectable than some secretary position). I'm still running Poker Tracker on my game to see if it's plausible or a pipe dream (so far so good, but I don't have enough hands).

Now that you mentioned this, I think I'm gonna have a talk with my boss and see if he can help me with the tax side of this.

Fraubump
05-14-2005, 02:16 AM
I filed a schedule C as a pro poker player: had to pay SS tax on the money, but got to invest in IRA.

Pros of filing as pro: netting poker wins/losses; money counts as earned income, so ok for IRA.

Cons: SS tax.

Pros of just claiming poker income as gambling income: no SS tax.

Cons: CANNOT legally net winnings. Doesn't count as earned income for IRA purposes.

I expect a search on 2+2 will result in detailed discussions of this topic.