Taxes & corporations
 

So is there anyone out there that has looked into forming an S corporation for the purposes of (legally) reducing one's tax burden from pro or semi-pro poker play? Any information that you guys are willing to share?

Re: Taxes & corporations
 

there is no benefit to doing it if you file legally

Re: Taxes & corporations
 

Can you please elaborate or at least point me to a link where I can read the details?

Re: Taxes & corporations
 

A good accountant/CPA is worth the cost when starting out. I spent hours poring over tax documents on the Net and working up a plan, only to meet with my CPA and he immediately dismissed my ideas out of hand. He then took two minutes to explain why my thinking was wrong and how I could do it much easier and legally save much more in taxes/filing fees, etc. He was also very helpful on where and how to store the bankroll to provide extra income while maintaining accessibility.

My dad as a small business owner taught me two lessons which I still adhere to today. One: the best way to avoid an IRS audit is to have a CPA sign off on the return. Two: always bring your lawyer to a high level business negotiation. Both of these tell people don't f with you.

The right accountant may not know much about gambling but he does know a lot about businesses and taxes. A CPA's fees are like the rake: very signficant when the stakes are low but negligible when the stakes are high.

Re: Taxes & corporations
 

http://www.rbstaxes.com/book.htm

gambling is subject to gambling tax law. the law is not avoidable if you decide that "my business is gambling". you are still subject to gambling tax law, which prohibits lumping.

Re: Taxes & corporations
 

Not necessarily. If the IRS accepts you filing as a "professional", you can file on schedule C (Self Employment) and deduct the appropriate business expenses (say you use one room specifically as your home office - you can deduct a portion of rent). You can then take depreciation on your computer, deduct Poker Tracker as a business expense, etc.

The hard part is getting the IRS to agree that you are a professional.

Re: Taxes & corporations
 

that is a provision of the gambling code. the irs doesn't need to agree that you are a professional, you would have to get noticed and be unable to prove it. since the definition is that you play regularly and with the expectation to win, many players could do it (and pokertracker/statking makes the proof easy). the rub is that you pay self-employment taxes, something i believe nightwish was seeking to avoid by filing as a recreational gambler, lumping his wins and losses as well as deducting through a business.

Re: Taxes & corporations
 

I do'nt know about you, but having to pay 15% (self employment tax) is soooooooooooooooooooo much more than the ability to write off all that stuff. I'd rather be recreational. I'll have to talk to my CPA again cause she wanted me to file professionaly as if it was an advantage and said that I would have no problem showing that most of my income comes from pokre.

Re: Taxes & corporations
 

thank got i live in the U.K. where gambling profit is untaxable! [img]/images/graemlins/cool.gif[/img]

Re: Taxes & corporations
 

internet gambling is illegal all over the usa too. neat huh?

Re: Taxes & corporations
 

You need in the 90K range of gambling income for it to make sense to form a corporation, unless you have an unusual amount of expenses you can write off.

Talk to a CPA, corporations are formed for all types of activities every day.

Re: Taxes & corporations
 

Illegal? Untaxable? I don't understand?

Re: Taxes & corporations
 

recreational: report all wins separately. this bumps up your adjusted gross income. deduct all losses separately in a different section. no writeoffs, no self-employment taxes.

professional: report the sum of all wins and losses together. allows writeoffs, requires self-employment taxes.

the angle people commonly try to shoot here is to make an s-corporation or llc (which passes taxes through to the individual), claiming that "their business is gambling" so that they can lump theirs wins and losses together without paying self-employment tax. it's illegal. as such, there is no legal advantage to forming a corporation as it pertains to gambling income.

Re: Taxes & corporations
 

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internet gambling is illegal all over the usa too. neat huh?

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when was this determined? was there a new ruling?

Re: Taxes & corporations
 

some states explicitly ban it, most states prohibit unsanctioned gambling

Re: Taxes & corporations
 

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A CPA's fees are like the rake: very signficant when the stakes are low but negligible when the stakes are high.

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That is such an awesome comment.

Re: Taxes & corporations
 

Just because you earn money from an illegal venture does not make it non-taxable. Drug dealers, etc. can avoid the penatlies for tax evasion just by listing the income gained from dealing and paying the appropriate amount to the IRS. Also, paying taxes for illegal activities does not incriminate you.

Re: Taxes & corporations
 

internet gambling is illegal all over the usa too.

This is absolutely not true. Gambling in the US is regulated by the states. In most US States, internet gambling is *not* illegal.

Re: Taxes & corporations
 

most states prohibit unsanctioned gambling

Most state laws sanction the people who *run* the game in their state, not the players. Huge difference.

Re: Taxes & corporations
 

at what point did i say anything opposite of that?

Re: Taxes & corporations
 

you are completely wrong. look at http://www.gambling-law-us.com/State-Law-Summary/ , and verify it with the actual state statutes if you'd like. in most states online gambling is illegal as it falls under the header of unsanctioned gambling. it is not social gambling. per state law, online gambling is illegal virtually everywhere in the usa (but the severity of the penalty varies).

Re: Taxes & corporations
 

Except for the fact that when I talked to the IRS they said it's legal. My CPA also went to a conferance about a month ago that dealt with gambling and they said the same thing.

You may see some goofy technicality that makes you think it's illegal but take a look at the way things are going. Look at TV, don't you think there would be a lot more said by the networks if it was illegal...seeing how tons and tons of players have qualified online.

I suppose you've quit playing in the party 15/30 game now too huh. Now that would be funny.

Re: Taxes & corporations
 

you can talk to whoever you'd like, and they can say whatever they'd like. the gambling tax laws are written in plain english, and i find them very easy to understand. if you want the most respected expert opinion, talk to rbstaxes. they are enrolled agents (higher than cpas - eas are tax-specific, cpa is for general accounting). they also handle the taxes for lots of wpt players, etc and are based in vegas. i read the laws and came to the 'bad' conclusions, was advised as you were by a corporate tax attorney, and then confirmed the 'bad' conclusions by talking to rbstaxes and reading their mini-book on the subject.

filing as a recreational player through a business to lump wins/losses, get writeoffs, and not have to pay self-employment taxes is not legal. to get the benefits, you have to pay self-employment tax. that is why the professional filing option exists in th tax code.

you can file your taxes as you want. fill in any numbers you want on any forms. that doesn't mean it's legal.

and no, i haven't quit playing in the party 15/30 game but i'm aware of what i am risking. i even paid an attorney to look at the gambling statutes in my state to see if there had been any prosecutions or appeals filed on it.

as for the wpt players, the government has taken steps to go against them by going after advertising of online sites. as with other things, their #1 targets are the drug dealers. if they break the supply chain there is no way to use.

Re: Taxes & corporations
 

What part of the column *express internet prohibition* is unclear to you?

Re: Taxes & corporations
 

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What part of the column *express internet prohibition* is unclear to you?

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[img]/images/graemlins/cool.gif[/img]

re:astro - and what if you get auditted...where are you going to say that couple hundred thousand came from? If you really think it's illegal you may as well not pay taxes cause you're screwed if you get cought anyhow. I suppose it would probably be less severe than the fruad penalty...but I don't know...it's not illegal so it's a moot point.

Re: Taxes & corporations
 

what part of gambling is illegal unless it is state-sanctioned, and online gambling is not state-sanctioned doesn't register with you? read the statutes. you are completely wrong.

Re: Taxes & corporations
 

as is famously discussed, al capone went down for tax evasion, not for the crimes he committed to make his money. you can't get caught from an irs audit. it's what's referred to as a "silver platter" situation, the irs can't hand you over when all they were doing was audited. this is the same way that evidence found in an illegal search can't be used in court, you can announce that you are somebody's drug dealer at at their murder trial and not be busted, etc. if the irs could turn you in on an audit, you could probably invoke the 5th amendment to skip whatever illegal aspects there were to avoid incriminating yourself.

just found a particularly amusing example: http://www.ksrevenue.org/perstaxtypesdrug.htm

Re: Taxes & corporations
 

That's too funny.

Re: Taxes & corporations
 

I'm pretty sure it works like any other business. This is how my accountant explained it. I'm not an accountent though, so you'll have to talk to yours.


Self employment tax is 15.3%. With the corperation, all earnings are corperate earnings and are not subject to self employment taxes. But you work for the corperation so
you half to pay yourself a "reasonable" salary. That salary is the the only part of your income subject to selfemployment taxes. The rest of the money comes from corperate divideds and are taxed as dividends. So, say you make $30000 and pay yourself a salary of $833 per month, $10000 per year. So the savings from having the corperation is $20000 x 15.3%= $3060. Say you make $60000 and pay yourself $15000. Then you would save $45000 x 15.3%= $6885. I think devidend income is also taxed at a lower rate, but I'm not sure on that. I haven't done my own taxes in 6 years. My accountant understands it though. It did cost $750 to set up the corp, and about $550 a year after that to the accountant for record keeping and tax prep, so it's not all savings, but still a good deal.

I'm don't know what chages it would make if you have another source of income. I don't so I never asked.

Re: Taxes & corporations
 

When the cops bust a bookie, do they comb through his records and arrest all his customers? No. Perhaps it is technically illegal to participate in online gaming in most states, but the only places the player risks running afoul of the law is in those states where *participation* is expressly forbidden.

I've been associated with "non-state-sanctioned" gambling since birth, and I'm quite aware where the real risks lie.

Gambling Laws
 

You are correct. If you were to set up servers and start running and operating an online gambling system, most U.S. States would not be the place to do it.

However, if you sign on to an offshore gambling system, you are not violating most State Laws. The laws are aimed at the operators, not the players.

There is already prior Federal case law that says the actual gambling takes place where the servers are located.

Re: Taxes & corporations
 

participation is expressly forbidden all over. it is illegal to place bets at unsanctioned locations. it is illegal to play, the penalties are just worse for hosting/bookkeeping/aiding and abetting (which being an affiliate actually falls under).

Re: Gambling Laws
 

However, if you sign on to an offshore gambling system, you are not violating most State Laws. The laws are aimed at the operators, not the players.

wrong. the laws prohibit people from placing bets, not just taking them. pick a state at random and look at the statutes.

There is already prior Federal case law that says the actual gambling takes place where the servers are located.

Here's an interesting US legal development - a story from the States on an online gambler who has been successfully prosecuted.

ForumComm.com reports that a former Harwood, North Dakota man who pleaded guilty this week in Cass County District Court to placing sports bets over the Internet is believed to be the first person in the United States to be convicted of the crime.

Jeffrey Trauman, a former car salesman who began betting full time three years ago, authorized Fargo attorney John Goff to plead guilty to a misdemeanor gambling charge. Trauman now lives with his wife and three children in Kentucky, where he can legally continue his betting career, Goff said.

Though about half the states still have laws against gambling, only a handful of people have been convicted solely for placing bets, said I. Nelson Rose, a professor at Whittier Law School in California, who has studied gambling law for 23 years.

“He is the first and only person I know of who has actually both been arrested and convicted for online gambling,” said Rose, whom Trauman e-mailed for advice.

Following a joint recommendation by Goff and a state prosecutor, East Central Judicial District Judge Norman Backes gave Trauman a one-year deferred sentence and a mandatory $500 fine.

Although Trauman declared his winnings for tax purposes, a state investigation initiated by the attorney general’s office began looking into his betting affairs this spring. When agents searched his home in April, they found $43,000 in cash in a basement office. But Trauman said he did not know what he was doing was illegal and pointed out that he had declared his winnings to the tax authorities, a report by Gaming Division Auditor Greg Schlosser said.

A spokeswoman for Schlosser said a tip from an outside source led to the investigation but would not be more specific. Any further details might jeopardize future cases, she said.

Though Trauman listed professional gambler as his job on tax returns, Rose said it is highly unlikely that IRS agents tipped off investigators. U.S. Supreme Court rulings against self-incrimination restrict such collaboration.

these are the facts, guys. however low the risk is, it is breaking the law. the penalty varies, from what i've seen most states consider first offenses a misdemeanor but some do it based on the amount or the intent of the wager. the present interpretation of the law (a lot of which is inferred from the federal wire act) is that if you offer unsanctioned gambling you're in big trouble, if you help it you're in big trouble, and if you place bets you're in less trouble.

You are mixing Apples and Oranges.
 

In the State I reside in, betting on dog races is illegal.
If I travel to a neighboring State, and bet at the dog tracks, am I violating my State Law? Sorry, but no.

Since it has been held that the actual gambling and placing of bets takes place where the server is located, if I play poker on a server located outside my State, I am not breaking the law -- unless State law specifically prohibts this activity.

The Case you quote is unique. It involves SPORTS BETTING. The mere transmission of SPORTS BET information is a violation of the Federal Wire Act. Sports Bets are unique, as opposed to playing poker.

So how do you explain the following in your story:
"Trauman now lives with his wife and three children in Kentucky, where he can legally continue his betting career, Goff said."

Gee, I thought gambling was illegal everywhere? I don't know of any legal sports books in Kentucky.
[img]/images/graemlins/confused.gif[/img] [img]/images/graemlins/confused.gif[/img] [img]/images/graemlins/confused.gif[/img]

Re: You are mixing Apples and Oranges.
 

he was prosecuted by north dakota, not by the federal government. could you read and research just a little before wasting everybody's time with a response? i'm tired of explaining this stuff to people who are just going to believe what they want to believe in light of clear and objective evidence. here are the kentucky penalties:

528.020 Promoting gambling in the first degree.

(1) A person is guilty of promoting gambling in the first degree when he knowingly advances or profits from unlawful gambling activity by:
(a) Engaging in bookmaking to the extent that he employs or utilizes three or more
persons in a bookmaking activity and receives or accepts in any one day bets
totaling more than $500; or
(b) Receiving in connection with a lottery or mutuel scheme or enterprise:
1. Money or written records from a person other than a player whose chances
or plays are represented by such money or records; or
2. More than $500 in any one day of money played in the scheme or enterprise; or
(c) Setting up and operating a gambling device.
(2) Promoting gambling in the first degree is a Class D felony.

528.030 Promoting gambling in the second degree.

(1) A person is guilty of promoting gambling in the second degree when he knowingly advances or profits from unlawful gambling activity.
(2) Promoting gambling in the second degree is a Class A misdemeanor.

528.040 Conspiracy to promote gambling.

(1) A person is guilty of conspiracy to promote gambling when he conspires to advance or profit from gambling activity.
(2) "Conspire" means to engage in activity constituting a criminal conspiracy as defined in KRS 506.040.
(3) Conspiracy to promote gambling is a Class D felony.

do you see anywhere that it is stated that PLACING bets is illegal there? they have definitions for what makes a gambler in the state, but there are no penalties outlined for it, only for people offering/taking bets. kentucky is 'the place to be' in that respect as compared to almost everywhere in the united states. quoting the webmaster of gambling-law-us.com in an email he sent me:

"If you just want to move then go to Kentucky. That's where the last guy convicted of illegal online gambling, specifically sports betting, under North Dakota law went so that he could continue to make online sports bets without violating the law. Lexington is a great place. Home of the original "dueling pianos" if I recall correctly.

Call me if you like.

Regards,
Chuck Humphrey"

some states have misdemeanors and such for first offenses so it shouldn't be worth the hassle to move for that reason.

Could You Keep Your Story Straight
 

From your previous posts:

"internet gambling is illegal all over the usa too. neat huh?"

"per state law, online gambling is illegal virtually everywhere in the usa"

"participation is expressly forbidden all over. it is illegal to place bets at unsanctioned locations."

And this is all based on a single prosecution in North Friggin' Dakota?

Some States don't have laws that address internet gambling --- and those that do, are mostly like Kentucky -- which address the OPERATION of gambling, not the participation.

There are 50,000 players on Party Poker every day. There has been 1 gambler prosecuted by 1 State. I think playing poker online (not operating or bookmaking or sports betting) is still a +EV play.

Not paying the IRS your Federal Taxes on your poker play would be a -EV play.

Re: Could You Keep Your Story Straight
 

no, it's based on the statutes which i have referenced. look for yourself, i'm not going to waste my time on it. a state does not need to address internet gambling for it to be illegal, they only need to ban gambling, and most states have done that. they start by banning all gambling, and they they unban sanctioned casinos. unless they unban online poker, it is illegal because it is gambling. as i already stated, i still play poker online. i am presenting complete facts with references, and they cannot be debated. whatever you do knowing these facts is your choice.

i would also think that there are many more illegal sports betters than poker players. i can't know how popular it is to gamble online specifically though.

my position is that everybody should file their taxes legally, and then consult their state's statutes to determine how they feel about the legal aspects of it.

Re: Could You Keep Your Story Straight
 

What's the maximum penalty you've come across, astroglide?
-James

Re: Taxes & corporations
 

Definitely depends on where you are. California at least is a nice place to gamble, online or off. Provided, at least, that it's poker or a similar card game (and why would we care about games of pure chance online anyway!)

Re: Taxes & corporations
 

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Self employment tax is 15.3%. With the corperation, all earnings are corperate earnings and are not subject to self employment taxes. But you work for the corperation so
you half to pay yourself a "reasonable" salary. That salary is the the only part of your income subject to selfemployment taxes. The rest of the money comes from corperate divideds and are taxed as dividends. So, say you make $30000 and pay yourself a salary of $833 per month, $10000 per year. So the savings from having the corperation is $20000 x 15.3%= $3060. Say you make $60000 and pay yourself $15000. Then you would save $45000 x 15.3%= $6885. I think devidend income is also taxed at a lower rate, but I'm not sure on that. I haven't done my own taxes in 6 years. My accountant understands it though. It did cost $750 to set up the corp, and about $550 a year after that to the accountant for record keeping and tax prep, so it's not all savings, but still a good deal.


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I'm digging up an old thread. I'm not sure if anyone will repsond, but I'll try. If anyone is familiar with S-Corp, I would appreciate a response. I have two questions.

Question 1:

In the above quote, where the poster mentions "self employment tax", doesn't he mean "social security tax"? If you set up a corporation for your poker venture and you get paid a salary from it, you are not self employed. Rather, you are employed by the corporation. So, he means to say that you save on social security tax, not self employment tax, since social security tax is applied only to the salary. Am I correct?

Question 2:

In an S corp, there's the personal income for you, and the corporate income. After all taxes are paid, can I legally use the corporation's money for my personal use?