[ceskylev]

Some facts, because I'm tired of seeing this get confused.

1) SE tax is really just Social Security and Medicare tax. Everyone already pays 7.65 (FICA), so it's not 15.3 *extra,* it's 7.65 extra. Your employer usually pays that, but since you are your own employer as a sole proprietor, it's your responsibility.

An aside for you higher-stakes players: Once your gross income exceeds 90,000, the SE tax (on the excess) is only 2.4 percent. (You're only taxed for Medicare after 90K, not Social Security.)

Also, there's a line on the 1040 to deduct the extra 7.65 from your gross income. So, you get a decent break on your Federal Tax. Not a dollar-for-dollar credit, but it helps a bit.

2) Here's what many people don't get about reporting gambling winnings. If you file as an individual you MUST report your gross winnings and deduct your losses on a Schedule A. Why is this important? Because filing a Schedule A (also called itemizing) means that you forfeit the Standard Deduction ($5000 for a single non-dependent). If you take the SD and don't deduct the losses, you're paying taxes on a TON of money that you don't actually have. Go into PT and add up only your winning sessions to see what I'm talking about.

3) Another advantage to filing a Schedule C is that you can deduct business expenses on the Schedule C while keeping the Standard Deduction. This *can* (there are always exceptions) include books, computer equipment, a % of rent and utilities if you play at home, travel expenses to play in the WSOP, etc. If poker is a hobby (even a profitable one), you don't get anything.

4) If you're a small business, you can set up retirement and health care through your business and take deductions on all of that stuff. Depending on how much you want to sock away, you can get you AGI pretty low.

In closing, all of this only matters if you get audited, but bear two things in mind:

- There is no statute of limitations on underreporting.

- It typically takes *18 MONTHS* for the IRS to detect that you haven't paid enough tax and send you a notice. There is interest. There are penalties. 18 months' worth. It truly would suck to be you.

I am not a tax attorney or a CPA or anything that requires that I own a calculator, but I do know a thing or two. That said, these are generalities. This is not an endorsement of filing one way or another. My suggestion is to do whatever saves you the most money within the bounds of the law.

Do research. Read the F*@#ing Instructions. Don't automatically assume that paying SE tax is the sucker play. Figure your taxes BOTH WAYS before deciding what to do. And please consult a *good* tax preparer before you file.

That is all.