Setting up a Corporation for your gambling business

[Jimbo]

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The real issue, which i assumed the original question really was, is if you should file as a professional gambler. That is where I think most people shouldn't because of the huge Self Employment tax penalty.


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I'm really not trying to pick on you but, If you file as a sole proprietor/Pro gambler and get paid (show a profit) you pay the double Fica and Medicare taxes anyway by filing Schedule SE.

[swiftrhett]

Right. My point is that I don't get why anyone would want to be a professional gambler. Why don't I just stay non-professional and not file a schedule SE and not pay the extra taxes?

[ QUOTE ]
[ QUOTE ]
The real issue, which i assumed the original question really was, is if you should file as a professional gambler. That is where I think most people shouldn't because of the huge Self Employment tax penalty.


[/ QUOTE ]

I'm really not trying to pick on you but, If you file as a sole proprietor/Pro gambler and get paid (show a profit) you pay the double Fica and Medicare taxes anyway by filing Schedule SE.

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[FatTony21]

By filing as a professional gambler, you can write off expenses like trips, gambling books, broadband, etc. as well as up to 20% of your income in a SEP IRA. If you chose to do this, these expenses may outweight the self employment taxes.

[Jimbo]

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Right. My point is that I don't get why anyone would want to be a professional gambler. Why don't I just stay non-professional and not file a schedule SE and not pay the extra taxes?


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Because people that don't have any other itemized deductions besides their gambling losses essentially lose their $4850 (for tax year 2004) standard deduction. They end up paying taxes on that $4850 at their highest marginal tax rate.

Also they cannot deduct expenses that can be deducted if you are qualified as a Pro. This is why you should find a specialized tax advisor and use the members here only as a guideline, including myself since I am not a qualified tax professional. I just study the tax code as carefully as I can and try not to make inaccurate representations nor generalizations.



Jimbo

[okayplayer]

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Right. My point is that I don't get why anyone would want to be a professional gambler. Why don't I just stay non-professional and not file a schedule SE and not pay the extra taxes?

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Man, there needs to be some sticky thread where all these tax threads are put in so we can stop this every 3 days.

If you don't file as a pro, you have to list each winning session and add them to your net income for the year, and you can then deduct each losing session. A session is basically when you sit down at a table and then leave; this is easily trackable in PT.

If you file as a pro, you claim your net winnings. Also, you can deduct expenses. And it's not an additional 15% tax, it's half of that, and actually slightly less. Your employer usually pays the other half. It also stops after 88k income level.

As an after thought, I'm not an expert, but intuitively, I would think that you might end up paying that extra tax anyways... let's say you have a job that pays 40k, and you earn 40k playing poker. Your SS/Medicare tax from your job is like 7.5% b/c your employer pays the other half, now when you add in the poker income, it will bring your net to 80k, and the govt. will expect you to have paid 80k worth of SS/Medicare tax (15%), but it will show that you only paid 40k worth of that tax and they will charge you the extra 15% of that 40k anyways. Because the govt gets 15% SS/Medicare tax from EVERYONE, the only difference being your employer pays half. Now unless you can convince your current employer, if you have one, to pay that half of your SS/Medicare tax for your poker income, I would expect the govt to expect that 15%...

This is just a thought, and in no way fact.

[pshabi]

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By incorporating, you gain the advantages that any small business man gains when incorporating. Your insurance becomes a company benefit and a business expense. Your car could be a company car, and deductible. Talk to a CPA about the advantages.

The disadvantage would be you would have to pay yourself a small salary, which would be double taxed, once at the corporate level, and once as personal income. You would also have to pay your matching social security on that salary. The advantage is, with profits over your salary, the corporation could pay you that as a dividend which is taxed at a lower rate.

Talk to a CPA, see what deductions you can generate as a corporation, and where your break-even point on income is as far as being a corporation or an individual.

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Holiday Inn Express, huh?

[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.

[cardcounter0]

This post looks like a good starting point for a top-of-the-page sticky FAQ.

[Soleo]

I don't think sites would allow to create account to corporation or personal business. Look, it's PokerStars:

"6. PERSONAL USE. Commercial use of the Software is strictly forbidden. The User is only allowed to wager for his/her personal entertainment. Under no circumstances shall a User be permitted to use his "real money account" with PokerStars for any purpose other than for playing the Games and in the event that PokerStars determines that the foregoing provision has been breached by a User PokerStars reserves the right to immediately block access to the Games to such User, to terminate such User's account with PokerStars and to seize all monies held in the relevant PokerStars "real money account". The User agrees that his/her use of the Games is in a personal (and not professional) capacity. Before the User participates at PokerStars, he/she is responsible to verify the laws on gambling which govern the User use of the Software in order to determine restrictions and act in accordance thereto."

[ceskylev]

If a site is going to ban you for being a professional, it will have nothing to do with the tax return that they will never ever see.