LLC's and S Corps

[BON VIVANT]

Tax season is upon us and I was thinking about professional gamblers. I'm sure when you ask someone like David Williams what they do for a living, the response is something along the lines of poker player/professional gambler. That is their job and I'm sure they pay taxes just like people working 9-5.

Would there be any advantage to setting up your wagering into a business structure like an LLC or S Corp? I know real estate agents and 1099 workers that do it. What's the benefit?

[vanzack]

To put it as simply as possible....

If you file as a professional, with an LLC, you will file a Schedule C which will allow you to deduct your losses from your winnings BEFORE it hits your adjusted gross income on your 1040. And, as another benefit, you can write off your business related expenses such as travelling, home office, computer equipment, car mileage etc. The downside is that you have to pay self employment taxes (FICA, SS) which is about 15% of the first 110K of income.

If you do not file as a professional, in theory - you are required to add up all of your "winning sessions" and put that number as income. That number will greatly affect your AGI and will throw you in to the world of losing all kinds of standard deductions and AMT. Then, you can deduct the sum of your "losing sessions" and deduct them after your AGI. So in effect - lets say you win 1 million and you lose 950K, essentially winning 50K - you will pay enormous taxes that will probably eat up the full 50K.

The system is set not favorable to gambling, and the definition of "sessions" is not clearly defined. Professional gamblers who file an LLC and a Schedule C are able to avoid the whole session issue, are able to deduct expenses, but are subject to SS and FICA (self employment taxes) which are currently about 15% of the first 110k.

[BON VIVANT]

To put it as simply as possible....

If you file as a professional, with an LLC, you will file a Schedule C which will allow you to deduct your losses from your winnings BEFORE it hits your adjusted gross income on your 1040. And, as another benefit, you can write off your business related expenses such as travelling, home office, computer equipment, car mileage etc. The downside is that you have to pay self employment taxes (FICA, SS) which is about 15% of the first 110K of income.

If you do not file as a professional, in theory - you are required to add up all of your "winning sessions" and put that number as income. That number will greatly affect your AGI and will throw you in to the world of losing all kinds of standard deductions and AMT. Then, you can deduct the sum of your "losing sessions" and deduct them after your AGI. So in effect - lets say you win 1 million and you lose 950K, essentially winning 50K - you will pay enormous taxes that will probably eat up the full 50K.

The system is set not favorable to gambling, and the definition of "sessions" is not clearly defined. Professional gamblers who file an LLC and a Schedule C are able to avoid the whole session issue, are able to deduct expenses, but are subject to SS and FICA (self employment taxes) which are currently about 15% of the first 110k.

I have an inactive LLC which I did file a Schedule C for last year. Can I file this year under that same LLC? I'm guessing no because gambling does not pertain to the business the previous LLC was set up for, correct?

When setting up a gambling LLC and EIN, do you just write-in "professional gambler" on the application? Does this draw unwanted attention?

[Legions36]

This is a good thread i always wondered this, please add anything in this category u can. What about if u have an LLC and buy and sell cars but also want to add in poker and sports to it so u don't have to deal with a whole separate process? How does that all fit in?

[vanzack]

An LLC filing is a state filing that just determines the separation of your personal assets with your business assets. Your filing of an LLC does not determine your tax status.

Once you have an LLC, you can use your current SS# to file with - you do not need an EIN. But, you can have an EIN if you want - but it really serves no purpose.

Like almost everything the IRS proposes, there are rules and interpretations. Professional gambling falls somewhat under interpretation. As a general rule of thumb, the IRS wants to see 3 out of 5 years of profitability to be a schedule C business. But the IRS considers professional gambling as they do any other business - with the same rules - as if say you were a doctor, graphic designer, or owned a landscape company.

If you had an existing LLC to buy and sell cars - that LLC would file a schedule C for that business, and your gambling business would file a separate schedule C. There is nothing against filing multiple schedule C's under the same taxpayer number.

The key for you is to determine which filing status is better for you - filing as a professional (schedule C) or filing as a hobby (1040 line 21 with deductions on Schedule A). Do you have lots of expenses? Are you willing to pay the self employment taxes? Will the "sessions" rule hurt you to file as a hobby gambler?

I guess I need to disclose - I AM NOT AN ACCOUNTANT, AN ATTORNEY, OR PROFESSIONAL TAX EXPERT. I am a professional gambler that employs all 3 and this is how I understand the tax code as it relates to income from gambling.

[Legions36]

Thanks i never knew anything u just said, I only had an idea of how it goes.

[vanzack]

One thing I forgot to mention.....

As a professional gambler, you can claim losses - as a hobby gambler you cannot.

The arbitrary time frame of a calendar year is not ideal for gamblers. Most businesses dont lose the same amount as they win from year to year - and this is terrible for overall tax liability. This is reduced if you are a professional gambler and file a schedule C, but as a rec gambler - you get killed on this.

Take the example of winning 50k in 2010, but losing 50K in 2011 - essentially breaking even over a 2 year period.

If you file as a hobby gambler, you will pay taxes on the 50k you won in 2010, but get no credit for your losses in 2011. So the end result is that you paid taxes on 50K (say 12K) on a net 0 income.

If you file as a professional - you will pay taxes on the 50K you won in 2010, and get full credit for the losses you 2011. So the end result is that you essentially pay no taxes for the 2 year period.

[Legions36]

Great info. When u file threw the LLC does it have to say gambling or do u just fill in what was made? Say if u just want it to be personal and don't really want people or maybe creditors if u want ************, knowing that u gamble? I would prefer just saying im a business owner and not a gambler if u know what i mean.
Also say u make 10k this year and go threw the LLC for taxes what kind of hit r u looking at?

[vanzack]

Your schedule C has a declaration of the type of business, and a business code associated with it. So you do declare what type of business it is, the same way that doctors, graphic designers, and landscape company owners do the same exact thing. Professional gambler is just another LEGAL profession to the IRS - nothing more - nothing less.

If you make 10K this year and file a schedule C, it flows to your 1040 as income. How much you end up paying in taxes on that 10K is 100% dependent upon your other income, your other deductions - basically all of the information on your 1040 that is different for every person who files. It is impossible to answer this question the way you posed it.

[Legions36]

Your schedule C has a declaration of the type of business, and a business code associated with it. So you do declare what type of business it is, the same way that doctors, graphic designers, and landscape company owners do the same exact thing. Professional gambler is just another LEGAL profession to the IRS - nothing more - nothing less.

If you make 10K this year and file a schedule C, it flows to your 1040 as income. How much you end up paying in taxes on that 10K is 100% dependent upon your other income, your other deductions - basically all of the information on your 1040 that is different for every person who files. It is impossible to answer this question the way you posed it.

Sorry i just wanted to understand how that added 15% fits in this versus the hobby rate.

[Sundevil78]

Does this work the same for someone who uses an offshore book as, say, a poker player or someone who lives in vegas? As the offshore gambling is in a grey area legally, could filing come back to bite you?

[BON VIVANT]

An LLC filing is a state filing that just determines the separation of your personal assets with your business assets. Your filing of an LLC does not determine your tax status.

Once you have an LLC, you can use your current SS# to file with - you do not need an EIN. But, you can have an EIN if you want - but it really serves no purpose.

Like almost everything the IRS proposes, there are rules and interpretations. Professional gambling falls somewhat under interpretation. As a general rule of thumb, the IRS wants to see 3 out of 5 years of profitability to be a schedule C business. But the IRS considers professional gambling as they do any other business - with the same rules - as if say you were a doctor, graphic designer, or owned a landscape company.

If you had an existing LLC to buy and sell cars - that LLC would file a schedule C for that business, and your gambling business would file a separate schedule C. There is nothing against filing multiple schedule C's under the same taxpayer number.

The key for you is to determine which filing status is better for you - filing as a professional (schedule C) or filing as a hobby (1040 line 21 with deductions on Schedule A). Do you have lots of expenses? Are you willing to pay the self employment taxes? Will the "sessions" rule hurt you to file as a hobby gambler?

I guess I need to disclose - I AM NOT AN ACCOUNTANT, AN ATTORNEY, OR PROFESSIONAL TAX EXPERT. I am a professional gambler that employs all 3 and this is how I understand the tax code as it relates to income from gambling.

When I set up my LLC, they required an EIN. I think. It was a couple years ago but it might have been I needed an EIN for my business checking account.

If last year was my first profitable year wagering, can I file a Schedule C this year to avoid paying it all back since wagering was my main form of income this past year?

Does this work the same for someone who uses an offshore book as, say, a poker player or someone who lives in vegas? As the offshore gambling is in a grey area legally, could filing come back to bite you?

I would like to know this as well.

I'm assuming the IRS doesn't care as long as they get their cut. The Schedule C is not very detailed as to where the money came from, like this WIN was from MGM on this date at this time - it's not like that. It's more like how much did you win, how much did you lose and basically if you get audited, where is the supporting documents. This is why I save my p2p receipts.

[vanzack]

Your personal SS# OR an EIN is what you need to set up an LLC and file your taxes. If you dont have an EIN, your personal SS# is simply used to flow through to your 1040.

Im not really sure what you are asking in your second question. If you had profits last year, the IRS expects you to pay taxes and file by April 15 of this year.

The IRS does not care where your income comes from. They make no distinction between offshore gambling and onshore gambling. They make no distinction between poker and sports betting. INCOME IS INCOME TO THE IRS. The IRS expects drug dealers and bank robbers to pay taxes on their income.

As far as backup documentation - there is none when you file that you need to include. But if you get audited, they will be looking for backup. The IRS has suggested a "gambling diary" (google it).

Once again - I am not a tax expert, a tax attorney, or an accountant. I am not giving advice or even the illusion of advice that you shouldnt go out and verify and re-verify.

[Peregrine Stoop]

Does this work the same for someone who uses an offshore book as, say, a poker player or someone who lives in vegas? As the offshore gambling is in a grey area legally, could filing come back to bite you?

No. There is a veil between the IRS and DOJ/enforcement agencies. You should pay your taxes even if you're a real criminal like a blackmailer or thief.

The IRS will not turn over your info to other agencies for criminal prosecution.

[Peregrine Stoop]

Remember, the standards with the IRS are different from other law enforcement. There is no innocent until proven guilty. You have to prove that what you gave the IRS is accurate. The onus is on you, not them.

[BON VIVANT]

Your personal SS# OR an EIN is what you need to set up an LLC and file your taxes. If you dont have an EIN, your personal SS# is simply used to flow through to your 1040.

Im not really sure what you are asking in your second question. If you had profits last year, the IRS expects you to pay taxes and file by April 15 of this year.

The IRS does not care where your income comes from. They make no distinction between offshore gambling and onshore gambling. They make no distinction between poker and sports betting. INCOME IS INCOME TO THE IRS. The IRS expects drug dealers and bank robbers to pay taxes on their income.

As far as backup documentation - there is none when you file that you need to include. But if you get audited, they will be looking for backup. The IRS has suggested a "gambling diary" (google it).

Once again - I am not a tax expert, a tax attorney, or an accountant. I am not giving advice or even the illusion of advice that you shouldnt go out and verify and re-verify.

You said something like the IRS wants to see 3-5 years of profitability before you declare on your taxes as being a professional. I just wanted to know if I could file as a professional using a Schedule C this tax year, which is also my first year of serious profit. The difference of 15% versus 50%, right?

As far as documentation, I really think keeping your p2p receipts is sufficient. Certainly more detailed than most diaries. That's assuming you don't cash out via any other method.

[vanzack]

Sorry - didnt mean to say the IRS wants to see a HISTORY of 3-5 years of profitability. This is what I wrote....

As a general rule of thumb, the IRS wants to see 3 out of 5 years of profitability to be a schedule C business.

That simply says that if after filing a schedule C business for 5 years straight, you declare all losing years - the IRS might not like that. If you have 3 out of 5 years that are profitable, most people say that the IRS will consider that a legitimate business.

What do you mean "the difference of 15% versus 50%"??? I dont know what you are saying.

Im glad that you think keeing your P2P receipts is sufficient. But the IRS will most certainly disagree. A diary is what they suggest - simply what bets were placed when and their results is fine.

Honestly - I highly suggest you do some research on this. Making assumptions with the IRS is a mistake. And it sounds like some of this is not sinking in. I suggest you simply google "taxes for professional gamblers" and start reading.