Tax Question re staking

[BartHanson]

I am going into the 2007 WSOP with a backer. He takes 50% of my net winnings and we split the tax burden. Lets's say I profit $100,000 in the events. I owe him $50,000. What is the best way to work out the taxes? I understand that a 2nd party can sign (assume liability) for a certain percentage of the gambling tax form given, I believe the W2G. What if the person is not physically present when monies are collected? I was thinking that I could just deduct the tax portion from his 50K, say 30%, but wouldn't that still mean that I am taking liability for 100K earned when in fact only 50K was earned? There must be some negative implications to this.

Let's say hypothetically my backer ends up 50K negative (outside the WSOP) in gambling for 2007. He shouldn't have any tax liability for his portion of my winnings, correct? He would be net 0 for the year. If someone could tell me the best way to go about dealing with splitting taxes in this particular arrangement I would greatly appreciate it.

[Rabid_Hippo]

Give him a Form K-1.

[Russ Fox]

The correct procedure is for you to give to the cashier a Form 5754 (http://www.irs.gov/pub/irs-pdf/f5754.pdf) to the cashier when you cash. The casino then splits the prize per the Form 5754 and issues W-2Gs (if required) per the Form 5754.

Harrah's, though, in its unending wisdom (all sarcasm intended), has decided that they will not honor Form 5754 at this year's WSOP (more on this here (http://www.taxabletalk.com/posts/1179425074.shtml) ). So your accountant will have to, at year-end, generate tax forms (W-2Gs or 1099-MISCs) to show the winnings if you are a professional. The required procedure is a bit more complex for the amateur (I detailed the methods for the amateur in the post I linked to).

-- Russ Fox

[BartHanson]

Thanks Russ,

Your help as always much appreciated.

[adanthar]

[ QUOTE ]


Harrah's, though, in its unending wisdom (all sarcasm intended), has decided that they will not honor Form 5754 at this year's WSOP (more on this here ). So your accountant will have to, at year-end, generate tax forms (W-2Gs or 1099-MISCs) to show the winnings if you are a professional. The required procedure is a bit more complex for the amateur (I detailed the methods for the amateur in the post I linked to).

[/ QUOTE ]

What happens when some of the backers are foreigners? Should they still get W-2G's in the mail?

[THAY3R]

As a professional, couldn't I just keep good notes and paper records and at the end of the series write my backer a check?

Why wouldn't this work?

For example, say at the end of the series I've won 180k, and have 100k in entries. I owe my backer 50% of my winnings(lol @ that deal you monkbox), so I write him a check for 40k. If I have a signed contract with my backer, and there is evidence of me giving him 40k, why do I have to go through all the hassle that you are talking about Russ? Couldn't I just report it as 180k in winnings minus 100k in buyins/losses minus 40k to my backer?

[THAY3R]

[ QUOTE ]
As a professional, couldn't I just keep good notes and paper records and at the end of the series write my backer a check?

Why wouldn't this work?

For example, say at the end of the series I've won 180k, and have 100k in entries. I owe my backer 50% of my winnings(lol @ that deal you monkbox), so I write him a check for 40k. If I have a signed contract with my backer, and there is evidence of me giving him 40k, why do I have to go through all the hassle that you are talking about Russ? Couldn't I just report it as 180k in winnings minus 100k in buyins/losses minus 40k to my backer?

[/ QUOTE ]

Bump.

Anyone?

[R*R]

[ QUOTE ]
[ QUOTE ]
As a professional, couldn't I just keep good notes and paper records and at the end of the series write my backer a check?

Why wouldn't this work?

for example, say at the end of the series I've won 180k, and have 100k in entries. I owe my backer 50% of my winnings(lol @ that deal you monkbox), so I write him a check for 40k. If I have a signed contract with my backer, and there is evidence of me giving him 40k, why do I have to go through all the hassle that you are talking about Russ? Couldn't I just report it as 180k in winnings minus 100k in buyins/losses minus 40k to my backer?

[/ QUOTE ]

Bump.

Anyone?

[/ QUOTE ]

If you have a contract then just pay the backer as stipulated in the contract. I would consider having him invoice you also. Just make one up and fill in the blanks when your done. I would say this backer is running a business so the onus is on him is to report the income and you don't need anything more than the contract or invoice for evidence of a deductible expense.

As for the tax claim all of it on your return as it is attributed to your income. The contract will should stipulate an allocation ( by way of payment by you to backer) of taxes. A bit of a tricky calculation but it can be done. Ultimately you want to get backer to the after tax dollar he deserves.Documentation of your intention is the key.

[Russ Fox]

[ QUOTE ]
I owe my backer 50% of my winnings(lol @ that deal you monkbox), so I write him a check for 40k. If I have a signed contract with my backer, and there is evidence of me giving him 40k, why do I have to go through all the hassle that you are talking about Russ? Couldn't I just report it as 180k in winnings minus 100k in buyins/losses minus 40k to my backer?

[/ QUOTE ]

Sure you can. But you didn't have $100k in losses. You sent $100k to your backers. That's very different, and the IRS will want a paper trail.

The IRS, when they match the W-2G you are issued to their records, will assume you have earned the entire amount, and that you are liable for all of the taxes. The only way for the paper trail to others to exist (assuming that Harrah's continues with this policy) is for you to issue tax paperwork. This, in the view of the IRS, shows that the money went elsewhere.

Remember, you're dealing with a bureaucracy. Your backer must pay taxes on his share of the winnings. Could you get away without issuing the W-2G (or 1099-MISC)? Perhaps, but I think you will save both time and money by sending out the paperwork. It will only take a competent accountant a few minutes of time to issue the paperwork. It might take several hours of time to prove to the satisfaction of the IRS and your state tax agency (if applicable) that the money went to others.

Finally, increasing losses is not the same as decreasing your win. It is much better (from a tax perspective) to reduce the win appropriately than it is to increase your losses.

-- Russ Fox