My new CPA says I should file as a corporation???

[SgtJake]

So I'm going pro in 2008 and will have no income from any source other than pokah. The CPA I met with today said I should file as a corporation. Something along the lines of "sub chapter S while you incorporate - earnings from S corps are not subject to self employment tax".

This does not jive with anything I've previously read on 2+2.

I suck ass at the search feature. Can someone please describe the basics of filing as a professional (or linky).

[Bishop22]

You can't incorporate as a professional gambler, your accountant is an idiot, or at the very least, making reckless assumptions about a topic he hasn't come across yet.

[DING-DONG YO]

considering his advice is appropriate for just about any other money making venture, I wouldn't quite say he's reckless or an idiot, just ill-informed about this specific topic.

[SgtJake]

Ok so if all my income comes from online poker, then I .....

- File as a professional gambler/poker player
- Keep accurate records of wins/losses
- Net wins/losses to come up with net income
- Deduct portion of utilities, mortgage, internet, computer, office furniture, garbage, lawn? snow plowing? etc

What am I missing? Is there anything else I can do to reduce my tax burden?

[Artsemis]

Vote for Ron Paul

[poorolrich]

Claiming your house will set off a red flag, especially for first time filers using their home as a work place. When I used my home as a write off(partial) I had a small room that I only used as an office. They did audit and I passed as soon as he saw my office. When you combine work and pleasure in the same room that is what usually trips people up. Remember, you are quilty and will have to prove your innocence. Good luck

[ikestoys]

[ QUOTE ]
You can't incorporate as a professional gambler

[/ QUOTE ]

Ummmm... yes you can

[permafrost]

[ QUOTE ]
Is there anything else I can do to reduce my tax burden?


[/ QUOTE ]

Retirement funds, charity, home mortgage, other tax, spouse, kids....

There is a tax matters link in the IG forum faq.

[SgtJake]

[ QUOTE ]
[ QUOTE ]
You can't incorporate as a professional gambler

[/ QUOTE ]

Ummmm... yes you can

[/ QUOTE ]

Please elaborate Ike.

[Legislurker]

You can do it, what happens if they decide to audit you is a different matter. Im not aware of a court case where an online pro who used a corporation in an OFC without income taxes has been audited. Im not sure it would fly in a particular state. Esepcially if you have one where gambling as a business is defined as a crime.

[Steve Giufre]

[ QUOTE ]
You can do it, what happens if they decide to audit you is a different matter. Im not aware of a court case where an online pro who used a corporation in an OFC without income taxes has been audited. Im not sure it would fly in a particular state. Esepcially if you have one where gambling as a business is defined as a crime.

[/ QUOTE ]

I'm not sure either, but its defintely something that more than a few CPA's are recomending these days. I've talked with two pretty good ones in CA, and both have suggested that I do this, and have said it has worked out well for other clients. I can believe it could get a little tricky if you were audited, although I've been told otherwise.

Looking past this and s-corp seems to be the best way to go. You accountant is right, you dont have to pay self employment tax, and you can write off all your gambling related expenses. One more thing to consider is whether or not you may need to borrow some money at some point down the road for a house or whatever else. If thats the case you are probably better off filing under some vague occupation and paying on your winnings rather than putting professional gambler on that line. Banks arnt crazy about lending money to gamblers.

[1p0kerboy]

I've been told by a CPA that poker players, like athletes, cannot incorporate themselves.

[Todd Terry]

Incorporating and filing as a sub S seems highly unorthodox to me (an attorney with basic knowledge of the tax law, but not an expert in it). I would want a signed opinion letter from an attorney, not an accountant, if I were to do it, which based on my current state of knowledge I would not. I'm not saying it's clearly wrong, it's just very unusual, and undoubtedly would not be looked upon kindly by the IRS if anyone noticed.

Over the years, I've heard many stories about CPAs giving wrong, completely illegal advice to clients. The clients and CPAs almost always get away with it because the chances of being audited are so low. But sub S's whose sole purpose is to minimize SE taxes and professional gamblers both seem to be areas of current interest to the IRS.

[Russ Fox]

S Corporation owners who work for the company must (with very limited exceptions) pay themselves a "reasonable" salary. And that means a W-2, with employment taxes withheld. This is a point of emphasis for the IRS in their current enforcement efforts.

As to incorporating (as a professional poker player), can it be done? Yes. Is it the right thing to do? It's possible that it's right, but it's probable that it's not. Everyone's situation is different, and this is something that each individual would need to discuss with his or her professional tax adviser and probably his or her attorney.

-- Russ Fox

[CaptVimes]

Did your cpa mention that if you file as a sub-s corp. and you make a profit you will have to pay yourself a reasonable salary and thus have to pay, you guessed it, payroll taxes. Now you don't have to pay all your profits as a salary, some of it you can take as a tax free distribution. This is where the tax savings lie.

[ QUOTE ]
I've been told by a CPA that poker players, like athletes, cannot incorporate themselves.

[/ QUOTE ]

Raymer did this the year he won the WSOP. Not sure about atheletes either. I can see it for team sports because they technically work for the team, but not like skiing, or skateboarders who bascially work for themselves. Maybe I'll research this at work.

[CaptVimes]

[ QUOTE ]
S Corporation owners who work for the company must (with very limited exceptions) pay themselves a "reasonable" salary. And that means a W-2, with employment taxes withheld. This is a point of emphasis for the IRS in their current enforcement efforts.


[/ QUOTE ]

QFT

In the tax update seminar I was at last weak we spent over an hour talking about the recent slew of reasonable compensation cases being pursued by the IRS over the last year.

[RikaKazak]

I know more than one poker player that has formed an S-Corp.

[RikaKazak]

[ QUOTE ]
Banks arnt crazy about lending money to gamblers.

[/ QUOTE ]

that's not true

Many "big banks" like NationPoint don't care at all. Some "small banks" care..but guys like Wells Fargo don't.

[chesterboy]

FWIW I know about 4 professional snowboarders that make a lot of money and all file under a subchapter S.

[Steve Giufre]

[ QUOTE ]
[ QUOTE ]
Banks arnt crazy about lending money to gamblers.

[/ QUOTE ]

that's not true

Many "big banks" like NationPoint don't care at all. Some "small banks" care..but guys like Wells Fargo don't.

[/ QUOTE ]

I didnt just pull that straight out of my butt, I've dealt with both Citibank and Bank of America, and both had huge issues with my profession. In fact my loan officer at Citibank actually ended up selling me to higher ups as a computer programer and I was finaly able to get a home loan only because I had a decent amount of assests, and that was with a big downpayment. If you have really strong credit and good income then of course its a lot eaiser to ignore, (my credit sucks) but to say that all big banks dont care, especially with all the tightening in lending lately is going on is just so completely false.

If you search this topic and posts by Ray Zee he talks about it quite a bit.

Edited because I read you said "many" big banks, not all. It's entirely possible that what you are saying is true, and some of them dont mind. Just pointing out that it was an issue for me with a couple bigger banks.

[DeadMoneyDad]

[ QUOTE ]
[ QUOTE ]
Banks arnt crazy about lending money to gamblers.

[/ QUOTE ]

that's not true

Many "big banks" like NationPoint don't care at all. Some "small banks" care..but guys like Wells Fargo don't.

[/ QUOTE ]

Sub Chapter S corporations are generally designed for family or tightly controled, limited ownership corporations, twenty-five or less shareholders (if this hasn't changed in number only)

So trying to utilize incorporation as a method of avoiding taxes has generally failed I can see the possibility of this being sucessful under the following conditions.

First you are "financed" by a small group of family or other such individuals. While it might be possible to find a bank willing to finance such an enterprise, I find it hard to believe it is a normal or anything other than a remotely logical possibility.

There is nothing stopping anyone from this group from getting bank financing secured by other means of credit or security and thus investing into this enterprise. IMO this is the most likely way to be sucessful in raising reasonable financing.

You can then repay much of your finaincing throught the issuance of various classes of shares if desired to better protect the finaincing individuals as well as distributions to imediate family members like wives and children. Beware the sale and marketability of S-corp shares is highly illiquid.

Fully following the various rules of incorporation and having real "others" with monetary risk might be the reason some have utilized this method of incorporation while others have failed due to the tax avoidance claims.


D$D<-- not a lawyer nor accountant, always consult a proffessional their advice is at least deductable.

[SgtJake]

[ QUOTE ]
Did your cpa mention that if you file as a sub-s corp. and you make a profit you will have to pay yourself a reasonable salary and thus have to pay, you guessed it, payroll taxes. Now you don't have to pay all your profits as a salary, some of it you can take as a tax free distribution. This is where the tax savings lie.

[/ QUOTE ]

Yes, I'm pretty sure he mentioned this.

[SgtJake]

Russ,

Honored that you've posted in my thread. "Mastering no limit" was the first poker book I read and the one that helped me the most. Several of my friends have purchased the book on my recommendation.

Back on topic....what is the recommended way to file if your only source of income is from poker? (link?)

[Russ Fox]

Thank you for the kind remarks about Mastering No-Limit Hold'em.

[ QUOTE ]
Back on topic....what is the recommended way to file if your only source of income is from poker? (link?)

[/ QUOTE ]

Unfortunately, your question isn't easy to answer. Tax is not a one-size-fits-all profession. It sounds like you're a professional ("all income from poker"), which indicates a Schedule C. But that's not always the case.

The Groetzinger decision (http://supreme.justia.com/us/480/23/case.html) governs whether or not you should file as a professional. However, other issues such as your state of residence, whether you gamble online or in casinos, whether you're a full-time student, other businesses, other sources of income, etc. can and do impact how you should file. A professional tax preparer should ask the questions needed to determine what's right for your situation.

It's impossible for me to post an answer to your question. I don't know you, and the full facts of your situation. And without that, I'd just be guessing.

-- Russ Fox

[Legislurker]

The whole point of filing in an OFC is that the corporation pays YOU and buys your house and car. The IRS can't force you to divulge the nature of the corporation or even who owns it.
Especially if the money never comes into the US. Im not saying its "legal" its just a lot of effort on their part to prove illegality that they may totally avoid. Getting the information would take a LOT of time and expense, so as long as you cna account for how you got all yoru assets, or show that the corporation owns it, youre pretty safe, but i wouldnt say ironclad.

[DeadMoneyDad]

[ QUOTE ]
other sources of income, etc. can and do impact how you should file. A professional tax preparer should ask the questions needed to determine what's right for your situation.

[/ QUOTE ]

I understand your general reluctance to give tax advice both for free and with out a full understanding of all the facts at issue. You are a professional.

But on one point of "other income" does much depends on the active vs passive nature of the "other income"? In all other regards I feel farily comfortable, but the nature of this source of income compared with the amount of reportable "active on-line (majority) and active live (minority) poker income" vs passive income is the heart of my question.

I couldn't get a straight answer from repeated tries from the IRS.



D$D

[Russ Fox]

[ QUOTE ]
The IRS can't force you to divulge the nature of the corporation or even who owns it

[/ QUOTE ]

S Corporation tax returns contain Schedule K-1s that disclose the full ownership of the corporation.

C Corporation tax returns include details of all 50% (or more) owners and all foreign owners. They also list all directors (including their social security numbers).

-- Russ Fox

[Russ Fox]

[ QUOTE ]
But on one point of "other income" does much depends on the active vs passive nature of the "other income"? In all other regards I feel farily comfortable, but the nature of this source of income compared with the amount of reportable "active on-line (majority) and active live (minority) poker income" vs passive income is the heart of my question.

[/ QUOTE ]

I'm not sure what you're trying to ask.

If you're talking about "passive income," that's typically things like real estate rentals, and is normally shown on Schedule E.

Gambling income shown as other income (line 21) isn't passive income.

[ChipLeeder]

You can then repay much of your finaincing throught the issuance of various classes of shares if desired to better protect the finaincing individuals as well as distributions to imediate family members like wives and children. Beware the sale and marketability of S-corp shares is highly illiquid.

If you have multiple stock classes in your S Corp, you don't have an S Corp anymore:

S corporations may have only one class of stock but different voting rights are allowed.

Also, they are allowed 100 shareholders now.

[DeadMoneyDad]

[ QUOTE ]
[ QUOTE ]
But on one point of "other income" does much depends on the active vs passive nature of the "other income"? In all other regards I feel farily comfortable, but the nature of this source of income compared with the amount of reportable "active on-line (majority) and active live (minority) poker income" vs passive income is the heart of my question.

[/ QUOTE ]

I'm not sure what you're trying to ask.

If you're talking about "passive income," that's typically things like real estate rentals, and is normally shown on Schedule E.

Gambling income shown as other income (line 21) isn't passive income.

[/ QUOTE ]

Say for '07 all of my non-poker income was passive, would the fact that all my active income change how the IRS determined my need to file as a pro? Yes I am a winning player. Personally I do not think the amount of winnings makes it reasonable, but I could not get the IRS to give me any idea even in the most broad terms of dollar amounts what is the threshold, if there is any.

I would call my poker playing a hobby, as I've spent almost all of '07 having to settle my mothers Estate, but as the Executor, I have much bigger problems with the IRS and bigger exposure. I'm willing to pay the SE taxes, but the poker income is almost insiginifant IMO.

So I am the reverse of the usual case I don't want to file as a pro, given that I play almost exclusively on-line there are no major deductions for me to try and write off. I do use my office for other things, so even a home office deduction helps me little.

I just don't want to have to pay a higher tax because some jerk at the IRS thinks they can get a little more out of me. I have no problem with the tax, it is the penalties and intrest that drive me nuts.



D$D

[Russ Fox]

[ QUOTE ]
Say for '07 all of my non-poker income was passive, would the fact that all my active income change how the IRS determined my need to file as a pro? Yes I am a winning player. Personally I do not think the amount of winnings makes it reasonable, but I could not get the IRS to give me any idea even in the most broad terms of dollar amounts what is the threshold, if there is any.

[/ QUOTE ]

The rule is that if you are gambling "full time" and "for your livelihood," you are a professional. Without knowing the full facts of your situation--reviewing your numbers--I can't tell you whether or not you should file as a professional.

-- Russ Fox

[chesterboy]

Hey Russ if I have sizeable income from poker (60k+) but I am a full time student, do I still have to do the self employed thing?

[DeadMoneyDad]

[ QUOTE ]
[ QUOTE ]
Say for '07 all of my non-poker income was passive, would the fact that all my active income change how the IRS determined my need to file as a pro? Yes I am a winning player. Personally I do not think the amount of winnings makes it reasonable, but I could not get the IRS to give me any idea even in the most broad terms of dollar amounts what is the threshold, if there is any.

[/ QUOTE ]

The rule is that if you are gambling "full time" and "for your livelihood," you are a professional. Without knowing the full facts of your situation--reviewing your numbers--I can't tell you whether or not you should file as a professional.

-- Russ Fox

[/ QUOTE ]

Well for '07 so far it is my only "active" income, even paying the SE bite is pretty minimal.

What is or can you direct me to any info on deductibility of educational and industry related materials, along the lines of say Union, or for example as a broker I used to be able to deduct "continuing educational" expenses, as well as most all publications involving my "profession"?

I guess for fun I could file a quarterly estimated payment now and not have to await 4/15, well the extension date (I'm one of those) to see where I stand on this issue. That might allow me to get a "ruling" now and not complicate other issues.

Or not?


D$D

[JuntMonkey]

[ QUOTE ]
Vote for Ron Paul

[/ QUOTE ]

[kahntrutahn]

I file under an s-corp and I pay myself 6 figures as CEO + a fat yearly bonus. My CPA tells me its pretty important to pay more than 6 figures so that I pay full medicare taxes and some other stuff... this makes the IRS happy b/c most people try to circumvent these taxes by paying a paltry salary... which is cheating and a red flag.

Pay yourself a proper salary is the point..........

[DEAD ON IMPACT]

kahntrutahn..do you pay your taxes quartely or just once a year?

[Russ Fox]

[ QUOTE ]
if I have sizeable income from poker (60k+) but I am a full time student, do I still have to do the self employed thing?

[/ QUOTE ]

Without knowing the full details of your situation all I can do is speculate. I will say that a full-time student can be an amateur player (gross wins as other income, gross losses as an itemized deduction on Schedule A). Whether that's the best way to handle your situation, though, is something you and your professional tax adviser will have to determine.

-- Russ Fox

[Russ Fox]

[ QUOTE ]
What is or can you direct me to any info on deductibility of educational and industry related materials, along the lines of say Union, or for example as a broker I used to be able to deduct "continuing educational" expenses, as well as most all publications involving my "profession"?


[/ QUOTE ]

The IRS website has a wealth of information. The deductions you ask about are miscellaneous itemized deductions. The IRS has a page devoted to these deductions, (http://www.irs.gov/taxtopics/tc508.html) with links to other related topics.

As to whether or not you should (or need to) make an estimated payment, you should discuss this with your own professional tax adviser. He or she can run the numbers and see what's right for your situation.

-- Russ Fox

[depokerstar]

I file as an S corp, but it is not poker/gambling related nor do I do it to try and dodge taxes, hide income, etc. I own a legit business.

I just received the following letter from my CPA this morning...

"Dear S Corporation Shareholder:

Due to the completion of the special IRS audit program on 5,000 S Corporation returns, it is anticipated that S corporations will be coming under more intense scrutinty by the IRS. Approximately 95% of the returns audited were found to have compliance problems. The Service is now armed with a lost of potential problem areas, and they will be on the lookout for returns that don't appear to comply. So what issues we believe they will be looking at?

Inadequate Compensation - not taking a salary or taking an unreasonably low salary.
Health Insurance - paid by the company
Loans - to and from your business
Employee Bonuses
Unreimbursed shareholder business expenses"

3 additional pages discussing the points above

[DeadMoneyDad]

[ QUOTE ]

The IRS website has a wealth of information. The deductions you ask about are miscellaneous itemized deductions. The IRS has a page devoted to these deductions, (http://www.irs.gov/taxtopics/tc508.html) with links to other related topics.

As to whether or not you should (or need to) make an estimated payment, you should discuss this with your own professional tax adviser. He or she can run the numbers and see what's right for your situation.

-- Russ Fox

[/ QUOTE ]

Russ,

Thank you. You are very modest in that you never post your own URL. (http://www.taxabletalk.com/) The wealth of information therein and listed in the many links are a fantasic resource.

Reading tax information is not everyones cup of tea, but the link to the The Bozo Criminal of the Day alone is worth possibly breaking any rule against me posting a dot com url.

The link to Recording for the Blind and Dyslexic was especially important to me personally, but not for the most likely imagined reasons. /images/graemlins/grin.gif

So for what it is worth even the potential harm of my personal endoresment I think a note of thanks for your "volunteer" work here deserves a free commercial plug.


D$D<-- possibly granting an early Christmas wish to many by self causing a forced "vacation" for possible forum rules violations.

[kahntrutahn]

[ QUOTE ]
kahntrutahn..do you pay your taxes quartely or just once a year?

[/ QUOTE ]

Yearly, and I pay penalties. But I want to be liquid, so its alright. This is done at the advice of my CPA as well. The money has other, better uses.