IRS changes my 2005 taxes to 'pro', charges me self-empl tax

[Benholio]

I claimed roughly 25k in 'other income' on my 2005 tax return, and had no other income. I received a notice that I now owe ~$2100 in self-employment taxes on that income.

I knew there was a chance this would happen, since I had no other income on my return. I do have a question, though, for anyone who has dealt with this before.

Inclosed is a form, 886-A, 'Explanation of Items', where it asks me to provide information about my 'other income' so that they may determine whether it is subject to self-employment tax.

The categories for this form are "Trade or business", "Hobby", "Prize", "Odd job/contract labor", "Other", and "reimbursement for expenses that were paid and deducted from your incomine in a previous year".

Do you think there is any chance that using the "Hobby" category will help here?

Any other advice?

[meleader2]

wow u were only charged 8% tax on this? is this standard, i read somewhere u were charged 30% of your profits from poker.

[yeahright]

You may be able to claim this as hobby income.

Do you have any bills or are you a college kid supported by your parents?

If you pay rent and things like that, then I doubt you'll be able to claim it as a hobby.

7.5% is the standard for self employment tax meleader. that's not the entire income tax though, just the "self employment piece". On 25k, you'd have to pay another 10% or so.

[jively]

I've never heard of the IRS doing it this way. Did you list a number on Schedule A under "gambling losses" for your losing sessions?

If you are required to file as a professional, the good news is you can net wins and losses, so you won't get hurt by having losses go on Schedule A. Also, you will be able to deduct other expenses that go with your poker playing - car/gas if you play live, ISP charges online, and so on. And, if you do file self-employment taxes, then you are contributing to the Social Security and Medicare systems, and you might get some money out of it when you're 67.

Anyways, get an accountant and good luck!

-Tom

[Reef]

[ QUOTE ]
then you are contributing to the Social Security and Medicare systems, and you might get some money out of it when you're 67.


[/ QUOTE ]

If he's in his 20's or 30's, it'll be BUSTO! by then

[autobet]

There was a thread around six months ago of someone in a similar situation. He was a full-time student, appealed and won.

If you are not a student, you may have a harder time.


If you are playing on the internet you can claim a home office deduction which includes part of your rent/mortgage, utilities, computers, monitors, and internet connection. This tax savings will more than pay for the cost of an accountant to prepare your returns.

[SuaSponte]

youch! the home office exemption is a big red flag and almost ensures an audit. careful with that one. the requirements are tricky and exacting and they nab people on that sh*t all the time, at least according to my tax prof.

[sports_quant99]

[ QUOTE ]
youch! the home office exemption is a big red flag and almost ensures an audit. careful with that one. the requirements are tricky and exacting and they nab people on that sh*t all the time, at least according to my tax prof.

[/ QUOTE ]

In no way does it "ensure" an audit. It increases the odds, but only to something slightly above 1%. I've claimed the home office deduction for the last 10 years, and never been audited.

[broiler]

Did you just report your net winnings as other income on your 2005 tax return? The low amount of additional tax makes me believe that there is a chance that you filed correctly with your wins and losses.

You can try to say that this was a hobby and see what the IRS says. If you have not filed correctly, this could lead to the IRS asking you to separate the amounts. You might want to just pay the amount due, if your records are not good.

The IRS computers caught your return because you have no other source of income on your return. It is fairly standard in this situation that they will send a notice asking for SE tax because they can only assume that this income is how you live.

You can fight this, but be ready for the IRS to ask questions.

[Benholio]

Thanks for the responses.

It looks like my most likely course of action will be to accept their adjustment and just pay it. I might file the income under 'hobby', but I do live on my own and pay rent/bills/etc, so it isn't likely that this will fly.

For those that pointed out the fact that I can now itemize work-related deductions: I am under the impression that if you choose to itemize, you don't get the standard deduction/exemption. Is this true? If so, I can't come up with nearly enough deductions to offset this, so I will just have to leave it as-is.