I just receieved a notice from the IRS about self-employment tax

Hans Gruber · #1 03-11-2007, 10:35 PM

I already filed my taxes for 2006 last month, and I just got a letter in the mail today stating that "you reported income that appears to be subject to self-employment tax."

Through my research (mostly on 2+2) it appears that this is not true. I work full-time for a software company, and I made about 60K from my job in 2006. I played low stakes online poker last year, logging every session into pokertracker, making another $5,500.

I filed my 1040 form and included all winning sessions as other income (line 21), and I deducted my losing sessions on Schedule A.

Has anyone ever heard of the IRS requiring self-employment tax in this case? I play poker strictly as a hobby, and from everything that I found, self-employment tax only applies to those who play poker professionally, and not as a hobby like I do.

I will be calling the IRS tomorrow but I wanted to post here first to see if anyone can shed any light on my situation.

FyteOn · #2 03-11-2007, 11:03 PM

Let me know what you find out - I received the same form on Friday.

lala · #3 03-11-2007, 11:21 PM

this has been happening many times. Two threads where the posters were successfully able to resolve the case:

http://forumserver.twoplustwo.com/showfl...rue#Post7610605
http://forumserver.twoplustwo.com/showfl...rue#Post5434190

genesisgkh1 · #4 03-12-2007, 04:56 AM

I know people have tried unsuccessfully to claim their hobbies as home businesses just for the tax write offs. By asking for SE tax, does this mean the IRS is saying your gambling is a legitimate home business? If so, you can now write off any expenses related to your gambling (trips, books). Could you also claim a home office for your business and write off a percentage of your house and bills? What about your computer and internet access bills? I think I would visit a tax guy before you call the IRS. This may save you tax $.

Hans Gruber · #5 03-12-2007, 08:26 AM

I've decided to write a letter to the IRS outlining my situation as opposed to giving them a call. I just want to do the right thing here, but obviously I'm not self-employed if I work full-time for a software company, and I play poker strictly as a hobby.

If anyone else has any other input on this, I'd love to hear it.

poorolrich · #6 03-12-2007, 11:12 AM

Ok, let me get this straight. You followed(mostly) the advice you received here at 2+2 and you are now being audited/questioned by the I R S. So, you come back to 2+2 for more ADVICE???????????????????? Yes, when those cell doors close they DO clank like you hear in the movies.

Hans Gruber · #7 03-12-2007, 11:33 AM

[ QUOTE ]
Ok, let me get this straight. You followed(mostly) the advice you received here at 2+2 and you are now being audited/questioned by the I R S. So, you come back to 2+2 for more ADVICE???????????????????? Yes, when those cell doors close they DO clank like you hear in the movies.

[/ QUOTE ]

LOL, nice try. I filed my taxes using advice from a CPA friend, as well as information I gathered here and on other tax-related sites, including irs.gov. I'm not concerned with how I originally filed my taxes, since I'm confident I did everything correctly with that. When I mentioned 2+2 in my original post, I was referring to researching Self-Employment tax.

CaptVimes · #8 03-12-2007, 12:00 PM

Did you have any other income besides the gambling? Did you have a full time job? Are you a college student? If so then gambling would have to be considered a hobby. If gambling was your only significant source of income the IRS may try to say that you in effect were a professional gambler and subject you to self-employment tax. Take your return and letter to a CPA and have them advise you.

depokerstar · #9 03-12-2007, 12:17 PM

[ QUOTE ]
Did you have any other income besides the gambling? Did you have a full time job? Are you a college student? If so then gambling would have to be considered a hobby. If gambling was your only significant source of income the IRS may try to say that you in effect were a professional gambler and subject you to self-employment tax. Take your return and letter to a CPA and have them advise you.

[/ QUOTE ]

Re-read the original post. Looks like most of your questions are answered.

I would not worry OP, just respond to the letter in a timely fashion and go from there.

Hans Gruber · #10 03-12-2007, 12:17 PM

[ QUOTE ]
Did you have any other income besides the gambling? Did you have a full time job? Are you a college student? If so then gambling would have to be considered a hobby. If gambling was your only significant source of income the IRS may try to say that you in effect were a professional gambler and subject you to self-employment tax. Take your return and letter to a CPA and have them advise you.

[/ QUOTE ]

As I stated above, I had a full-time job that I relied on to pay the bills. Poker was just a hobby that I happened to make a small amount of money doing. Less than 10% of my total income came from poker in 2006.