Poker, the IRS, Law, and Self Emp Tax

[Russ Fox]

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I was under the impression that legal precedent (as well as some old threads here) has shown that NO PERSON is REQUIRED to file as a professional even if the IRS asks them to in order to receive more money for the self-employment tax.

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A couple of years ago the IRS began cracking down on individuals who reported most of their income as "other income" without filing a Schedule C. The IRS believed (rightly) that many individuals were trying to get out of paying the self-employment tax.

The rule for being a professional gambler comes from the Groetzinger decision : "...if one's gambling activity is pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby..." you're a professional.

The IRS has been successful in making gamblers who have no other source of income and who are not full-time students file as professionals. Since the Groetzinger decision specifies that you be "full-time" in order to be a professional gambler there's a clear conflict.

So you can be forced to file as a professional if your primary source of income is gambling and you're not a full-time student.

None of what I'm writing here is meant as tax advice; see your own tax professional.

-- Russ Fox

[chesterboy]

I've called the IRS and asked them a couple times, and none of them really know. But they did say that if it was ruled that i filed incorrectly i would potentially owe SE tax for the previous 3 years, with interest and possible penalties.

Since I am definitely a pro and had a big jump in poker income 2 years ago I decided to just start paying it. I still think it was the right decision but I really hate that tax. It kills me every quarter.

Up until then I only made like 35-45k a year from poker and like 20k working. I filed it as other income and never had a problem for about 3 years i think.

I started making 75k poker and 10k working and that seemed pretty obvious and my accountant agreed.

[mo42nyy]

The real [censored] up thing is if they make you retroactivly file as a pro (a few years after the fact) you cant then go back and make sep ira/solo 401k contributions for those years.

I made a post earlier about not being sure whether or no I should file as a pro this last. Last year i did ( iplayed poker for about 310 days of the year) but this year Im not sure if I want to as I have almost no deductions, barely played after neteller went to [censored], yet made about 4-5 times
more than what I made in all of last year.
if I max out a solo 401k Ill pay almost the same exact ammount of taxes either way, but
1) Im not sure if I wanna sock all of that money away for 30 years
2)I may want to file as a pro again in the future as I will be playing live a lot more and consequently have more deductions.and Im not sure how not filing as a pro this year would affect that

What would affect that greatly is the following set of questions:
Are you even allowed to deduct a mortgage on a co-op?
If I buy a coop studio aprtment on which I take out a mortgage (payment would be about 400 a month) can I deduct
the mortgage and monthly maintaiance fees (about 300 dollars a month) on schedule c (proportionatly for a home office of course-say 40%) instead of my schedule A?
The reason I would want to do this is that the standard deduction is 5300 (and climbing while the mortgage payments stay the same) so taking it as a normal deduction would be worthless. However deducting it the payments on the sced C would save me a great deal in taxes. Do you have to take your mortgage deduction on the Sced A?

As for deprecation- would I be allowed to dedcuct depreciation on the co-op (i think over 27.5 years-proprtionally to the size of the home office) on the sced c as well?