What are the problems with an LLC as a professional?

[brazilio]

Since taxes for most of us are done for last year, I got to thinking about becoming an LLC again when I file my poker taxes for the next year. I currently am a part-owner in a construction LLC that does mostly federal contracting. The actual LLC creation was relatively simple, although I was present and paying attention to only parts of it. Deduction-wise vs filing as a pro there have to be significant advantages.

A few months ago a guy in here asked a similar question, and if I remember correctly a CPA-type said it was improbable that the IRS would allow it, or it would be an audit-magnet for the business deductions you'd naturally try to take.
I don't remember the exact details of the reasoning why it would be a good or bad idea.

Anybody?

[AAAA]

check the legislation forum...they may have some ideas too.

[kahntrutahn]

My CPA had me start an LLC... State of LA. I go blindly by his suggestions as he and his firms signatures are on my returns and his ass is on the line too. *shrug*

[DeathDonkey]

I spoke with a tax attorney about this exact topic and he thought it was not possible to create a US based company (ie: me) to play poker on the internet on overseas servers since it is quasi-legal at best. He said it would have a better chance if I was a completely live player but even then there were issues.

-DeathDonkey

[highland]

[ QUOTE ]
Since taxes for most of us are done for last year, I got to thinking about becoming an LLC again when I file my poker taxes for the next year. I currently am a part-owner in a construction LLC that does mostly federal contracting. The actual LLC creation was relatively simple, although I was present and paying attention to only parts of it. Deduction-wise vs filing as a pro there have to be significant advantages.


[/ QUOTE ]

I just incorporated myself. I decided on an S-corp instead of an LLC, but I believe they are exactly the same when there's a single owner.

It's my understanding that the deductions are the same as filing as a self-employed pro. The only three differences I can find are that you are considered differently for audit purposes, you can take a portion of your income as dividends instead of ordinary income, and you can put slightly more into a SEP IRA (per dollar of ordinary income).

Apparently the IRS currently cracks down pretty hard on people trying to give themselves a salary of 0 and avoiding _all_ of the self-employment taxes. So, now we enter a gray area of the IRS tax codes:

single owner s-corp salary discussion

I plan to give myself a salary of around 40k, and take whatever else I earn as dividends (hopefully it's a positive number). I am at peace with 40k being a fair salary for the 25 hours a week or so that I actually play poker.

I posted asking about this in the legislation forum a couple months ago. People argued about whether a salary less than your total winnings was "reasonable" or not, but there is no hard evidence. No one admitted to having filed as a business.

cheers,
-jj

[ QUOTE ]

A few months ago a guy in here asked a similar question, and if I remember correctly a CPA-type said it was improbable that the IRS would allow it, or it would be an audit-magnet for the business deductions you'd naturally try to take.
I don't remember the exact details of the reasoning why it would be a good or bad idea.

Anybody?

[/ QUOTE ]

[VayaConDios]

[ QUOTE ]
My CPA had me start an LLC... State of LA. I go blindly by his suggestions as he and his firms signatures are on my returns and his ass is on the line too. *shrug*

[/ QUOTE ]

Your CPA doesn't know what he's doing. A single-member LLC is a non-entity for federal tax purposes. In other words, you'll be taxed exactly as if you were a sole proprietorship.

[VayaConDios]

[ QUOTE ]
I spoke with a tax attorney about this exact topic and he thought it was not possible to create a US based company (ie: me) to play poker on the internet on overseas servers since it is quasi-legal at best. He said it would have a better chance if I was a completely live player but even then there were issues.

-DeathDonkey

[/ QUOTE ]

This is the same reservation that I have had about incorporating and making a subchapter S election.

[TRBNGR]

[ QUOTE ]
A single-member LLC is a non-entity for federal tax purposes. In other words, you'll be taxed exactly as if you were a sole proprietorship.

[/ QUOTE ]

I do not believe this to be correct. It is definetly a taxable entity. It sounds like your describing what happens if they 'pierce the veil' of the LLC. The most common reasons for that to occur would be undercapitalization and not following proper procedures (not having meeting, not filing reports, etc). A single member can be treated like a LP for tax purposes. I'd really like to hear others take on this though.

[Nigel]

I'm faily sure that I have read (more than once) that every pro-gambler that has tried to incorporate themselves has lost in tax court.

[VayaConDios]

[ QUOTE ]
[ QUOTE ]
A single-member LLC is a non-entity for federal tax purposes. In other words, you'll be taxed exactly as if you were a sole proprietorship.

[/ QUOTE ]

I do not believe this to be correct. It is definetly a taxable entity. It sounds like your describing what happens if they 'pierce the veil' of the LLC. The most common reasons for that to occur would be undercapitalization and not following proper procedures (not having meeting, not filing reports, etc). A single member can be treated like a LP for tax purposes. I'd really like to hear others take on this though.

[/ QUOTE ]

This is very true; pursuant to Treasury Regulation § 301.7701-1,-2,-3, single-member LLCs are, by default, disregarded entities. However, such an entity may, by filing Form 8832, elect to be taxed at the federal level as a corporation.

What I don't know is whether this single-member LLC can then make a an S-election. My best guess is no, it can't, but I'll look into it.

And thanks for the tutorial on piercing the veil. I don't know why I bothered with law school with all the info that is given away here for free.