Taxes! MUST one File as a Professional if they Fit the Bill?

[Joeflex]

Question for all you pros.

Basically the question is- MUST successful full-time gamblers pay self-employment tax?

Well all you "pros" out there know there are two ways to file. As a Professional and use Schedule C OR claim the income above the line and then deduct on Schedule A below the line. Twenty years ago, Groetzinger was fighting to get some respect for the gamblers and be able to deduct expenses just as any business. But interestingly, being recognized as a pro these days just isn't what it once was because being a professional gambler for online players is far different. Back in the day a gambler would have tons of expenses- think of a touring professional who would have flights, meals, hotels. An online player today- what can he deduct? Okay, you get your computer one time, get a home office deduction, your internet bill- all that is worthless when faced with the obvious downside to being a pro- the nasty 15% self-employment tax.

And now, the IRS is trying to force people to be self-employed by sending out deficiency letters! Anyone know of any court cases that address whether a gambler can ELECT to be a pro or not, or whether self-employment can be imposed upon them?

Then again, being a pro may still be better as I'm not quite sure about the ramifications of filing Schedule A/then deducting. I guess it all depends on what a session is .


Joeflex

[Jeter5583]

Does anyone know?

[Jeter5583]

??

[Jeter5583]

???

[ozziepat]

Please. Get professional advice. Individual circumstances differ, so what one CPA tells one player might not apply to anyone else.

[geormiet]

the definition of what a pro gambler is has been discussed. Do a search for one of my old posts in this forum, where the IRS sent me a letter and I wrote them one back defending my case.

[I_C_ALL]

I read the first line and I'm responding to that.

We spoke to a GOOD CPA over the last few weeks(was searching for a few months) Anyway, he does NOT specialize in gambling, but is open to it and knows the questions to ask. I explained the professional/non professional thing and he picked up right away about flowing the HUGE winnings on the 1040 and writing off the HUGE losses on the deductions side of the 1040 for a small net gain(300k in wins minus $250k in loses for a $50k win)

He said HUGE red flags. If you are professional and flow everything through a corporation, you can take a "small" salary(percentage of actual net income of corporation) and only pay self employment tax on the "salary. You would pay income tax on the entire amount, but the extra 15.3% self employment tax would be limited to your "salary".

Take the time to talk to a professional. If you aren't paying a couple to a few hundred an hour, you're probably not getting the best advise(problem is if you are spending that much, you're not guaranteed the best advice either. The good ones charge a few hundred an hour, but so do some dolts)

Good luck

[Joeflex]

"the definition of what a pro gambler is has been discussed."

Hi Geormiet

I did read those threads in my searches. The slight distinction is that in every single case I have seen, it was the IRS arguing for the taxpayer to NOT be allowed professional status whie the taxpayer was fighting to be a pro. However, things have changed, probably because today's gamblers (online players) don't have the huge expenses they had as travelling road gamblers (with hotel, meal, airfare deductions). Now it is reversed and the IRS wants people to be pros, as now they get the SE tax with no corresponding deductions. And now players no longer want to be pros.

The literature suggests that a player can ELECT whether to be a pro or not. The IRS sending out requests for SE tax does not address the legality of this. Perhaps they are "encouraging" you to elect pro. Does anyone know of any case where a player did not elect to file as a pro but was still forced to pay SE tax?

Joeflex

[jamzfive]

[ QUOTE ]

I did read those threads in my searches. The slight distinction is that in every single case I have seen, it was the IRS arguing for the taxpayer to NOT be allowed professional status whie the taxpayer was fighting to be a pro.


[/ QUOTE ]

There definitely are at least 2 threads out there of the reverse: the IRS attempting to collect self-employment tax from filers who had not filed as professional. Here's one.

Yes, the IRS can claim that you should have filed as a professional, and attempt to collect self-employment tax from you.

This is not to be construed as tax advice, and for your specific case you should speak to a CPA familiar with the types of issues at play in your situation.

jb

[Joeflex]

"There definitely are at least 2 threads out there of the reverse: the IRS attempting to collect self-employment tax from filers who had not filed as professional. Here's one."

Yes, I saw these. What I'm trying to say is that while the IRS here is attempting to collect SE tax, there are no COURT CASES that address this (i.e no one has challenged them on this yet. Now it is not clear-cut as the literature on this from accountants say that players can ELECT which way to file.)

Joeflex