Tax Question: Incorporate?

[Life]

I remember seeing a thread about this same topic a wayyy long time ago, but couldn't find it.

After meeting with a CPA to discuss my tax situation, he recommended that I make a corporation to play poker with. The advantages are that some expenses are deductible and that it will help me avoid the Self Employment Contributions Act tax, which as I understand applies to anyone who is self employed. He suggested that I pay myself a salary out of the corporation's profits.

Basically, has anyone heard of something similar? What are people's general thoughts on doing this? Thanks

[DeathDonkey]

The tax attorney I spoke to said he would never do this for a client for fear of the legality of forming a US corporation to play internet poker that is of questionable legality in this country. Maybe if you played only live poker but then your problem would be you are obviously not a business.

-DeathDonkey

[BriMc]

http://www.amazon.com/gp/product/156...e&n=283155

It was mentioned in another thread. Might be helpful.

[Big TR]

Forming a corporation may or may not be a bad move. But, if you file as a business, net net you will not avoid SE taxes, merely shift who is paying for them. If you file as a business on Schedule C, you personally pay the Employer and Employee shares of FICA and Medicare taxes, hence you are subject to the SE tax. If you incorporate, the corporation will pay the employer's share and you will pay the employee's share as part of your witholding taxes on your paycheck. The same pile of money makes it to the government either way.

In my situation, I make little each year since I just play recreationally. It is cheaper for me tax-wise to simply record my wins as income and my losses as itemized deductions. I pay no SE tax on any of it since I am not filing as a business.

The accountant might be pushing you to incorporate because he will make a lot more money off of you if you incorporate. He gets to file your personal tax return, your corporation's tax return and all of your ancillary returns, like federal FICA/Medicare documents. Plus you will have to pay annual reporting fees to the state to stay in business, as well as incur the costs of setting up the corporation.

You have to crunch the numbers to see if all of theses other costs will offset any tax savings you may or may not get by incorporating. You might just be able to file as a schedule C business on your personal return. In this way you get most of the deductions that a corporation would take without all the hassels of incorporation.

[Life]

[ QUOTE ]
In my situation, I make little each year since I just play recreationally. It is cheaper for me tax-wise to simply record my wins as income and my losses as itemized deductions. I pay no SE tax on any of it since I am not filing as a business.

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Do you record your wins under "other income" or something like that? And I thought gambling losses can't be deducted unless you file under schedule C? Im still a student so I'm not sure if I want to file as a business or not.

[NT!]

[ QUOTE ]
[ QUOTE ]
In my situation, I make little each year since I just play recreationally. It is cheaper for me tax-wise to simply record my wins as income and my losses as itemized deductions. I pay no SE tax on any of it since I am not filing as a business.

[/ QUOTE ]

Do you record your wins under "other income" or something like that? And I thought gambling losses can't be deducted unless you file under schedule C? Im still a student so I'm not sure if I want to file as a business or not.

[/ QUOTE ]

If you don't file schedule C, you simply keep track of your wins and losses and report your net as gambling income. So you can lose money shooting craps or buying scratch tickets and deduct it from your taxable poker income.

From what I understand, gambling losses are not itemized deductions, you need to track them and be ready to document all wins and losses for your 'gambling' income if you are audited. But the only number you put on the 1040 is your net gambling income.

NT

[Life]

So then what is the advantage of filing a schedule C, that we get to deduct some expenses? wouldn't this be offset by the SE tax?

[broiler]

Your statement is not correct. A professional is allowed to net wins and losses, but a recreational player is not allowed this option. The gross wins are reported as other income and the gross losses (not to exceed the amount reported as gross winnings) are reported as itemized deductions. Certain states do not allow gambling losses as an itemized deduction, but in those states you are taxed on your gross winnings. Tax law and many court cases have shown the net number method to be improper for a recreational player.

[Big TR]

As Broiler said, NT! is completely wrong. Netting is never correct unless you are a professional.

I have a house with mortgage, R/E taxes, etc., so I itemize my deductions. I record the income as Other income and take the losses as miscellaneous itemized deductions. The only way to know which is better for you from a tax standpoint is to fill out two returns, one as a professional and another as a leisure player and see which one gives you the least amount of tax. The caveat here is pretty much once you file as a professional it is very tough to go back.

As Broiler alluded to, I live in Illinois and the state does not allow any deductions. I have to pay 3% tax on my gross winnings.

[Life]

As I understand,

Advantage of filing as professional:
1. Can just report net income (saves the hassle of itemizing losses and wins of every session)
2. Can deduct expenses (not a huge factor)

Advantage of filing as leisure:
1. No SE tax

I will probably not go the corporation route since theres still the SE tax as you have said.

I also understand that the definition of a "session" is kinda unclear right now (from reading some other posts). So I might be able to file a return where i record the wins/losses of each weekly net as a session?

If that is roughly correct then it seems filing as a leisure player is the way to go?