BATTLE OF THE TAX ACCOUNTANTS! :)
Uh oh..
bringing out the tax codes..
LOOK OUT! :)
D
Uh oh..
bringing out the tax codes..
LOOK OUT! :)
D
... and I would agree.
Any reasonable and neccessary expense of you earning your living should be properly deductable on Schedule C. Really, otherwise whats the point of using Schedule C at all? To only save that 2% haircut off Schedule A -I don't think so. And moving your losses off Schedule A to Schedule C (because you are a 'professional') causes you to now pay self-employment tax on the net earnings! You had better deduct those 'other expenses' or I'd go back to calling myself a 'non-professional.'
Now .. if I could only get closure on a 'professional' not being able to deduct net gross losses, I'll be set. :)
Thanks again for contributing.
"NAICS Code 541990 (Other scientific & technical personal services) seems to be more appropriate for advantageous players: card counters, shuffle trackers, hole-carders, etc... who use scientific & technical skills to make money." -Samoht
Good creative thought!
Like I said earlier .. presentation is everything.
I use 713200 code on my Sched C.
The limitation on losses makes no distinction between pros and non-pros. It applies to everyone.
You can take all the legitimate business expenses on Sched C, same as any other business. BP's listing pretty much covers it.
My opinion on the deductibility of these other expenses in excess of gambling winnings is strictly that - my personal opinion. It is based on reading of the code, reading of the two published books on this subject, reading other publications and tax cases, talking to other CPAs' about this, etc. BTW, I am a CPA also. But I know of at least one other CPA who disagrees with me and would argue that you can take the excess expenses. However, he has never done so yet, as he does not have professional gambling clients, and he himself files gambling income as "miscellaneous income" and losses on Sched A.
One caveat - my gambling is strictly small time compared to BP's. I still file Sched C because in my case, it is more advantageous to me tax-wise.
Somewhere in this thread someone mentioned reporting less VP income than the total of W2-Gs'. I have done this in the past for my wife. (We file separate returns.) I just wrote an explanation attached to the tax return, and had no problem from the IRS on it, not even an inquiry.
Neko
On deducting expenses in excess of net gambling gains ..
I just don't see where a Schedule C filing gambler is different than any other self-employed individual (except possibly for the limitation on gambling losses exceeding gambling wins.)
Take an example of a photographer for instance. If say his first or second year he used borrowed capital to fund his start up and created a taxable loss -because his operating expenses exceeded his gross profit -nobody would contest he has created a net loss allowable to be used against other income in other years.
Maybe .. but I'd like to see it in print.
is that I live in a state that does not allow you to offset your W2-G (and other wins) with losses. In my case I'd have to pay 6% state tax on the total of my Gross session wins regardless of how much I lost. The only way to correct this is to file Schedule C.
assumes that the IRS is logical in its thinking. What's good for the photographer should be good for the gambler. Through my 30+ years of experience with the IRS and the tax laws passed by congress, I have found that logic very often does not play a part in their thinking or processes.
Neko
But generally I have found that certain basic pinciples do run through the tax code .. until they don't!!
You are so correct that there seems to exist an exception to every basic principle.
But I have yet to read where a self-employed gambler is different from a self-employed photographer .. except of course when they are!
:)
No doubt that is true but you would still be wanting to file Scedule C even if you lived in a state that had no income tax at all.
All those deductions you are taking on Schedule C are saving a ton of tax $$$; as well they should be.
To be 'in the business' of gambling and not be able to deduct the basic cost of doing business would be simply .. unfair. :)
A true self-employed business, if operated properly, is absolutely one of the best tax shelters in the code. Working for a W2 is an income tax drag.
An example for the un-initiated.
The recreational gambler spends $1,000 on books, tapes, and computer software one year to become a better BJ player. It costs him $1,000 after tax.
The professional gambler spends the same $1,000 for the same educational materials. Lets say the gambler lives in 'bigplayer's state and is in a combined 34% tax bracket. Those same books, tapes, and software cost him $660 after tax.
Factor in flights to Vegas, Tunica, AC, hotel lodging while there, a computer to work on, software, an automobile to drive, meals while out of town, interest expense on business debts, subscriptions to Green Chip, costs of books and periodicals, etc., ad infintium, ad nauseum. Multiply all that by 31% or 34% and you get the picture of what Schedule C can do.
Oh, you say you have all those expenses too but don't get any tax benefit for them?
Exactly. Because you can't deduct all that as a non-professional or as a W2 filer.
"reason for Schedule C in my case
Posted By: bigplayer
Date: 14 Jun 04, 11:12 am
In Response To: Thank you ... (Sun Runner)
is that I live in a state that does not allow you to offset your W2-G (and other wins) with losses. In my case I'd have to pay 6% state tax on the total of my Gross session wins regardless of how much I lost. The only way to correct this is to file Schedule C."
A 2nd alternative to Sch C is Form 1120s.
In order to file Form 1120s instead of Sch C, you need to:
1) Make yourself a corporation (cost:$100~$200).
Click here to do so: http://www.amerilawyer.com/index.htm
2) Get your Corp a tax ID instantly free.
Click here to do so: https://sa.www4.irs.gov/sa_vign/newFormSS4.do
3) Register your Corp as a S-Corp with IRS.
Click here for the Form: http://www.irs.gov/pub/irs-pdf/f2553.pdf
4) Depending on what your home-state is (NY vs NV), you may or may not need to register with your home-state tax department.
When you're done with the above, you'll do business as a S-Corp. No more Sch-C problem. No more SE-tax on the bottom line. However, you do need to "pay" yourself some reasonable wages. Good luck.
As a sub-S, all earnings are taxed at individual rates, and you still have to pay both sides of the SS taxes PLUS unemployment insurance (state & federal) PLUS workers comp.
What am I missing here?
Methinks the solution is to just keep really good records and only list the net on Form 1040 and do not list wins and losses separately on the 1040 and Sched. A. Unless you're filing standard deduction, listing only the net would make no difference on the taxable amount. Thus, the feds wouldn't care one way or the other, but the absence of loss claims on the Sched. A would keep the state off your back, especially since there needs to be no specific explanation of "Miscellaneous Income." You do not HAVE to call it "gambling winnings" or anything else -- just "miscellaneous income."
I forget what the ceiling is now on FICA, and there is no ceiling on medicare taxes.
But, just for the sake of illustration, let's say you end up paying a net of 13% of the first $85,000, or a whopping $11,050 in SE taxes.
It's hard to see how this could ever end up better than just listing the net amount on your 1040, assuming you know what you're doing at the tables well enough to actually be doing this crazy job professionally.
muddling up the works, I'd probably consider doing just that.
You are correct, SE taxes are a bite.
One can not discuss a myriad of tax planning situations in one post, string, or board. It is complicated. But generally speaking, Schedule C and the advantages it offers, is better than the alternative -if you qualify to use it.
One HUGE benefit is being able to take a large percentage of your net income and put it in a retirement savings account, deduct the money you just put in savings from your income and start paying tax on the reduced balance. Then, generally, the money you just saved starts growing tax deferred.
There are others.
"This is worse, not better, than Sched C
Posted By: OldCootFromVA
Date: 15 Jun 04, 10:57 pm
In Response To: 2nd alternative to Sch C: Form 1120s (Samoht)
As a sub-S, all earnings are taxed at individual rates, and you still have to pay both sides of the SS taxes PLUS unemployment insurance (state & federal) PLUS workers comp.
What am I missing here?"
Good question!
Answer: The bottom line speaks for itself. For example, with $100,000 net income, a Sch-C-filer would pay $13,466 SE tax. On the other hand, a Form 1120s filer would pay $0 SE tax. However Form 1120s filer does have to pay employment taxes on his reasonable wages. Say he's a New Yorker & his annual wages are $20,800 ($10/hr). His employment taxes are computed as follows:
Taxable
Rates Amount Taxes
Fica tax, employer 0.075 20,800.00 1,560.00
Fica tax, employee 0.075 20,800.00 1,560.00
NY Unemployment tax 0.026 8,500.00 221.00
Futa tax 0.008 7,000.00 56.00
Worker's comp prem 0.000 0.00 0.00
(1-man corp is exempted)
Total employment taxes 3,397.00
A recap:
C filer SE tax: 13,466
S filer emp tax: 3,397
Savings 10,069
That's the bottom line...a $10,069 savings in a legal way.
Besides, a gambler's Sch-C is more likely to get audited than that of a Corp's F1120s.
What am I missing here? -OldCoot
Plenty.
I didn't want to stray to far off the 'professional gambler' and 'schedule C' discussion, but what SAMOHT is saying is correct.
Again, we are talking about someone who can actually meet the standard for classification as a 'professional gambler' within the law as it is being administered today. If you can't, you really have no choices.
A Subchapter-S corporation has long been the vehicle of choice for slashing the SE tax. The difference in the SE tax on a guy earning $100K filing a Scehdule C and a guy filing an S-Corp return could be $10K annually in saved taxes, as SAMOHT points out.
There are some assumptions in his calc that could be adjustable upon audit but his basic premise is sound.
No, the government is not ignorant this goes on, yes it is legal, yes it is subject to audit (what isn't), yes they are currently attempting to audit more S corporations now than in the past.
You plan your affairs to pay the lowest tax. The government has the right to examine what you did to accomplish that task.
That's life.
1) Who can live on $20,800?
2) There are NO SE or Payroll taxes if you just put the net on your Form 1040. I was not advocating Sched. C over Sub-S. I was advocating "forget writing off expenses and just pay tax on the net winnings."
Sun Runner, please explain your following statement:
"A Subchapter-S corporation has long been the vehicle of choice for slashing the SE tax. The difference in the SE tax on a guy earning $100K filing a Scehdule C and a guy filing an S-Corp return could be $10K annually in saved taxes, as SAMOHT points out."
A self employed person filing Schedule C during tax year 2003 will pay SE tax of 15.3% of any earnings after business deductions up to 87,000. If Section A SE line 5 is over 87k he will pay 2.9% of the overage PLUS 10,788. So a self employed person with a business profit of 100k will pay 13,688 in SE tax of which 50% (6844) is deductable to arrive at the adjusted gross income which will determine the other income tax due.
My understanding of a Subchapter S Corp is that the Corporation will pay the employers share of the SE tax of 7.65 % and that portion is deductable to the Corp as an expense and the employee (yourself) will pay the employees share of another 7.65% on any earnings up to last years threshold of 87k with the excess charged 2.9%. In addition the Corporation will have to pay Fed Unemployment Insurance and Workman's Comp Insurance unless you opt out. So if you have a SubChapter S corp, the combined SE tax paid by you and your Corp will still be $13,688 if you pay yourself 100k annually. While it is true that it does allow you to set up retirement plans with higher amounts being set aside tax deferred, I would think that most people use a Sub S Corp more as a vehicle to shield themselves from personal liability than anything else.
I may be missing something but how is 10k saved on SE tax on one verses the other? If what you state is possible, I may want to incorporate.
Card.
You are comparing a Schedule C filer with a net income of 100k per year to a 1120s filer paying himself 20,800 per year. Do the same comparison with both incomes of 100k and see what the difference is. The 1120s filer would have paid more in tax than the Schedule C filer.
Your illustration would work great if the person could live off the 20800 and allowed the rest to accumulate (net after corporate tax is paid) within the corporate veil, but I think there's restrictions upon how much money can be accumulated within a Sub S before it has to be distributed and then you have to pay personal tax on it again,(after you've already paid the corporate tax on the same money) but I think you can avoid the SE tax if it's paid to you as a dividend. Would the double taxation (Corporate and personal) be less than the SE tax for the individual Sch C filer with an income of 100k?
Your Thoughts are Appreciated
Card.
you can accomplish the same thing with a SEP-IRA when you file Schedule C.
