The IRS said my blackjack income was unearn income therefore I could not deduck three thousand dollars for my IRA account. I filed as a recreational gambler. Line 21 other income on 1040 form. I choose not to file schule C,professional. I believe the IRS to be wrong. Need help.
> Need help.
Did you volunteer paying the self-employment tax on that income you reported on line 21? If not, you really have no ground to claim it as earned income.
IF YOU DID pay the 15% self-employment tax, I would appeal.
If this is the track you want to take, I believe filing Schedule C, paying the self-employment tax, and maintaining that it was not a hobby, but a business, is your best out.
question on BJ21.com's "law and taxes" page as there are several accountants and tax attorney's who frequent there.
> question on BJ21.com's "law and
> taxes" page as there are several
> accountants and tax attorney's who frequent
> there.
But here he get's it for free.
to pay the SE tax on form 1040 gambling income and not file Schedule C is a huge waste of money and may not even be allowable. In fact, if you could get away with this, you would have to pay SE tax on the total of all GROSS WINS if you did this not the net win after losses.
I'm not aware of the laws regarding IRA contributions and gambling income but this guy should probably see a CPA immediately.
The advice was accurate.
> to pay the SE tax on form 1040 gambling
> income and not file Schedule C is a huge
> waste of money and may not even be
> allowable.
Agreed. And who was advising him to do that? Not me. The poster stated he was trying to justify an IRA deduction by looking to the gambling income he had reported on line 21.
Odds are, he is not a professional gambler (prohibiting the use of Schedule C entirely) and he reported his gross winnings on Line 21, and then deducted his gambling losses on Schedule A (subject to the 2% of AGI limitation) and did not pay SE tax on any or all of it.
That being the case the IRS will prevail and not allow the IRA deduction which he apparently tried to peg to his 'unearned' gambling income.
IF, and I said IF, he had VOLUNTEERED the SE tax on the line 21 earnings (by default would give him the presumption the winnings were 'earned income'), he might have an appealable issue. Even threating to appeal at the audit level might make this issue go away.
But chances are, he properly paid no SE tax and should not be accorded the IRA deduction.
He may not understand it, and it might not be fair (although I think it is) but that's life at the tax office.
> if you could get away
> with this, you would have to pay SE tax on
> the total of all GROSS WINS if you did this
> not the net win after losses.
Again, agreed, but again, that was not my advise. People do strange things.
My advise, as can be read in the last paragraph of my initial repsonse to the poster was:
"If this is the track you want to take, I believe filing Schdeule C .. is your best out."
> I'm not aware of the laws regarding IRA
> contributions and gambling income ..
But yet you decided it was a 'bad answer' none the less.
The fact is, you and a very few others, are qualified to use Schedule C for reporting gambling activity. The vast majority can not.
Most of us should technically use Line 21 and Schedule A to report our activity -but if you can make your specific fact situation fly -Schedule C is the only way to go as now you can begin deducting travel ,meals, lodging, books, software, computers, that BJ table and chips you bought to practice on, maybe a home office deduction, maybe that big SUV you bought that generated the huge depreciation deduction, etc that you needed for your 'profession.'
However the bar to being a professional gambler -as currently defined by the courts and the IRS -is high; and most of us do not reach it.
The Supreme Court has held that a 'professional gambler' (able to use Schedule C ) would be pursing his gambling full time; in good faith; with regularity; is his intended source of livelihood; is a professional engagement; not a mere hobby; not a diversion; etc, ad infinitum, ad nauseum.
If one has a regular job 40 hours a week -in most jurisdictions -he will not qualify as a professional gambler. He will be a Line 21 / Schedule A guy.
Now -do I think that is fair; not really. If I had a regular 40 hour a week job would I file a Schedule C as a professional gambler? Maybe; if I thought my facts could fit. I might find some other title for what I do .. I certainly would not state GAMBLER on the occupation line.
The fact is less than 3% (approx) of the returns filed get audited. And when they do, the audit staff nationwide does not apply the tax law uniformly.
If you think you are fairly complying with the tax law, file Schedule C. If you feel you should not, don't.
Now -for Parker's benefit -if you use any tax advice you find off this website -you only have yourself to blame.
(But this is pretty good advice!)
The opinion of most CPA's and Tax Attorneys in "know" feel that part time players can also qualify to file Schedule C provided they play with substantial regularity with the intention of production of income for a livelihood. That as long as it is not a mere hobby, but is a trade or business whithin the meaning of the concerning statutes.
One major tax attorney I know says that from his dealings with the IRS he feels that the IRS will not want to challenge part time players for their Schedule C status as long as they play significant hours with regularity and who keep records in a business-like manner. In his opinion only those part time players who play either sporatically without regularity or who play relatively few annual hours to realistically expect to generate a livilihood will be excluded from filing Schedule C. He says this is one case which he feels the IRS knows it will lose if they attempt to be too restrictive on this issue.
CPA Maria Chen in "Tax Help for the Frugal Gambler" says that in Commissioner v Groetzinger the court ruled "essentially...that each taxpayer's situation has to be evaluated according to the "facts and circumstances" of the case.
Jean Scott says "You must spend "substantial time" conducting this business; however, how many hours are "enough" would be evaluated on a case by case basis. Gambling income does not have to be your sole source of support, but a couple of trips a year to Las Vegas most likely won't be convincing.
(both Quotes from "Tax Help for the Frugal Gambler" by Jean Scott and Maria Chen pp 18-19...a very worthwhile book IMHO)
Quoting from you yesterday ..
"I'm not aware of the laws regarding IRA contributions and gambling income .."
I knew that wasn't true. Anyone as intelligent as you must be to continue to earn a living as you do in this endeavour is not going to be ignorant of the single biggest cost of your doing business (the income and self employment tax).
> CPA Maria Chen in "Tax Help for the
> Frugal Gambler" says that in
> Commissioner v Groetzinger the court ruled
> "essentially...that each taxpayer's
> situation has to be evaluated according to
> the "facts and circumstances" of
> the case.
Since to most of the BJ community I already look like a horse's ass quibbling with you over BJ related matters, I'll quibble with Maria Chen a little.
The "facts and circumstances" in Groetzinger were never at issue; in fact the critical ones were stipulated to in advance. The salient point of Groetzinger, for BJ players is this .. Is a full-time gambler engaged in a trade or business? And thankfully the answer was yes, he is.
If you look to Groetzinger to establish 'the bar', let's look at his fact and circumstances.
Robert Groetzinger was terminated from his 20 year job in February of 1978. From March through the end of 1978 .. 10 months .. he went to the horse track 6 days a week for 48 straight weeks. From his detailed records, everyone agreed that he spent on average 70 hours per week in his gambling related endeavour. He had winnings of approx $70,000 and losses of approx $72,000.
If Groetzinger set's the bar, it is way to high for most of us.
But it dosen't. The 'bar' is set over time and is tested and re-tested periodically.
IMO, the profession of gambling is no different than any other partime job other people have, if it is treated as such. How many of us know people that, in addittion to their regular employment, also earn money in a photography business, have a newspaper route, stuff envelopes, make and sell widgets, etc.
Those people are EXPECTED to file Schedule C (assuming this endeavour is actually not a hobby clothed as a business that perpetually loses money), report their income, deduct their expenses, and pay tax on the difference.
I don't think someone whose part-time business is gambling should be treated any differently. The IRS, in all jurisdictions, dosen't always agree. What's new?
I believe, as you are pointing out, that if your facts fit, you should avail yourself of all the tax law offers you in trying to make a profit in your profession which includes deducting all the reasonable and necessary expenses of earning that profit.
But if you expect to be treated like a business, you had better act like a business. What does that entail? Well, what do people in business to make a profit do?
Go to work only on vacations and holidays? Probably not. Keep bad records or no records at all? Probably not. Never engage in continuing education? No. Co-mingle their personal funds and their business accounts. No. Never pay for professional help in managing their income tax. I wouldn't.
If someone is playing BJ as a business .. the facts and circumstances should vouch for it.
And if the facts fit, then start taking full advantage of what the law offers you. Otherwise, see Line 21 and Schedule A.
One last thing .. if gambling is a part-time BUSINESS for you, and you file Schedule C and are audited, and the office auditor denies the deductions .. then appeal. It's not that hard a process, you should hire a lawyer/CPA to research case law for you to volunteer at that time.
If you are truly in the 'business' of gambling, full or part-time, you have a high probability of pre-vailing.
But having said that, the bar is still probably higher than most of you reading this, that work 40 or 50 hours somewhere during the week, can reach. No harm intended, but after work, you proably spend more time watching the travel channel than you do 'working' your 'business.'
If you have ever been to a "let's start a self-employed business and take advantage of the tax law" seminar (translate Shaklee, Amway, internet business', etc) when they get to the cursory overview of the related tax law they make it sound like just opening a bank account puts you in business. It dosen't. If your in business, you'll be giving it all you can to grind out a profit; and it will probably show.
The original poster .. "Loser" .. who started this string probably was not. If he was, he would have known not to use Line 21, although some do and pay the SE tax.
Ignorance is expensive, I don't disagree with that!
Good luck.
> Quoting from you yesterday ..
> "I'm not aware of the laws regarding
> IRA contributions and gambling income
> .."
With regard to gambling tax law I consider myself fairly well informed and have done my own taxes for years and have a SEP-IRA as well as a Roth IRA and still a traditional IRA.
That said, I don't know very much at all about IRA tax law, especially for non-Schedule C filers and how IRA's and line 21 income interacts. It would seem that a typical line 21 filer with gambling income would also have a straight job with income that they could use for an IRA contribution. For many gamblers who don't have IRA's their bankroll is their de-facto retirement fund. Their bankroll builds and builds until they quit playing at which time they could immediately buy an annuity or just live off the principle and interest and move to Costa Rica.
> Their bankroll builds and builds until they ... just live off
> the principle and interest and move to Costa Rica.
I'm trying to get there before 55, and I'm a little behind in the race
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