3 Concerns Every Gambler Should Ask before Submitting Their Tax return
If you take home casino payouts, or money from personal card video games, federal tax laws require you to report it as income. When you certify as a professional gambler you get to deduct all of your gambling costs and losses, simply like other company professionals.
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1 - Are My Winnings Business Income?
A couple of winning pots taken home from the casino or poker video games with your pals does not make you a professional gambler. A professional gambler is running a business, not just out to win a game or 2. In an audit, the professional gambler will be required to prove that his or her gambling activities certify as a company.
This is bad because even though every cent of gambling earnings should be asserted, the hobby gambler does not get to subtract all of the expenses involved in producing that income. An expert gambler, however, can take complete advantage of company tax laws which permit self-employed individuals to subtract all qualifying losses and costs.
Tracking wins, losses and costs is the very same for both the hobby and professional gambler, and it has to be done according to IRS rules if you want to make it through a tax audit. To leave the hobby category a gambler should be prepared to show that they are engaged in making "actual and sincere" efforts to produce a profit.
2 - Can I Prove That Gambling is My Business?
Recording your gambling in a business-like manner is a critical part of showing to the IRS that you are not a leisure gambler. Professional gamblers need to keep a log of all gambling activities. This must consist of the date and location of every event, your beginning bank, closing bank, and net win or loss.
All costs associated with getting to each gambling event, along with hotel expenses, entry charges, meals, ideas and personal training must also be documented if you wish to make it through an audit. If the casino "compensations" your expenses they are not deductible; just expenses paid by you personally are deductible.
3 - Do I Have To Pay Self-Employment Tax on My Winnings?
There is no self-employment tax on pastime gambling income; however there is self-employment tax on many company earnings.
Self-employment taxes fund your personal Medicare and Social Security accounts. When you are utilized by someone else, your company pays half of those taxes and you pay the other half. The self-employed person pays all of it. However, sometimes the bulk of this tax can be avoided by funding a private pension established for your company.
Simply put, whether or not you pay self-employment taxes really depends upon just how much you learn about current small company tax laws. Working with a qualified tax accounting professional, one suggested by other gamblers, is the very best method to lower your self-employment tax.
If you think you qualify as a professional gambler you must not be preparing your very own tax return. Because an audit is highly possible in this industry, you will want the guidance of a competent tax accounting professional when handling the IRS.