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Does anyone have personal experience with incorporating an S-Corporation for the gambling trade?

In cases where the gambling activity is consistent and produces sufficient income (versus, say, an infrequent hobby), the IRS does allow gambling to be considered a business or trade for self-employment, and thus, subject to FICA (self-employment taxes). My question surrounds whether it might be advisable to create a business entity for expense management through an S-Corp, versus the sole proprietor (or Single Member LLC) Schedule C route. Any expenses for the trade activity should be deductible to reduce the income gained from that trade activity. I'm not necessarily looking for a tax advantaged strategy (there is no appreciable taxation difference between the Schedule C or S-Corp business entity vehicles aside from SE taxes), but for the purposes of accounting and transparency, I question whether an S-Corp would be of value. That being said, with an S-Corp, I could pay myself a reasonable salary out of the gross winnings, deduct any lawfully-permitted expenses in connection with the trade, and distribute any remaining profit as a dividend.

The alternative to the Schedule C or S-Corp route is simply declaring gambling winnings as "other income" on Line 21 (Form 1040) and itemizing losses on Schedule A, which is not an efficient strategy for a professional gambler. I know there's a knee-jerk reaction to saying, hey, gambling is not a business or trade, but again, when the activity is extensive and routine, in addition to producing significant income, the IRS can and does consider the activity as self-employment, and requires self-employment taxes. I specifically wish to explore the Schedule C and S-Corp options for this self-employment activity. Thank you.

Chris W. Rea
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Brian
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2 Answers2

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In a sole proprietorship AND an LLC, the expenses can still be deducted against the profits or losses from the operations.

The IRS does not even require that a profit seeking activity be incorporated under its own entity, hence why this is also applicable in a sole proprietorship.

From what you've said, there is no reason to use a more complicated and costly corporate structure at all. In comparison, a sole proprietorship and single-member LLC will be completely pass through entities to the IRS and all of their earnings go to you. With the LLC you have the option of letting the LLC's earnings remain with the entity itself, or you can just treat it as your own and pay individual income taxes on it.

This has nothing to do specifically with a gambling business and is largely a red herring to your profit seeking motives. Gambling in casino games and lotteries already enjoy favorable tax treatment in some regards. Gambling in capital markets also enjoy a myriad of favorable tax laws. A business entity related to this purpose should be able to deduct costs related to this trade (and pass an audit more convincingly than not having formed an LLC and business bank account)

CQM
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You probably don't need S-Corp. There's no difference between what you can deduct on your Schedule C and what you can deduct on 1120S, it will just cost you more money. Since you're gambling yourself, you don't need to worry about liability - but if you do, you should probably go LLC route, much cheaper and simpler.

The "reasonable salary" trick to avoid FICA won't work. Don't even try.

Schedule C for professional gamblers is a very accepted thing, nothing extraordinary about it.

littleadv
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