S Corp election as a Professional Gambler

[QuattroFour4]

Jurisdiction

Florida

I've filed individual taxes as a Professional Gambler for several years now, and have only fairly recently considered the option of forming a corporation for tax purposes. My understanding is that if I form an LLC and receive S Corp status, my share of company profits (beyond a "fair" salary, which I'm not sure what this would be in my case) would not be subject to self-employment tax. Not that I've discussed tax strategies with other gamblers much, but I've not yet heard of this strategy being used in this industry. Might it raise flags with the IRS? Is there something else I'm missing?

 

[Tax Counsel]

I've filed individual taxes as a Professional Gambler for several years now, and have only fairly recently considered the option of forming a corporation for tax purposes. My understanding is that if I form an LLC and receive S Corp status, my share of company profits (beyond a "fair" salary, which I'm not sure what this would be in my case) would not be subject to self-employment tax. Not that I've discussed tax strategies with other gamblers much, but I've not yet heard of this strategy being used in this industry. Might it raise flags with the IRS? Is there something else I'm missing?

If you form a LLC and elect to have it taxed as a S-corporation then you are an employee of the corporation. There is no self employment tax because you are not self-employed; you are an employee. But your salary/wages paid to you are, of course, subject to FICA (Social Security and Medicare taxes). Regardless of what you call it, anything of value you receive from the S-corporation will be treated first as salary up to the point that you have been paid reasonable compensation for all work you have ever done for the corporation. The issue then becomes what is reasonable compensation for a professional gambler of your skill level i.e. how much would someone else who has no personal relationship to you have to pay you to get you to work them as an employee. Note, too, that your losses will be limited to your basis in the S-corporation (though unused losses carry forward), and that limitation may be significant for some professional gamblers. The IRS is always skeptical when it comes to professional gambler issues because of the potential for abuse. I suggest you consult a tax attorney to determine if a S-corporation would be beneficial to you and what the associated drawbacks of that will be.