kewljason said:
Well he isn't exactly my tax man. As 21, suggested, I basically handle my own taxes and financial stuff. I am to not trusting enough to turn things like that over to someone else.
But, this guy is a financial adviser and he looked over my taxes last year. He advised and helped me refinace my mortgage and a couple other things. He was recommended by a player on another site to me and actually has other clients that are professional gamblers. However when I read about the new tax law and mentioned it to him and his response was "can you email it to me". Well that was an eye opener. lol
I find a lot of your statements to be quite assuming to what is the truth. I will just assume you do not pay taxes but just won't own up. For a person handling his own taxes you are quite ill informed. Do you send est taxes if not you have a problem. Here is a little read to help you or get you facts straight.
Self-employment tax is a social security and Medicare tax. Self-employment tax is imposed on self-employment income, which equals the net earnings from self-employment derived by an individual, other than nonresident aliens, during the tax year. Net earnings from self-employment derived by an individual is the gross income derived by an individual from any trade or business carried on by the individual, reduced by income tax deductions attributable to the trade or business. Next week’s post will be dedicated to tax deductions attributable to the trade or business of gambling.
Today’s first takeaway: Because professional gamblers, but not recreational gamblers, are engaged in the trade or business of gambling, professional gamblers must report and pay self-employment tax on gambling winnings, but recreational gamblers do not. Also, generally speaking, income earned from poker coaching is subject to the self-employment tax.
Imposing the self-employment tax makes sense: If you earn wages from an employer, that employer is required to withhold a portion of your income for social security and Medicare and pay it to Uncle Sam. These withheld amounts are called withholding taxes. If you earn income for yourself, there is no employer withholding the tax. The rough equivalent to withholding tax is the self-employment tax.
There are two elements to self-employment tax: (1) social security (old-age, survivors, and disability insurance); and (2) Medicare (hospital insurance). Generally, self-employment income is taxed at a rate of 12.4% for the first element, and at a rate of 2.9% for the second element, totaling a rate of 15.3%. Note that one-half of the self-employment tax is allowable as a deduction in computing adjusted gross income. Also note that if total net earnings from self-employment for the tax year are less than $400, there is no self-employment tax.
Those are the general rules regarding how to figure out the self-employment tax amount. The next point to discuss is how to report self-employment income and pay the tax thereon.
Today’s second takeaway: A taxpayer expecting to owe self-employment tax of $1,000 or more for the tax year generally has to make estimated tax payments during the tax year. A taxpayer must also attach a Schedule SE to his/her Form 1040 when filing for the year.
Federal income tax is a pay-as-you-go tax. Taxpayers must pay tax as income is earned or received during the year. Tax is paid either by withholding or estimated taxes. As discussed, professional gamblers do not have their winnings withheld, so they must make estimated tax payments if they expect to owe tax of $1,000 or more when filing.
To ascertain estimated tax, the taxpayer must figure out expected adjusted gross income taxable income, taxable income, taxes, deductions, and credits for the year. Typically, using the prior year’s income, deductions, and credits is a good starting point. Of course, if you plan to double or triple the amount of time spent playing online poker from the previous year, you should take that into consideration. Form 1040-ES has a worksheet to figure out estimated tax.
There are four payment periods for estimated tax payments during each tax year. Yes, that means taxpayers with self-employment income must make estimated tax payments to the IRS four times a year. If the taxpayer does not pay enough tax by each of the due dates, penalties may be imposed.
Ultimately, don’t treat the self-employment tax lightly. If you are a professional gambler or a poker coach and haven’t been keeping up with estimated tax payments, you should start doing so.
