Do Poker Pros incorporate themselves??

[Flitred]

Just curious if anybody knows if Poker Pros incorporate themselves to reduce the tax burden.

Being able to write off expenses such as meals, transportation, hotels, and other expenses....in order to offset poker profits from the evil IRS?

Are there books on this?

[km630]

I am no accountant, but I know you don't have to incorporate to take advantage of paying for some of those things as using pre-tax dollars. The main benefit for most business of incorporation is obtaining limited liability. Meaning the owners of the company cannot be personally held liable for the losses of the business beyond their investments. Now, it would not surprise me that many of the big names pros have incorporated some of their business dealings.

km630

[Quads]

AFAIK, Yes. (or at least, most do, and if they don't, they should)

There are also other issues in which someone will do this as to reduce the liability in getting sued. Their assets are owned by a corporation or (usually in the case of them being based in Nevada), in a blind trust within a blind corporation. Nevada is very favorable for both such structures. In this case, they would be the beneficiary of that trust, and the assets and cash are protected (or in other words sheltered for the mast part) under US laws.

[Flitred]

Ahh...good info!

are there books on it re: money management in the poker world?

[Wedge Rock]

But an employee/agent of a company is still liable for the tortious acts done while conducting business for the company... so what kind of liability protection would there be?

You drive a work truck into a school bus and both you and your employer can be sued. So if you're at a table with Mike Matusow and you egg him on until he hits you, you could sue both the agent/employee (Mike) and the company (Mike Matusow, LLC).

I don't see the liability advantages of forming a business entity.

Trust/trustee would be different, I think. You could still sue Mike individually for hitting you, but you couldn't get to the trust assets...at least I don't think.

I don't know a whole lot about it, but I'd be interested in others opinions.

[Quads]

(for example) Phil Ivy himself is worth very little. Sue him, there's nothing to sue for.
The Phil Ivy Living Trust, held by Phil Ivy Inc., both blind to the public.
You can't sue a trust. You can try and sue the corporation, but the corporation is blind and it's private, so it does not need to disclose it's assets. Even if it had to, the trust could not be attacked.

[Wedge Rock]

I can understand the trust... do you even need the company layer in between? What's weird, though, is that the Phil Ivey Trust would have to register for the tournament... Or least fill out a request that any winnings due and owing to Phil Ivey be paid to the Phil Ivey Trust.

Trusts are generally vehicles to avoid probate on death, not liability...though that could be a side-benefit.

And does Phil have to fill out Gift Tax Returns when he re-directs his winnings to his trust? I'd be interested in what someone who knew for sure had to say... Not to imply that you don't, Quaddy.

[Quads]

Yes, because the company can write off expenses, losses, profits, etc.
Where as the trust can not.

And don't get me wrong, this is only from what I know of others doing it in the business world who are worth a lot of money, so I'm not an expert on it, but have read quite a bit on the topic. I don't know personally of how any of the pros do it. I only speak from my personal setup (which is similar) and from what I've read about sheltering / self incorporation in the US.

[Wedge Rock]

Interesting topic...

[Quads]

Me thinks this has to have been discussed over at 2+2. I'll try and searching and digging something up over there. Problem is, that place is even more of a mess than CT.

[Wedge Rock]

I was thinking the same thing... I just didn't want to search that mess...

Then again, you are obviously capable of reposting... Just start a new thread... ;)

[Quads]

I seem to be on a roll with it lately.

[MsprinM]

What does this have to do with poker gaming and other tables? Or was this just put in the wrong place?

[Flitred]

meh.....i saw poker in the title....didn't know where else it should have gone.....-1 for me

[Hirize]

Quads,

Is it not also that a trust cannot do business dealings?
That is why you have a corp. doing the business and the trust only owns the corp.
That is why a trust cannot be sued, it does nothing except contain assets.

Aloha, Pete

[Blake]

The cake shop we are trying to buy is incorporated. The way it was explained to us was this was to protect the owner and limit her liability. Case in point, if someone buys a cake from the shop and it makes people sick, they can sue the shop/corporation. But the owner's personal assets are protected as they are seperate from the corporation. She is an employee of the corporation and there for personally protected against legal actions brought against the corporation. So they can sue the shop and it's assests (the corporation) but her personal property and assests (house, bank account, car) are protected.

[Wedge Rock]

The cake shop we are trying to buy is incorporated. The way it was explained to us was this was to protect the owner and limit her liability. Case in point, if someone buys a cake from the shop and it makes people sick, they can sue the shop/corporation. But the owner's personal assets are protected as they are seperate from the corporation. She is an employee of the corporation and there for personally protected against legal actions brought against the corporation. So they can sue the shop and it's assests (the corporation) but her personal property and assests (house, bank account, car) are protected.

Absolutely correct, unless the employee commits a tort. For example, she poisons a cake intentionally. In that instance, she could be sued individually and the business could be sued as well (businesses are liable for the tortious acts of their employees done in the course of employment).

I think Aloha Pete may be right in terms of the need for a trust... It makes sense that a trust cannot conduct business, but can own one.

But lemme ask you this: why the need to protect your assets? As a poker player, what could you do that would expose you to liability? Sure, you could do things away from the felt (car accident, etc.), but why not just buy an huge umbrella policy for that? You can get a $2m umbrella for a couple hundred bucks a year. What are you going to do *at the felt* that would expose you to liability? Who is going to sue you for what you've done at the table?

[Hirize]

The umbrella policy only covers you if you do not do something stupid, like punch someone, or intentionally commit harm to someone.
The best thing about umbrella policys is that the stated amount on the policy is for 'payment', it does not take legal fees from that amount. The ins company can spend whatever it needs on legal fees and it does not come out of the policy amount and there is no cap.

Example.
If you forget to set your parking brake on a hill and the car rolls down and runs over someone, your car ins AND the unbrella policy will cover that.

If you are pissed at someone and intentionally back your car into theirs or throw a rock through their homes front picture window then the policy will not protect you.
If you did that and harmed someone they could go after your assets, one of which could be your ownership of the corp.

That is why you would have a trust owning your corp, not you personally.
Even if your the manging member of the trust no one can go after the trust no matter what you do.
BUT! You must run the trust according to the rules, if any fudging is done on your part as a managing member then it opens the trust to lawsuits. Also if you use the trust in any way to conduct business other than outlined in the guidelines for trusts that would also open it up.

At least that's the way I understand it.

Aloha, Pete.

[Quads]

Quads,

Is it not also that a trust cannot do business dealings?
That is why you have a corp. doing the business and the trust only owns the corp.
That is why a trust cannot be sued, it does nothing except contain assets.

Aloha, Pete

Yes, correct.
I thought I said that earlier, but if not, it's a good point to make / mention.
A trust can not conduct financial transactions. It's simple a 'holding' framework.

[Flitred]

But lemme ask you this: why the need to protect your assets? As a poker player, what could you do that would expose you to liability? Sure, you could do things away from the felt (car accident, etc.), but why not just buy an huge umbrella policy for that? You can get a $2m umbrella for a couple hundred bucks a year. What are you going to do *at the felt* that would expose you to liability? Who is going to sue you for what you've done at the table?

The reason I was asking originally...was strictly for tax benefits....or reduce tax liabilty.

For instance, my father owns his own handyman type business, and has to pay a rediculously high taxes for his little overhead business. I figured poker pros who report accurate income have the same problem. I was simply curious.

[Zemo]

Some types of incorporations will be taxed exactly as you would be personally, soem would cause you to be "double taxed", meaning the Corp pays taxes on earnings and then YOU pay taxes personally on the income you then take out of the corp, and some allow you to take a "reasonable salary" paying all the proper taxes like Fed income and FICA, but the to take out a whole bunch of other cash as dividends, thus avoiding the FICA payment. None other than John Edwards (You know, the guy who thinks rich folks should be paying a whole bunch more taxes) reportedly takes a $35k salary (Reasonable I'm sure for a High Priced personal injury atty) and then takes an additional $500k as dividends.

[Quads]

A Corp, v. C Corp.

[Gerdass]

A Corp, v. C Corp.

Depends on the State.

In Illinois, it's the difference between an S-Corp and C-Corp.

S-Corp (Sub Chapter S Corporation), are taxed on a "pass-through basis" (as are LLC's but that's slightly different. The S-Corp has it's own tax return, but does not directly pay income taxes. The net income of the company is passed through and shown on the personal tax return of the owners/shareholders (based on ownership %) as a business income. Dividends are NOT taxed because it is already taken out of the profits. There are limits on size and # of shareholders for S-Corporations

A C-Corp is directly taxed. And therefore the dividends are taxed, which results in the double taxation discussed.

The primary benefit is the shield of liability. Now, for a lot of poker players, it isn't just for poker, it's for income from endorsement deals, ownership in poker sites, etc. etc. etc. I would guarantee 100% that NO poker player has direct ownership in any internet poker site. If they have ownership, it's through some type of Corporation, if not MANY layers of corporations and trusts.

But the taxes are a benefit. Basically, the more layers there are, the more "games" you can play with taxes. There are tax credits, immediate depreciation allowances and so on.

One of the biggest things people will do, is a their business will be a Corporation, but they will hold the real estate for the business personally. Their business pays them rent for the property.... because rental income is not subject to various taxes that personal or business income is (I believe it's social security taxes) so they get a tax break that way.

[Shadow]

Gerd's right. It's S-Corp and C-Corp's, named for the subchapter of the tax law that applies to corporations. C-Corps are your big companies - GM, Boeing, etc as well as anyone who wants to create a C-Corp. A corporation is a C-Corp by default. C's are their own entity, pay their own taxes, etc. Each owner of a C must be an employee to get paid from the corp (with applicable withholdings and payroll taxes paid) or receive a dividend from the corp, which is non-deductible to the corp and taxable to the recipient (hence the double taxation).

S-Corps are called "small business corporations". They are limited in the amount and types of shareholders, classifications of stock, and other things. You have to elect to become an S and all the shareholders have to agree. S's don't pay their own taxes, rather each owner's share of income/loss flows through to them directly via a K-1 form for them to report on their own tax return. Essentially, they are taxed as a partnership would be. The benefit to this is that you retain the limited liability of a corporation, but get the taxation benefits of a partnership, with one particular enhancement: no social security/self employment tax. Owners of S-Corps who perform services for the corp are still expected/required to get paid a reasonable salary with the applicable payroll taxes. But other distributions from the corp to the owners can be made tax free, since the "dividends" have already had tax paid on them by the individual on their tax return via the K-1. Straight partnerships will have to pay social security/self employment taxes on the personal tax return if the source of the income would ordinarily require it (for example, rental property partnerships would NOT pay SS/SE tax because Rental income is passive activity, not subject to FICA/SE/SS taxes).