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.