Author: Leon Clinton

When it comes to taxes, the tax code treats professional gamblers better than recreational gamblers.

Unlike recreational gamblers, professionals get to deduct all their gambling expenses (including travel, lodging, and meal expenses) up to their annual winnings, without itemizing. This is a big advantage.

If you gamble a lot, you could benefit by qualifying as a professional and filing IRS Schedule C to report your winnings, losses, and other expenses. But it’s not so easy to qualify as a professional gambler. You must

1. gamble regularly and continuously, and
2. gamble with the primary purpose of earning a profit.

Most professional gamblers gamble full-time. But qualifying as a professional and having another job is possible if you gamble regularly and continuously throughout the year. For example, Linda Myers spent 25 to 35 hours per week running her trucking business and about 40 hours playing slot machines. She qualified as a professional gambler. But gambling sporadically won’t cut it, even if you spend a lot of time gambling.

The IRS uses a nine-factor test to determine whether you gamble primarily for profit or for other reasons, such as having fun. The profit factors include whether you carry out the activity in a businesslike way, your history of winnings or losses, your financial status, your expertise at gambling, and the time and effort you spend gambling.

Court cases show that the single most important factor is keeping good gambling records. Don’t rely on casino win/loss statements. A Las Vegas couple won over $19,000 at video poker but learned the hard way, when they tried to file as professional gamblers, that good records are essential. The fact that they never kept their own gambling records weighed heavily in the Tax Court’s refusal to classify them as professional gamblers.

Do this. Create your own contemporaneous gambling log or diary showing your wins and losses by gambling session.

Also do this. Use a separate bank account for your gambling activity.

Other things you can do to help establish your professional gambler bona fides include creating a business plan, educating yourself about gambling, and changing games if you consistently lose. Remember, as a professional, you’re gambling to make money, not to have fun.

If you want to discuss professional gambling status, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• February 6, 2024

Do you sell goods or services and receive payment through a third-party settlement organization (TPSO)? If so, you must know the IRS’s new Form 1099-K reporting rules.

TPSOs include

• payment apps such as PayPal, CashApp, and Venmo;
• online auction or marketplace services such as eBay and Amazon;
• gig economy platforms such as Uber and Airbnb;
• some cryptocurrency processors such as BitPay;
• craft or maker marketplaces like Etsy ;
• ticket exchange or resale sites like Ticketmaster; and
• some crowdfunding platforms.

For over a decade, TPSOs filed IRS Form 1099-K, Payment Card and Third Party Network Transactions, reporting certain payments the TPSOs process for goods and services.

But a TPSO had to file Form 1099-K only if the recipient had

• gross annual earnings over $20,000, and
• more than 200 transactions in the calendar year. 

With these thresholds, only frequent users of TPSOs exceeded both thresholds and had their payment information reported to the IRS. If you’ve never received a 1099-K from a TPSO that processed payments on your behalf, this is why.

That is changing. Congress drastically reduced the 1099-K filing thresholds when it enacted the American Rescue Plan Act of 2021 to require TPSOs to file Form 1099-K for any recipient who is paid more than $600 during the year with no minimum transaction requirement.

The new 1099-K filing rules were supposed to go into effect for the 2022 tax year.

But the IRS delayed them until 2023. Now, the IRS has delayed them yet again, announcing that the old rules ($20,000/200 transactions) remain in place for 2023.

For the 2024 tax year, the IRS is replacing the $20,000/200 transaction threshold with a $5,000 threshold and no minimum transaction requirement.

For the 2025 tax year and later, the IRS applies the $600 threshold, again with no minimum transaction requirement.

Why all the delays? Because the IRS fears that TPSOs will mistakenly file many of the expected 44 million 1099-Ks. For example, TPSOs might mistakenly file 1099-Ks for personal payments from family and friends.

If you want to discuss TPSO reporting, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• January 30, 2024

As we continuously seek the best health care solutions for our clients, I want to introduce you to an alternative that may align with your financial goals and personal values: health care sharing ministries (HCSMs).

HCSMs are not your typical health insurance. They are non-profit organizations that enable members with shared religious or ethical beliefs to collectively share medical expenses. This approach is rooted in principles of community and charity, and it operates outside the conventional health insurance framework.

Financial benefits. Often, HCSMs offer lower monthly costs compared to traditional health insurance premiums. While contributions to HCSMs aren’t tax-deductible, for many, the significant savings in monthly expenses outweigh the tax benefits.

Membership requirements. HCSMs may base membership on adherence to lifestyle choices and ethical beliefs, including restrictions on tobacco and illegal drug use and, in some cases, regular church attendance.

Contribution structure. Unlike standard health insurance, HCSMs have contributions instead of premiums. Contributions are generally more affordable and pooled to share members’ medical expenses.

Coverage limitations. It’s important to note that HCSMs are not required to cover certain services mandated under the Affordable Care Act, such as preventive care or birth control.

Regulatory status. Federal regulations under the Affordable Care Act, ERISA, or HIPAA do not apply to HCSMs. Similarly, state insurance regulations do not apply to HCSMs. The lack of regulations means there’s no federal or state guarantee of coverage.

Despite the differences from traditional insurance, many find HCSMs a worthwhile option, especially considering the lower monthly expenses and the flexibility in service selection and doctor choice.

If you want to discuss HCSMs, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• January 23, 2024