Taxes: An evil necessary seen through the eyes of a gaming professional | Part 2
October 2, 2018 | Adam Osborne
As a certified public accountant, I get the pleasure of working with several gaming professionals. The gaming industry has different specialties – those who game live and those who game online. Expenses are different in both, but reporting requirements tend to be the same across the board. In the second of this two-part series on reporting requirements for the gaming industry, I will answer questions I am routinely asked by gaming professionals, as well as highlight some of the changes that will impact 2018 and future years tax filings.
Do I qualify for the business income deduction?
The Tax Cuts and Jobs Act has noted that pass-through income meeting certain criteria could experience a 20% deduction. A 20% deduction on gaming income would be amazing, however, this isn’t as cut and dry as it may seem. Gaming professionals are classified as a specified service business because their principal assets are reputation or skill. Most often, gaming professionals will not experience this deduction at all, however, there are opportunities which hinge directly on income.
If a gaming professional has a taxable income of less than $157,500 ($315,000 if married filing joint), they are permitted to take the 20% deduction, however, if over the $157,500 by even a dollar, they no longer qualify for the deduction at all.
Gaming professional A is single and has $125,000 in taxable income (all derived from gaming income). The amount of deduction he would receive is $25,000. This is a tax savings of roughly $6,000 (assuming a 24% tax bracket).
Gaming professional B is single and has $190,000 in taxable income (all derived from gaming income). The deduction is now zero and no benefit is received.
There are several major tax items that gaming professionals have little information about. It is imperative that gaming professionals reach out to a knowledgeable accountant and discuss items previously not considered, such as online gaming accounts and various types of international accounts. The tax code is ever changing and having the right relationship could greatly impact a gaming professional’s cash flow.
What deductions can I take on meals, lodging and transportation?
The Tax Cuts and Jobs Act states that all meals, lodging and transportation will be classified in net losses rather than as business expenses for gaming professionals. For gaming professionals who play in live games, this could have a large negative impact.
For example, if net winnings were $100,000 and net losses were $90,000, our gross earnings would be $10,000. The gaming professional spends $20,000 on meals, lodging and transportation, which in the past would be considered a routine business expense, creating a loss. The new rules say you deduct these identified expenses to the extent of gross earnings. The $10,000 of expenses is disallowed with no carryforward.
There was some talk during the negotiations of the new tax legislation disallowing wagering losses completely, so while this has an impact, it could have been much worse.
Contact an HHM tax professional to learn more about the reporting requirements for gaming professionals.