A gambling LLC

Suppose I set up an LLC whose core function was to employ counters and have them AP at different casinos. Let's say I have 10 employees (counters), they play for a year, and win a total of 100k.

Revenues = 100k.
Expenses: hourly wage (predetermined), some travel expenses, hotel stays, etc., suppose it adds up to 50k.

Now, to avoid income tax on the 50k profit, I give my employees an end-of-year bonus (5k to each so now my income is zero).

Who pays what taxes? Employees pay income tax on their hourly wage plus their bonus. What payroll taxes are LLCs liable for? Are there social security and medicare components that you wouldn't see if you gambled as an individual? Does the counters' income count as gambling or are they simple full-time employees who get their W2 from the LLC at the end of the year? What about the bonus?

Note that I am specifically interested in a multi-person venture, so not looking to self-employ myself and file as a pro gambler. Thanks!

You can call it "Strategic Investments"

I am not a tax expert. I hire a tax expert that specializes in gambling income to handle my taxes. But, it is my understanding that the drawback of what you want to do is that the business must pay tax on the money generated before disbursing both salary and bonus to employees. The employees then have to pay taxes on both salary and bonus. So in a sense the money generated (won) is being taxed twice.

That can't be 100% true. Payroll is an operating expense, and is deducted from revenues to calculate income before tax.

Quote: arcticfun

That can't be 100% true. Payroll is an operating expense, and is deducted from revenues to calculate income before tax.

Yeah there is some confusion here. The problem is that you are paying payroll taxes on what you pay your employees.

I just went through this. I would recommend you look into a couple of options. The best one, IMHO, would be an S Corp, at least it was for me. There are no corporate taxes; income over expenses is distributed by percentage of shares and shareholders pay taxes at their individual rates. An S Corp is only required to have one employee, and on that person they must pay FICA (payroll) taxes @ 7.65% of wages. The employee pays the other 7.65%, which you deduct from their wages.

The other thing you can do is operate as a Sole Proprietor, LLC or not. Hire the others as Independent Contractors. Issue 1099's at the end of each tax year. No withholding or benefits. Anything they make, they have to report as income and pay the 15.3% as well as income taxes. Anything you have left you have to report as income and do the same.

Very basic info; see a corporate attorney. They are expensive but worth at least an hour or two of legal fees to describe your needs and get confidential advice. There's also lots of good advice online, as well as a wealth of not-so-good advice. One of your very best resources locally would be to ask at the library reference desk or civic center about retired executives (can't think of the name of the group) who provide low-cost or free advice to start-ups.

Also, the federal Small Business Administration provides excellent tools online to figure out what you want to do.

EDIT: http://www.score.org/ is the organization with the retired executives. OutSTANDing organization for your questions.

You could set it up like a futures/forex trading pool just getting clipped for the capital gains, hey hey.

Have fun when you get audited about the so-called independent contractors.

Quote: Buzzard

Have fun when you get audited about the so-called independent contractors.

I only have my own experience to advise from. I was a Sole Proprietor for 5 years. Subcontracted a few people and 1099'd them, reported to the IRS. Was myself a subcontractor or independent contractor/consultant for several different companies, some limited, some multi-year. Was issued 1099's and reported them, paid my FICA and income tax on all. Not a peep out of the IRS on any of it.

However, none of my income was from gambling, though I had a couple W2G's in there. Showed losses up to winnings. Again, not a peep from the IRS.

Currently an S Corp. (Corporation, sub-chapter S) which incorporates most/all of the LLC protections but allows for shareholders rather than all income being reported as my personal income and at my rates.

Obviously, your mileage may vary.

So, basically, in exchange for getting to deduct expenses, you pay and extra 15.3% in payroll taxes. That is a little steep.

Quote: AxiomOfChoice

So, basically, in exchange for getting to deduct expenses, you pay and extra 15.3% in payroll taxes. That is a little steep.

Sort of. Although there is a cap on FICA. Think it's about 117K this year.

Quote: beachbumbabs

Sort of. Although there is a cap on FICA. Think it's about 117K this year.

Right, I was thinking about that too. So if I max out my SS payments at my day job, would that mean that I would get out of both halves if I had a company on the side? I would still be on the hook for medicare, but that would probably be worthwhile in exchange for deducting expenses and the ability to carry losses forward from year to year.

I think its advantageous to have a Sub-Chapter S corporation, since this allows you to take money out of the corporate entity without having to again pay taxes on the money. This would allow you to vote yourself a year end bonus but not have it be treated as personal income to you on which you would normally owe income taxes.

Just remember that this may have consequences for you on any disability policies. Since the sum you take as salary is the amount that your disability policy protects whereas the annual humungous bonus you vote yourself each year does not constitute income under a disability policy. So any claim under a disability policy would at most pay for sixty percent of your wage income and zero percent of your annual Sub Chapter S bonus income.

A sub chapter S election can also impact who is covered by Kidnap and Ransom policies, so if you travel to dangerous areas on business, make sure of your status as a covered employee.

Quote: AxiomOfChoice

Right, I was thinking about that too. So if I max out my SS payments at my day job, would that mean that I would get out of both halves if I had a company on the side? I would still be on the hook for medicare, but that would probably be worthwhile in exchange for deducting expenses and the ability to carry losses forward from year to year.

Yes, it would mean that. It's per SSN, per year, so if you hit the cap there, you won't owe that part (just the Medicare, as you noted, above the cap).