Best way to structure a 1 player buy-in to the WSOP Main Event? (1 Viewer)

[Seeking Alpha Social Club]

Hopefully somebody can provide some insight.

Seeking Alpha Social Club sends 1 player to the WSOP Main Event each year. We determine the player as follows:

• 10 players play 12 local tournaments throughout the year.
• Buy in is $150 per tournament per player.
• We pay out $550 each time and put the rest in a bank account, which accumulates enough to cover the $10k buy in to the WSOP Main Event and expenses.
• Points are given depending how a player finishes each time (1 point to first player out and 10 to the last player standing).
• Player with the most points at the end of the 12 game tournament season is the Seeking Alpha Social Club representative at the upcoming Main Event.
• All 10 players have rights to a 1/10th share of any winnings if there are any.

QUESTION: Is there a recommended way to structure this to where we don't get taxed to death? I'm not talking about avoiding taxes, but instead each player paying the taxes on their own 1/10th share of the winnings.

For example, I assume taxes would be taken out if the winnings were large enough. Or the representative player would be required to claim the total winnings on their taxes, and then each of the other 9 players would also have to claim the winnings on their taxes as well.

Unfortunately we haven't had to deal with this problem yet, but I thought I would explore options just in case.

Any thoughts would be greatly apprecited?

 

[MacGrad]

Why not just structure it so that each player gets a 1/10th share of any post-tax winnings?

I doubt the WSOP / Rio / etc. will provide official tax receipts for each player who contributed to the entry fee, so my suggestion might be the easiest to implement. However, since I am not a US tax attorney / tax expert, YMMV.

 

[upNdown]

Wouldn't those post-tax winnings then become taxable income for the other 9 people?
I'm no tax lawyer either; just wondering out loud.

 

[Seeking Alpha Social Club]

Why not just structure it so that each player gets a 1/10th share of any post-tax winnings?

I doubt the WSOP / Rio / etc. will provide official tax receipts for each player who contributed to the entry fee, so my suggestion might be the easiest to implement. However, since I am not a US tax attorney / tax expert, YMMV.

That's the way we have it now, but I believe @upNdown is correct....it is also taxable to the other 9 players. Tax man cometh twice

 

[Pokerdweebz]

Since you know beforehand that you only have 10% of your action each person gets 10% of the winnings and pays taxes separately. If the taxes are taken out beforehand I'm assuming you would get it back at tax time. If you don't get the taxes out beforehand you have proof that you only received 10% of the winnings and that gets put on your taxes.

 

[Blaster]

I'm pretty sure if you consult a CPA, there is a relatively simple tax form ( not sure of the number), kind of like a W-2, that the winner can give each of the other players. It essentially "removes" those portions of the tax burden from the ME player, & just transfers it to the recipients.
Even if the Rio withheld the full amount from the event player, at tax time it would all straighten out ....

 

[atomiktoaster]

Even if the winner pays taxes on the full amount, if they give the other 9 their shares as a gift, I don't think there's any additional income tax paid by the recipients. I think there may be a way to create a legal entity to receive the funds from Rio and pay the 10 members evenly, but I'd have to ask my family member expert. It may depend on the WSOP rules as to who gets paid out.

 

[catalyzeme]

This is probably a better question for Two Plus Two. I bet it's done many many times over there. From a tax perspective I would think this is pretty much the same as staking.

 

[Seeking Alpha Social Club]

Since you know beforehand that you only have 10% of your action each person gets 10% of the winnings and pays taxes separately. If the taxes are taken out beforehand I'm assuming you would get it back at tax time. If you don't get the taxes out beforehand you have proof that you only received 10% of the winnings and that gets put on your taxes.

This was what we originally thought, and it still might be the case, but somebody told us that (1) the player will be taxed the full amount and (2) each player would then be taxed on the after tax 1/10th distribution. Simliar to estate taxes. Taxes paid when earned, and then paid again by individuals when redistributed.

 

[Seeking Alpha Social Club]

Even if the winner pays taxes on the full amount, if they give the other 9 their shares as a gift, I don't think there's any additional income tax paid by the recipients. I think there may be a way to create a legal entity to receive the funds from Rio and pay the 10 members evenly, but I'd have to ask my family member expert. It may depend on the WSOP rules as to who gets paid out.

You are probably right. I think we need to create a legal tax entity. Has anybody done this before?

 

[Seeking Alpha Social Club]

This is probably a better question for Two Plus Two. I bet it's done many many times over there. From a tax perspective I would think this is pretty much the same as staking.

Excuse my ignorance, what is Two Plus Two? Sounds spot on. We are staking a player in the Main Event.

 

[catalyzeme]

Excuse my ignorance, what is Two Plus Two? Sounds spot on. We are staking a player in the Main Event.

It's the big poker forum, sometimes called 2+2 or 2plus2 or something.

Anyway, I don't even read it and I know I've come across threads where they talk about how to set up the staking, so might be worth a search and/or posting there.

 

[Seeking Alpha Social Club]

It's the big poker forum, sometimes called 2+2 or 2plus2 or something.

Anyway, I don't even read it and I know I've come across threads where they talk about how to set up the staking, so might be worth a search and/or posting there.

Found it! THANK YOU!!

 

[atomiktoaster]

For anyone interested, from twoplustwo:


Q: How do taxes work if I am staked, or if I stake another player?

A: A staking arrangement causes the staker to realize the gambling wins/losses of the stakee. For example, if Adam puts up the $10,000 entry fee for Bob to enter the WSOP ME in return for 50% of whatever Bob cashes for in excess of the repayment of the initial $10,000, and Bob ends up cashing for $50,000, the proper way to account for this is a $20,000 gain for Adam and a $20,000 gain for Bob. It is not an option to have Bob realize the full $40,000 gain. If Bob busts out of the tournament with no prize, Adam realizes a $10,000 gambling loss and Bob does not have any taxable event.

When a staking arrangement involves a large live tournament where W-2Gs will be given, there is an additional form (Form 5754) used in conjunction with the W-2G to document which persons realize the tax burden of the individual's gambling winnings. Although they are supposed to, some cardrooms do not recognize this form, in which case Bob can issue a Form 1099-MISC to Adam for the amount of his share. For more, see this article.

Both Adam and Bob should be diligent in documenting this transaction themselves in a detailed contract, established prior to the outcome of the event.

Taxation of Gambling: Tax Implications of Staking Activity
Staking/backing tax question - turbotax
Tax Question (regarding staking)

IRS Resources:

Form 5754

Form 1099-MISC


http://forumserver.twoplustwo.com/5...d-rich-muny/u-s-income-taxes-re-poker-740589/

 

[Seeking Alpha Social Club]

For anyone interested, from twoplustwo:


Q: How do taxes work if I am staked, or if I stake another player?

A: A staking arrangement causes the staker to realize the gambling wins/losses of the stakee. For example, if Adam puts up the $10,000 entry fee for Bob to enter the WSOP ME in return for 50% of whatever Bob cashes for in excess of the repayment of the initial $10,000, and Bob ends up cashing for $50,000, the proper way to account for this is a $20,000 gain for Adam and a $20,000 gain for Bob. It is not an option to have Bob realize the full $40,000 gain. If Bob busts out of the tournament with no prize, Adam realizes a $10,000 gambling loss and Bob does not have any taxable event.

When a staking arrangement involves a large live tournament where W-2Gs will be given, there is an additional form (Form 5754) used in conjunction with the W-2G to document which persons realize the tax burden of the individual's gambling winnings. Although they are supposed to, some cardrooms do not recognize this form, in which case Bob can issue a Form 1099-MISC to Adam for the amount of his share. For more, see this article.

Both Adam and Bob should be diligent in documenting this transaction themselves in a detailed contract, established prior to the outcome of the event.

Taxation of Gambling: Tax Implications of Staking Activity
Staking/backing tax question - turbotax
Tax Question (regarding staking)

IRS Resources:

Form 5754

Form 1099-MISC


http://forumserver.twoplustwo.com/5...d-rich-muny/u-s-income-taxes-re-poker-740589/

You sir are AWESOME!! This is exactly what I was looking for.

We do have an 11 page contract, so it's pretty well documented. And we're not too worried about the player not abiding by the split rules because we have a couple of guys in our group who are on the FBI Anti terrorist unit and Hostage Rescue Team (HRT). Nothing like an all expenses paid trip to Guantanamo to convince somebody to abide by the rules...LOL!!

We just needed to tighten up the language around the taxes, and I figured there must be a pretty straight forward way to do it.

THANK YOU!!

 

[DJ Mack]

Great find. Hopefully some day I'll be in a position to use that info!

 

[Mr. Cheese]

I've always wanted to do something like this. I was curious how that would work. A PCF version of this would be cool with say 20 players. The monthly tourney could be significantly less then 150 then. Even 60 a month where 300 goes to the winner that month and 900 goes towards the WSOP entry.

 

[Seeking Alpha Social Club]

I've always wanted to do something like this. I was curious how that would work. A PCF version of this would be cool with say 20 players. The monthly tourney could be significantly less then 150 then. Even 60 a month where 300 goes to the winner that month and 900 goes towards the WSOP entry.

It's a lot of fun, and it's a really affordable way to get a player into the Main Event. I highly recommend it.

We have done it for 3 years now, and got a bit closer to the money each time. The awesome thing about it is that a whole group of us (16 this year) head to Vegas to cheer our player on. It's a great experience. Our Main Event trips are available on Facebook if interested. You can see what an awesome time it is.

https://www.facebook.com/SeekingAlphaSocialClub/

Our player went out on day 3 this year at #1548 out of 6700ish players. They paid 1011 spots, so we starting thinking that we better figure out the taxes before next year. Hopefully we will be able to use this awesome tax advice next year with a bit more luck.