INDUSTRY FORUM

Comments

  • DB20

    Making an LLC and using it for a DFS account seems like it would save you money on taxes and allow you to write off expenses. You could write off things such as computers, software, subscriptions, TVs, and what ever other related expenses you have. I have asked DK customer support about using a LLC and they gave me an unclear and convoluted answer. I wanted to know if anyone else has done this or has experience with this. If this has already been cover I apologize.

  • tjabchs6

    Lol, I’m pretty sure you wouldn’t be able to do that. Post the response they gave you.

  • DB20

    Here is what they wrote… My issue is I want to create a llc just for dfs. Per DK’s policy I would have to make an llc then wait a year before I can be considered.

    For 2015, you may be able to file as an LLC using your EIN, however, you must go through a vetting process.

    In order for our Accounting Department to make a consideration regarding this matter please answer the following questions:

    1) What is the location of the mind and management (M&M) of the LLC? – (for jurisdictional concerns. M&M is different than location of incorporation. (We would need a signed affidavit that identifies the persons making the day to day account decisions and their principal place of business.)

    2) The entity’s corporate structure and listing of shareholders. (We are looking for a simply/straight forward corporate structure in which the shareholders is exactly the same as the M&M. Anything complex and/or includes shareholders that are passive and not active in the day to day operation should not be allowed to hold an account.)

    3) Would you be able to provide annual reports of the ongoing status of the LLC to ensure that best business practices and all regulations are being met?

  • walkoff9

    • 613

      RG Overall Ranking

    Sounds like unless you actually plan to run it like a business they are not going to go for it.

  • smutpeddlers

    There was anothee thread months back where one of the guys who is an account and another a lawyer were commenting on same issues. Can’t remember end result etc etc plus I don’t feel like digging in the creates.

  • DaveNYC

    thanks for posting this and DK’s response. I was actually going to be doing this for the major sites, creating a separate account and have it run through a single member LLC I operate for my affiliate marketing business, which is based in NJ, a legal jurisdiction for DFS as of now. I have sites/campaigns with tons of DFS related traffic that will have a lot of referral/affiliate sign-ups. But since everything (costs, etc.) related to my business runs through the LLC, I don’t want any of these signups to get credited to my personal DFS account – can cause me big problems comingling funds. I’ll email fanduel on this and post their response in this thread.

  • deactivated51600

    Why even the need to make it an LLC? Just account for it personally as a sole proprietor. Are there additional liability issues one needs to protect themselves against as a DFS player that would even make this necessary?

  • DB20

    I am unaware of any additional liabilities that having a LLC would protect you from. My main reason as stated in the original comment is expensing things such as a subscription via rotogrinders or buying software specifically for DFS. If you were to make a corp as sole proprietor I would assume DK would still have you go through the same approval process.

  • joeactuary

    Whoisjohngalt’s point is that you are able to expense things such as a subscription via rotogrinders or buying software specifically for DFS, or home office expense whether you are a sole proprietor or an LLC. The only advantage an LLC gives you is liability shield. Since I can’t think of any liability issues a DFS player has, an LLC will not provide you any additional benefit accept additional paperwork and accounting expenses. DK doesn’t care if you file your DFS profits on schedule C or directly on 1040 (hobby)

  • rotokevin

    2014 RG Bowling Co-Champion, CPA & DFS Tax Guru

    • 2014 FanDuel WFBC Finalist

    @joeactuary said...

    Whoisjohngalt’s point is that you are able to expense things such as a subscription via rotogrinders or buying software specifically for DFS, or home office expense whether you are a sole proprietor or an LLC. The only advantage an LLC gives you is liability shield. Since I can’t think of any liability issues a DFS player has, an LLC will not provide you any additional benefit accept additional paperwork and accounting expenses. DK doesn’t care if you file your DFS profits on schedule C or directly on 1040 (hobby)

    Pretty much exactly this. You don’t need a formal entity to deduct appropriate expenses against the income said expenses enable.

  • theman90210

    So what would I have to do in order to make DFS a business more than a hobby

  • aka_the_goat

    I could be wrong and if I am I hope someone will correct me but I think I have heard of some of the top pros doing this. Again double check this, but for some reason I think Dink has an LLC that he operates his DFS play with.

  • LarryLegend33

    LLC is a nightmare for potential multi-account play. DK’s policy seems to indicate they are aware of the potential issue.

    Also, if you move forward, you should name it “Begging for an Audit LLC” because that is what you’d be doing if you have an noteworthy winnings and try to expense computers, TVs, cable bills, etc. Make sure all your recordkeeping, not just DFS related, is spotless.

  • PJGuin23

    DFS Tax Guru

    @rotokevin said...

    Pretty much exactly this. You don’t need a formal entity to deduct appropriate expenses against the income said expenses enable.

    ^^^^^^

    Great answer. I’d further add to see tax professional for applicability to file as business or hobby. Results may vary. It can also change if your “going in with a bunch of guys” as well.

    No one can just give you a blanket answer on how to file, what rate your DFS will be taxed at, etc. without looking at your complete picture. Tax Planning requires many questions to be asked of the client(s).

  • PJGuin23

    DFS Tax Guru

    @LarryLegend33 said...

    LLC is a nightmare for potential multi-account play. DK’s policy seems to indicate they are aware of the potential issue.

    Also, if you move forward, you should name it “Begging for an Audit LLC” because that is what you’d be doing if you have an noteworthy winnings and try to expense computers, TVs, cable bills, etc. Make sure all your recordkeeping, not just DFS related, is spotless.

    I was given an answer a while ago regarding multi member partnerships. From what I was told, you need partnership/corporate documents before having a 1099 issued to an EIN.

  • Stewburtx8

    • 2012 FanDuel WFBC Finalist

    @theman90210 said...

    So what would I have to do in order to make DFS a business more than a hobby

    https://www.irs.gov/uac/Is-Your-Hobby-a-For-Profit-Endeavor%3F

    I can say from experience that I was audited for my DFS play in 2012. I filed my DFS income as Other Income on line 21 of the 1040 and the IRS audit was claiming I should be filing this on Schedule C and paying self-employment tax.

    I wrote them a letter arguing why DFS was just a hobby and therefore should NOT be filed on Schedule C. They ultimately ended up agreeing with me and I didn’t owe them any additional tax. But I honestly think if things were reversed, I could of wrote a similar letter arguing that my DFS play should be filed on Schedule C and been “right” as well.

    I guess I just don’t see the benefit for a majority of players unless DFS is your sole income. Do you really have expenses significant enough to outweigh the self-employment tax? Also remember that it may be the case this year where you can write-off $2k of DFS income using expenses, but what if you DFS income next year is $10k or even more? You can’t really switch back to filing it as “Other Income” at that point or you are asking to be audited. Just something to consider. But as always, you should consult a tax professional (rotokevin).

  • PJGuin23

    DFS Tax Guru

    @Stewburtx8 said...

    https://www.irs.gov/uac/Is-Your-Hobby-a-For-Profit-Endeavor%3F

    I can say from experience that I was audited for my DFS play in 2012. I filed my DFS income as Other Income on line 21 of the 1040 and the IRS audit was claiming I should be filing this on Schedule C and paying self-employment tax.

    I wrote them a letter arguing why DFS was just a hobby and therefore should NOT be filed on Schedule C. They ultimately ended up agreeing with me and I didn’t owe them any additional tax. But I honestly think if things were reversed, I could of wrote a similar letter arguing that my DFS play should be filed on Schedule C and been “right” as well.

    I guess I just don’t see the benefit for a majority of players unless DFS is your sole income. Do you really have expenses significant enough to outweigh the self-employment tax? Also remember that it may be the case this year where you can write-off $2k of DFS income using expenses, but what if you DFS income next year is $10k or even more? You can’t really switch back to filing it as “Other Income” at that point or you are asking to be audited. Just something to consider. But as always, you should consult a tax professional (rotokevin).

    I thought it was odd when you first posted that. Usually the IRS audits the other way around- Taxpayer proving a business rather than a Hobby. But Revenue Ruling 77-356 could interpret your situation in the IRS’ favor, even if you have a job.

    Glad you won that!

  • Stewburtx8

    • 2012 FanDuel WFBC Finalist

    @PJGuin23 said...

    I thought it was odd when you first posted that. Usually the IRS audits the other way around- Taxpayer proving a business rather than a Hobby. But Revenue Ruling 77-356 could interpret your situation in the IRS’ favor, even if you have a job.

    Glad you won that!

    I think part of the reason may have been the IRS having a lack of understanding of DFS at the time. I would like to think they have a better grasp of it now as they have seen more returns filing 1099’s from Fanduel, Draftkings, etc over the last several years.

    But ultimately the IRS audits you looking for reasons you may have paid them less tax than they believe you should have. So in this instance, if I filed my DFS income on Schedule C, I would have had an additional $2k+ in tax liability.

    When they audit you the other way around it is usually because someone is writing off excessive expenses on a “business” and showing a large loss to reduce their tax liability on their other income.

  • PJGuin23

    DFS Tax Guru

    @Stewburtx8 said...

    I think part of the reason may have been the IRS having a lack of understanding of DFS at the time. I would like to think they have a better grasp of it now as they have seen more returns filing 1099’s from Fanduel, Draftkings, etc over the last several years.

    But ultimately the IRS audits you looking for reasons you may have paid them less tax than they believe you should have. So in this instance, if I filed my DFS income on Schedule C, I would have had an additional $2k+ in tax liability.

    When they audit you the other way around it is usually because someone is writing off excessive expenses on a “business” and showing a large loss to reduce their tax liability on their other income.

    It shouldn’t be what nets the IRS the best return rather is it a hobby or a business? Thing with DFS is Gross Income typically wouldn’t be more than 20% different than net barring winnings on one site and losses on another.

    Their computer programs are fickle. You never know how they’re going to look at something on a return or what program they have from year to year. Best find the most reasonable way to interpret your winnings and defend your position if needed with good documentation (chiefly site CSV files and research sites if you have to prove IRC 183).

  • LarryLegend33

    What is interesting is how the DFS companies 1099 on NET winnings. If DFS were to be viewed by the government as gambling, it could change since according to the IRS, you are only allowed to offset winnings with losses if you itemize your tax return, otherwise it is covered as part of the standard deduction. Therefore, you would have to list the income of all contests won as gambling income and then all lost entries as an offset on your itemized deductions and you could no longer claim the standard deduction if you are currently doing so.

    In today’s environment, it’s far from an impossibility.

  • PJGuin23

    DFS Tax Guru

    @LarryLegend33 said...

    What is interesting is how the DFS companies 1099 on NET winnings. If DFS were to be viewed by the government as gambling, it could change since according to the IRS, you are only allowed to offset winnings with losses if you itemize your tax return, otherwise it is covered as part of the standard deduction. Therefore, you would have to list the income of all contests won as gambling income and then all lost entries as an offset on your itemized deductions and you could no longer claim the standard deduction if you are currently doing so.

    In today’s environment, it’s far from an impossibility.

    The next question becomes what defines a “session” when it comes to gross winnings?

  • deactivated84892

    I file as sole proprietor and make all the necessary deductions. I even was able to deduct my PS4. LLC is just a scenic route, not necessary unless you’re teaming with others.

  • Stewburtx8

    • 2012 FanDuel WFBC Finalist

    @PJGuin23 said...

    It shouldn’t be what nets the IRS the best return rather is it a hobby or a business?

    It shouldn’t be, but isn’t the idea behind an IRS audit to find more money/tax for the IRS/government? It’s not like if they find that you paid them too much money (made a “mistake” in their favor) they are going to voluntarily return it to you.

    Also, I guess my point is that I think I could successfully argue either way. I can make a very strong argument that my DFS play is a hobby (although it becomes harder with each additional year showing a profit) and I could also make a very strong argument that my DFS play is a for-profit hobby/business. Ultimately I choose to argue the tax treatment that nets me the lowest tax liability.

  • PJGuin23

    DFS Tax Guru

    @Stewburtx8 said...

    It shouldn’t be, but isn’t the idea behind an IRS audit to find more money/tax for the IRS/government? It’s not like if they find that you paid them too much money (made a “mistake” in their favor) they are going to voluntarily return it to you.

    Also, I guess my point is that I think I could successfully argue either way. I can make a very strong argument that my DFS play is a hobby (although it becomes harder with each additional year showing a profit) and I could also make a very strong argument that my DFS play is a for-profit hobby/business. Ultimately I choose to argue the tax treatment that nets me the lowest tax liability.

    Of course. Say a newbie gets lucky on a GPP off a few random entries. In our minds the substance is a “hobby”. The IRS doesn’t know that. Of course, they’ll look at it as SE income if it’s significant. It’s subjective.

  • footballfplyer55567

    @rotokevin said...

    Pretty much exactly this. You don’t need a formal entity to deduct appropriate expenses against the income said expenses enable.

    LLC will provide a lot if you plan or will receive an “investment” to play DFS.

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