Anyone that has been following the Cam Todd Suspended thread may have noticed that one of the off topic deviations involves amateur players and the purse. Anyone not following that thread was probably watching Oprah give away cars to an entire audience. While they might seem entirely different at the outset, if you bear with me for just a moment here i'd like to splain why they are more similar than dissimilar.

Amateur athletes/players compete for experience, fun, friends and then maybe prizes, correct?

Oprah show audience members rarely if ever compete, unless it is a race to finish bon bons and ice cream.

The similarities begin, however, when an amateur athlete becomes entitled to a prize, and an Oprah audience member becomes entitled to ownership of a new vehicle. The similarities I am concerned with are the potential for these gains by amateur athletes and audience members to be taxed by the Federal and State Governments.

Oprah has a full time legal staff which busies itself with writing fine print for just such an occassion, the PDGA does not.
Audience members were made aware of the potential tax implications of taking ownership of these new vehicles, amateur athletes are not.

Ultimately, whether you participate in an athletic event for experience, prizes or because your girlfriend would rather have you stay at home and help iron the drapes, when your play at an event entitles you to receive prizes, you may have a taxable event.

Ok, you say, but I never gave the TD my SS# and I am younger and faster than the tax man. Well, I say, you may be younger and faster but the tax man has incredible endurance and something called the Internal Revenue Code on his side, and while he may not single you out from the crowd, when he notices a crowd forming he will go straight to the leader, pull him aside, pull several teeth and a promise of a first-born son then proceed to pick off you younger faster players one by one.

Forewarned is Forearmed.

Whether you receive money or merchandise, you will almost certainly have a taxable event.

There are lots of occassions, at almost every tournament, for an Am player to play Open (Local event, C tier, TD pressure to make at least a three-some etc) and there are also lots of opportunities for those same Am players to compete and cash in AM 1,2 or 3.

Whether you play Am for experience or prizes or both, understand your own motives and the potential consequences to you based on your actions.

In the CT suspended thread, an idea presented was that Am Entry Forms have wording included (similar to the fine print on the Oprah show amongst others) that would alert each player to the potential tax consequences should they cash, and allow them an opportunity before the tournament starts to remove themselves from the purse and all the consequences that may come with cashing.

I was hoping that by starting this thread here there might be some discussion of the actual wording used, or if it is even a valid idea to begin with. In all seriousness, it won't be long at all before more information is collected from competitors prior to an event in an effort to maintain compliance with Fed and State money grubbers but mostly to cover their (the TD's butt) because they are the ones responsible for distributing cash and merchandise.

To start with, I would recommend that ALL entry forms for Amateur specific events preclude entrants from any possible purse UNLESS they check a box acknowledging the consequences of receiving cash and or prizes from that event. In other words, if you do not check the box you will remain a true amateur and will receive nothing more than a trophy/recognition for your effort.
Checking the box acknowledges potential consequences for your actions and makes the player eligible for merchandise/funny money etc but it would still be up to the player to decline cash if that is what is required and also what they choose to do, in order to maintain am status.

If you've read this far without falling asleep, and would care to humor me with a response i'd be much obliged. it's cold and windy here and i'd really prefer to be out playing right now, honest.

If we are treating cashing as an AM as a taxable event, do the expenses associated with the tournament also have tax implications ?

Are tournament expenses deductable and to what extent ?

If you are operating at a net loss for the year, what types of documentation would be required to prove it ?

Good post

My question is: is there anyway for ams [and pros also] to get around this entirely?

What we need is some advice from rich people who are good at holding on to their money.

How about some brainstorming, guys?

For example each am golfer can rename himself as a not-for-profit corporation!

In fact most pros can qualify too :)

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Here's another approach:

This week I've been thinking of a 'one penny' tournament where the entry fee is one penny.

The overall tourney winner gets a WHOLE DOLLAR added cash/script. (That's easily 200%+ payout, man :)).

Write "winner" on the dollar bill and the dollar bill also becomes your trophy. 2nd and 3rd gets their penny back (you'll need a ultra-fine point sharpie to write '2nd place' and '3rd place' on the pennies, so they can be trophies too).

All those CTP prizes? Well, officer, we, uh, just accidently found them in the bushes, you see. Their value, officer? Well, they must be worthless, otherwise they wouldn't be in the bushes, right?

Now of course you might wanna do a $20-50 side bet with your foursome. Nothing wrong with that, right officer?

gotta go gotta putt

If we are treating cashing as an AM as a taxable event, do the expenses associated with the tournament also have tax implications ?

well, it's the irs that treats the individuals receipt or entitlement to the monies as a taxable event, if you are asking whether the same am that cashes can offset the gain with a tournament expense, then yes absolutely but may be limited by how the am classifies the cash/merchandise on the return. an am can treat cashing as hobby income, then total up all of their expenses associated with earning that income and offset every bit of that gain if they feel like they can verify it. the only limitation to expenses is how you treat the income.

If you are operating at a net loss for the year, what types of documentation would be required to prove it ?

the only people that will be able to operate in net loss territory are pro's, while this post was geared toward protecting am's and hopefully making life easier for TD's i will tell you that if you do want to venture into potential net losses that a tax return is only a piece of paper that tells the gov't what you want to tell them for the year. if they question anything on the return, that is the point where you will need to verify whatever they question via receipts for travel, accomodations, discs, bag etc. anything you spend money on related to the production of that disc income is potentially able to reduce your income even to the point of being a net loss.

I actually meant operating at a net loss so that you always have expenses that will off-set any winnings and leave you with no taxable income from the sport. Not to take it so far as to report a loss above the amount of earnings.

My question is: is there anyway for ams [and pros also] to get around this entirely?




Yeah...don't win anything. ;)

My question is: is there anyway for ams [and pros also] to get around this entirely?

yes there are plenty of ways, if you have seen some of my other posts you may have seen my three rules for taxation,

1 AVOID

2 DEFER

3 PAY

if you plan for the income in advance, you have a world of opportunities to avoid the tax associated with the activity.

For example each am golfer can rename himself as a not-for-profit corporation!
In fact most pros can qualify too

while i can sense the tongue in cheek nature, and appreciate the desire for ways around the irs, calling yourself a not for profit would pollute and eliminate the one main advantage that each tax return offers, namely the Sch C.

the irs wants to see that you have a profit motive, so pros have a distinct advantage in the state that DG is in now in that the purses are relatively small. the reason this is an advantage right now is that you can show up at an event with the intent to cash/win etc and usually, the expenses associated with getting you there and enabling you to participate offset any amount you may have won, and potentially take you into net loss territories that will reduce your taxable income from other activities.

keep in mind that when it comes to that stuff, i am just a guy typing this stuff anonymously on a computer (even though i am enrolled to practice before the internal revenue service and deal with them on a regular and consistent basis) and when it comes to specifics, you should always talk to your own tax preparer in order to apply them to your own situation. in other words, until you discuss your own situation with me and pay me my fee, whatever i say is only for discussion not action.

I actually meant operating at a net loss so that you always have expenses that will off-set any winnings and leave you with no taxable income from the sport. Not to take it so far as to report a loss above the amount of earnings.

in that case you would probably like to stay a true amateur, win a few discs and merchandise, report it all as hobby income and offset the total with expenses associated with each event.

hobby income can be offset completely with hobby losses, if that is what you are after.

Looking around, the only restriction against claiming is that the expenses must be more than 2% of AGI. Is that correct ?

Also by extension, the income must be more than 2% of AGI for the deductions based on those earnings to be above 2% of AGI.

Looking around, the only restriction against claiming is that the expenses must be more than 2% of AGI. Is that correct ?

ok, if you read some of my posts on the CT thread, you'll see that i don't give three word answers much less yes or no.

"hobby" income, prizes, awards etc are all thrown into one line on the return called misc. income. the irs wants to give you the shaft big time on this one by stating that anything that you spent in order to receive that income has to be deducted on the Sch A and the main problem with that is that Sch A stuff is all subject to the 2% rule.

here is where a good tax person can and will save you some money.

if you were to ask me, the difference between the ability to claim net loss (Sch C) or be stuck applying the 2% rule(Misc. Income and Sch A) is the difference between engaging in an activity with a profit motive and just pursuing personal interests.

if i were to win 100 discs this year, and arbitrarily place a value of 8 bucks each on the discs and have no other disc related income i have a total of 800 bucks to claim. if it cost me say 500 bucks to drive back and forth, enter the tourney(s) etc i would have a net 300 to be taxed.

i could claim that 800 as hobby income under misc income and then if i file a Sch A my 500 bucks in expenses would be added in with any other itemizables then subjected to the 2% rule.

i could, however, claim the 800 on the Sch C, expense the 500 immediately and without a 2% limit being applied because i played the tournaments with the idea that i would win something for my efforts

the profit motive and ultimately the ability to demonstrate a profit is what separates hobbies from Sch C activities.

all of the disc related income needs to be reported somewhere, it is up to the individual to classify. if you turn in several years worth of Sch C's and every one of them has a net loss, there is a chance you will end up getting a letter asking you to explain things. this does not mean you were or are wrong on any of them, it just means that they are wondering if what you are doing has the ability to produce some income that they can tax.

you can use the Sch C to claim all of your disc related income, if you have more expenses than income there is no rule saying that you have to deduct them creating a net loss, and there may in some cases be distinct advantages to paying tax on some Sch C income.

good job avg_joe, keep it up

maybe this thread will be needed once TD's start receiving correspondence related to the purses, and when the players then are being asked for personal information in order to participate.