(Topic ID: 203290)

Paying taxes on earnings / becoming an operator


By Soulrider911

2 years ago



Topic Stats

  • 34 posts
  • 18 Pinsiders participating
  • Latest reply 1 year ago by dcannan
  • Topic is favorited by 2 Pinsiders

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    #1 2 years ago

    Hey guys, I have been doing quite a bit of research on this topic. I'm thinking of putting just 2 Gomes on location at a bar near me. I know the owner personally, and I'm doing this more to spread the pinball love, than make money.

    My fist question is, do you file your earrings on your tax returns? My assumption is it is like tips, and non taxable income.

    Next question
    Do I file for an llc, get insurance? If I do then I can create a business account put the games on a company cc, and most likely get some back in my tax returns?

    OR

    I buy the machines with my cash, don't file for an llc, and the bars insurance will cover me (According to him) and not file anything.

    Love any help I'm in California as I know regulations are different per state

    #2 2 years ago

    I recently started to route some games. I formed an LLC, got insurance and a sales tax ID. My understanding is you have to pay sales tax on the coin drop, plus local option sales tax if applicable. I highly doubt the bar's insurance will cover you FYI, you should definitely double check that.

    #3 2 years ago

    1. Pretty sure tips are taxable income, even if they rarely get treated as such.

    2. I file my net losses on my tax return. Spent a bunch to stock an inventory of machines and spare parts a couple years ago, with the intent of making at least half my income as an operator. Never found more than 1 venue (venue owners make much more money on video lotto terminals), and it really hasn't taken off in this town, so I still net lose money.

    3. Yes, get insurance. If some yahoo decides your pin is a surfboard, or a short circuit starts a fire and shuts down a venue for a couple months, you could end up on the hook for millions in liability.

    4. Cant help you with California specific info, as I'm in Canada, sorry.

    5. Be prepared for the definite possibility that operating will be a shitty business, with an occasional phone call or text to thank you for keeping the game in the public for people to enjoy (which makes it worthwhile, and is the only reason I haven't shut it all down yet).

    #4 2 years ago

    GhostThruster is correct. You have no "insurable interest" under the bar's insurance policy; it won't cover you.
    Get the LLC and feel good about it.

    #5 2 years ago

    I know nothing about being an operator. Even if the bar owner is a friend? Cover your own rear. I've learned this from other business's. You kind of have to weigh that out too, depending on the value of the machines and a possible injury. At the very least protect yourself from someone claiming an injury. I've learned to never rely on someone else saying they will protect you. Friend or not get everything in writing. Not to be the negative guy. But think of the worst case scenario and plan on it! If it comes out better than that? Then your all good!

    Taxes? A while back you didn't even need a tax ID anymore for some stuff you just used your social. You may want to check into that. I really don't remember all the ins and outs of that.

    I'm sure there are many directions you can go.

    #6 2 years ago

    Go the llc route. Remember that even if you have a lot of coin drop, you will have depreciation to offset this, plus I'm sure there will be other expenses along the way. You can take section 179 depreciation, which is basically expensive the entire amount of the machine in the initial year , as long as it doesn't create a loss. Or you can take bonus depreciation, which can create a loss, but isn't a 100% deduction in the initial year. Also, this income will most likely be passive so the losses would would be suspended unless you have passive income to offset against. Get your insurance and cover your ass. Saving a few bucks isn't worth it.

    #7 2 years ago

    Yup I agree with everything here, going to file for an llc tomorrow and pick my accountants brain a bit. See how I can offset some of the expenses, with what little money I may make - but not likely. Thanks guys

    #8 2 years ago
    Quoted from ercvacation:

    Go the llc route. Remember that even if you have a lot of coin drop, you will have depreciation to offset this, plus I'm sure there will be other expenses along the way. You can take section 179 depreciation, which is basically expensive the entire amount of the machine in the initial year , as long as it doesn't create a loss. Or you can take bonus depreciation, which can create a loss, but isn't a 100% deduction in the initial year. Also, this income will most likely be passive so the losses would would be suspended unless you have passive income to offset against. Get your insurance and cover your ass. Saving a few bucks isn't worth it.

    remember that if you go the section 179 or bonus depreciation route, you could potentionally have a large gain when you sell the game. If you buy a NIB for 5500, route it for a few years and sell it for 4000, that entire 4K is taxable income due to the asset having a zero NBV. And you could be in a higher tax bracket then.

    I am a CPA but only know enough tax stuff to be dangerous. Got outta tax prep years ago.

    #9 2 years ago

    How hard is it to file an LLC?? I am in the same boat and want to just spread pinball for fun as a hobby. I'm in NY but it seems to almost be more trouble than it's worth.
    I was told that operating your business while at a loss can potentially net you more in the long run.

    #10 2 years ago

    I'm a cpa as well. You would think that your plan would be to get another machine if you sold one and then the cycle starts again with depreciation. Obviously more planning would be needed but most people would rather pay tax later rather than sooner. 179 and bonus is one way to do this, with the ultimate goal being to keep your tax as low as possible over the years. This isn't tax advice but just some ideas. The accountant would be able to look at the whole picture and would be able to formulate the best plan of action.

    #11 2 years ago
    Quoted from Isochronic_Frost:

    How hard is it to file an LLC?? I am in the same boat and want to just spread pinball for fun as a hobby. I'm in NY but it seems to almost be more trouble than it's worth.
    I was told that operating your business while at a loss can potentially net you more in the long run.

    It's not hard getting an LLC....It's been years, but I did it on my own at the time and I'm not good with paperwork stuff . I made a trip, to I believe it was the tax office(or some county office), and they gave me the paperwork then I paid a fee. It wasn't all that much. You can probably find all of the instructions and papers online or even do it online now.

    #12 2 years ago

    Yes there are plenty of online services that will handle everything for all the paperwork, due dillegence etc... however little more costly around 250.00

    #13 2 years ago

    Man, I admire your drive...I have thought several times about operating pins, and every time I do I REALLY think about it and then I change my mind and decide not to work my ass off and risk my games for no money...

    #14 2 years ago
    Quoted from ercvacation:

    I'm a cpa as well. You would think that your plan would be to get another machine if you sold one and then the cycle starts again with depreciation. Obviously more planning would be needed but most people would rather pay tax later rather than sooner. 179 and bonus is one way to do this, with the ultimate goal being to keep your tax as low as possible over the years. This isn't tax advice but just some ideas. The accountant would be able to look at the whole picture and would be able to formulate the best plan of action.

    Yep yep. Make sure you got a local CPA giving you advice on your specific state tax rules too.

    #15 2 years ago
    Quoted from Soulrider911:

    Yes there are plenty of online services that will handle everything for all the paperwork, due dillegence etc... however little more costly around 250.00

    You can do most all that stuff yourself. Heck I think an accountant we had at that time even helped us set everything up. Even made a call and got our insurance set up for us. We went from a couple of guys talking at a table to a traveling paint crew in about a week and a half, with 2 employees. And we knew nothing about anything when we came up with the idea.

    A good accountant is everything!!

    #16 2 years ago

    Say you ran a week long or monthly tournament. Like a bump and win tournament, would you also need to pay tax on the coin drop funding the tournament?

    #17 2 years ago
    Quoted from Bowlingpin:

    Say you ran a week long or monthly tournament. Like a bump and win tournament, would you also need to pay tax on the coin drop funding the tournament?

    What is a bump and win tournament?

    #18 2 years ago
    Quoted from Soulrider911:

    Yes there are plenty of online services that will handle everything for all the paperwork, due dillegence etc... however little more costly around 250.00

    FYI California has a $700 a year LLC tax you have to pay to keep your llc status

    #19 2 years ago
    Quoted from chuckwurt:

    What is a bump and win tournament?

    It's one of the tournament options on family guy.

    Every entry adds to the cash prize pool. Top 4 scores are shown. The operator can choose to pay out how he/she pleases. The player even needs to type a password after initials are put in, guessing to verify when the tournament ends. Options for price/prize pool,tourney length.

    Seems like a neat idea. Never seen a game on route have it running.

    #20 2 years ago
    Quoted from Bowlingpin:

    It's one of the tournament options on family guy.
    Every entry adds to the cash prize pool. Top 4 scores are shown. The operator can choose to pay out how he/she pleases. The player even needs to type a password after initials are put in, guessing to verify when the tournament ends. Options for price/prize pool,tourney length.
    Seems like a neat idea. Never seen a game on route have it running.

    oh. I know those as Tops tournaments. Anyway, any money that doesn’t go to the winners is income to the operator.

    #21 2 years ago

    I suggest doing things legit.
    Become a LLC, get insurance, pay your sales tax off the top, pay your income tax or tax your loses, get your licenses, etc...

    I personally suggest shooting for 4 pins as the minimum to be worth it for a single location. You time is the most valuable thing and when you need to do something on 1 then you can clean the other 3. Preventative weekly maintainence is key IMHO to making it more fun and keep games working better.

    It takes a lot of time to keep games running well, even with moderate play.
    I hobby operate and could never imagine doing as a living. I give major props to those that do.

    #22 2 years ago

    The money in for a Tops Tourney is revenue. The payout is expense. If you pay out the full amount, no tax would be due in the end. Obviously you would keep track of this throughout the year. Also, you would need to keep in mind the rules for filing 1099's if it ever got to that point.

    15
    #23 2 years ago
    Quoted from Soulrider911:

    Hey guys, I have been doing quite a bit of research on this topic. I'm thinking of putting just 2 Gomes on location at a bar near me. I know the owner personally, and I'm doing this more to spread the pinball love, than make money.

    I could save you the time and hassle and just kick you in the nuts now.

    #24 2 years ago

    Semantics, and perhaps pedantic, but I'd like to point out the following as there is a lot of misunderstanding.

    When you buy something for yourself or your business, you PAY sales tax. There are exemptions to this, your accountant can help.

    With coin drop you are COLLECTING sales tax from your customers on the state's behalf. At a later time (annual, quarterly, monthly depending on your state) you make a sales tax payment to the state for what you collected from your customers on the state's behalf.

    #25 2 years ago
    Quoted from Dr-Willy:

    FYI California has a $700 a year LLC tax you have to pay to keep your llc status

    CA fee is actually $800 I believe and this almost makes it a losing proposition from the start for a 1-2 unit operation. For example, in WI the annual reporting fee is $25 after paying $130 initial filing fee.

    I'm not an attorney, but I don't believe you actually need to file for your LLC in CA. Under that scenario, you would not have to pay the annual fee. However, you would still need to pay taxes in CA if you earn money from operations.

    Good luck,

    #26 2 years ago
    Quoted from smacks:

    For example, in WI the annual reporting fee is $25 after paying $130 initial filing fee.

    pretty sure it is $300 and $50 now. Still not bad.

    #27 2 years ago
    Quoted from Whysnow:

    pretty sure it is $300 and $50 now. Still not bad.

    In WI the online start up(quickstart) is $130.00 and then the annual report online is $25.00 each year to keep the status. It only takes about 5 minutes to set up online. My accountant has had me do 5-6 of these over the last year for rental properties.

    https://www.wdfi.org/corporations/fees/ltd.htm

    #28 2 years ago
    Quoted from smacks:

    In WI the online start up(quickstart) is $130.00 and then the annual report online is $25.00 each year to keep the status. It only takes about 5 minutes to set up online. My accountant has had me do 5-6 of these over the last year for rental properties.
    https://www.wdfi.org/corporations/fees/ltd.htm

    interesting. last one I did was $300. Maybe that included some of the fees for filing the agreements of the LLC. maybe single vs multiple people?

    #29 2 years ago
    Quoted from smacks:

    CA fee is actually $800 I believe and this almost makes it a losing proposition from the start for a 1-2 unit operation.

    Ah, California, the land of fees!

    #30 2 years ago
    Quoted from fosaisu:

    Ah, California, the land of fees!

    Deleted.

    #31 2 years ago
    Quoted from smacks:

    CA fee is actually $800 I believe and this almost makes it a losing proposition from the start for a 1-2 unit operation. For example, in WI the annual reporting fee is $25 after paying $130 initial filing fee.
    I'm not an attorney, but I don't believe you actually need to file for your LLC in CA. Under that scenario, you would not have to pay the annual fee. However, you would still need to pay taxes in CA if you earn money from operations.
    Good luck,

    WoW!!! If that's true? That is insane, for a small guy trying to start up. Among all the other costs and fees. I feel sorry for some of you that live in Cali and that aren't......(fill in with whatever you want)....

    #32 2 years ago

    I was fairly new to collecting and had had never purchased a shopped working machine. I asked my brother in law about placing one in his bar restaurant. As he already had pool tables he thought it would fit in well. In my city location,and operator need licenses, and each machine has to have a tag with an annual fee paid. I not wanting to miss the holiday season bought a refurbished High Speed. After applying for my operator license people started to warn me coin op was controlled by the mob, and I was going to get myself into trouble. When the police officer called to tell me I passed my background check and could pick up my license and tag for my machine, I told them what I had been hearing. Their reply went like this, "like all of society there are good and bad associated with the industry. If anybody threatens you, you can tell me and I will deal with it without telling them you reported it. I thanked them and thought to my self I'm running with my tail between my legs if I'm approached. I never was threatened, Latter I was told by a second generation operator who had told me "My dad was not a nice person. He used to hurt people." He also told me that he had gotten away from his fathers associations but bad people were still involved in the business. He told me their main reason was not the money they made, but he money they laundered. A machine earning $2.00 a weak or even a broken one could report $200.00 on the books. My machine never earned more than $2.00 a weak,and the city would not allow me to put the tag under the pf glass they required me to drill holes on the front and mount it with screws. I never earned my $25. tag fee back before deciding to bring the game home. That was my first try at being an operator. In 1993 a friend who owned a slot car track showed me his coin op trade journal where TZ was the hottest pin going reporting earnings of $200.00 per weak. He had been an operator before opening the track. He still loved pinball and I was the one who had emptied his garage of a lot of the pins left over from his prior business. He told me if I bought the pin and put it at his track it would pay for itself in no time. This was in a town that didn't require licensing or more important to me drill holes for a license tag. And the store was not open if he was not there, so I knew it would be cared for. I went for it. Somewhere I have the receipt but memory says it cost in the low $4000's with delivery. We were so excited, for me taking a new machine out of the box when I was used to buying old neglected machines while thoughts that this might pay for itself in no time had me giddy . So proud to have the hottest pin going at that time we put it in the front window for all to see. You probably all know what I wish I knew then, the side facing the windows red faded before we noticed it happening. To add to things my half of its earnings averaged $5.00 a week. So much for my plan to make money as an operator. After awhile decided to bring it home and put another machine at the track. The players who loved TZ but could play all night on a dollar complained and to keep my friend happy I began rotating it between my house and the track every couple of months. A couple of years later I was able to buy another TZ working off of location. It only cost me $600.00 and has no fade. That one has stayed at the track and I'm still waiting for them to pay back what I paid for them, let alone cost of maintenance on even a lightly played game on location. I had fun doing this but as a business after all this time I might break even on my initial investment by selling one of them. That said would I do it again, no but more because of my age and other commitments to time. Even a lightly played pin needs regular cleaning and service. Pluss side it is exciting taking ownership of NIB machine. Good luck if you if you decide to do it just be careful not to turn a fun hobby into a job.

    IMG_4214 (resized).JPG

    #33 2 years ago
    Quoted from dcannan:

    My machine never earned more than $2.00 a weak

    Talk about weak earnings!

    #34 1 year ago

    Weak earnings, You sound like my ex wife. I never really intended it to work out as a business, and I got my Twilight Zone new out of the box. Remember weak earnings means less wear on the machine.

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