Paying taxes on earnings / becoming an operator

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.

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.

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.