Tax considerations for professional gamblers

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The tax treatment of gambling winnings and losses depends on whether the taxpayer is classified as a professional or a hobby gambler.

For hobby gamblers, gambling winnings are treated as “Other Income” on their Form 1040, while gambling losses are deductible as an itemized deduction on Schedule A, subject to certain limitations. This means that hobby gamblers can only deduct their gambling losses up to the amount of their gambling winnings.

In contrast, professional gamblers are considered to be in the business of gambling, and their gambling activities are treated as a trade or business for tax purposes. This means that they report their gambling income and expenses on Schedule C, and they can deduct their gambling-related expenses, such as travel expenses and betting fees, as business expenses.

Professional gamblers may also be subject to self-employment tax, which is a tax on self-employment income, while hobby gamblers are not.

The main reason for these different tax considerations is that the tax law is designed to distinguish between individuals who gamble as a hobby and those who do it as a profession. The tax law allows hobby gamblers to deduct their losses, but only up to the amount of their winnings, as a way to provide some relief from the tax consequences of gambling. For professional gamblers, the tax law treats their gambling activities as a business and therefore allows them to deduct all of their expenses, just like any other business.

It’s worth noting that the determination of whether someone is a professional gambler or a hobby gambler is based on a facts and circumstances test, and there is no bright-line rule to determine this. The IRS looks at factors such as the amount of time and effort spent gambling, the level of skill and expertise involved, and the frequency and consistency of gambling activities, among other factors, in order to make their determination of whether or not the gambling activity is done as a hobby or as a business.

If you or someone you know has a gambling problem and wants help, call 1-800-GAMBLER.