Odds Are Tax Law Does Not Consider You a Professional Gambler

When it comes to taxes, the tax code treats professional gamblers better than recreational gamblers.
 
Unlike recreational gamblers, professionals get to deduct all their gambling expenses (including travel, lodging, and meal expenses) up to their annual winnings, without itemizing. This is a big advantage.

If you gamble a lot, you could benefit by qualifying as a professional and filing IRS Schedule C to report your winnings, losses, and other expenses. But it’s not so easy to qualify as a professional gambler. You must
 

1. gamble regularly and continuously, and

2. gamble with the primary purpose of earning a profit.

 
Most professional gamblers gamble full-time. But qualifying as a professional and having another job is possible if you gamble regularly and continuously throughout the year. For example, Linda Myers spent 25 to 35 hours per week running her trucking business and about 40 hours playing slot machines. She qualified as a professional gambler. But gambling sporadically won’t cut it, even if you spend a lot of time gambling.
 
The IRS uses a nine-factor test to determine whether you gamble primarily for profit or for other reasons, such as having fun. The profit factors include whether you carry out the activity in a businesslike way, your history of winnings or losses, your financial status, your expertise at gambling, and the time and effort you spend gambling.
 
Court cases show that the single most important factor is keeping good gambling records. Don’t rely on casino win/loss statements. A Las Vegas couple won over $19,000 at video poker but learned the hard way, when they tried to file as professional gamblers, that good records are essential. The fact that they never kept their own gambling records weighed heavily in the Tax Court’s refusal to classify them as professional gamblers.
 
Do this. Create your own contemporaneous gambling log or diary showing your wins and losses by gambling session.
 
Also do this. Use a separate bank account for your gambling activity.
 
Other things you can do to help establish your professional gambler bona fides include creating a business plan, educating yourself about gambling, and changing games if you consistently lose. Remember, as a professional, you’re gambling to make money, not to have fun.

Recreational Gamblers
It is very important that recreational gamblers maintain logs as well.  The tax code is not very kind to recreational gamblers.  In fact, if you do not itemize, recreational gamblers are not able to deduct losses but must report their winnings!  This is true on Indiana taxes as well.  We recommend a log for each session of gambling you are involved.  Typically this would be measured on a per day basis.  In your log, note the date, location, and your starting and ending bankroll.  The difference is your win/loss total for that session.  We have successfully defended this approach to both the IRS and Indiana.  But the key – you must have this log. 


Questions?
If you want to discuss professional gambling status, or have other tax-related questions, please contact TrueBlaze Advisors