What Is A Professional Gambler

1. What Does A Professional Gambler Do
2. What Is A Professional Gambler
3. What Is A Professional Sports Gambler

Professional gamblers are treated differently from amateur gamblers for tax purposes because a professional gambler is viewed as engaged in the trade or business of gambling. The professional gambler reports gambling winnings and losses for federal purposes on Schedule C, Profit or Loss From Business. To compute his or her business income, the professional gambler may net all wagering activity but cannot report an overall wagering loss. In addition, the taxpayer may deduct 'ordinary and necessary' business expenses (expenses other than wagers) incurred in connection with the business.

• Simply put, a professional gambler is someone who gets their income from gambling, be that online or live. They may specialise in sports betting, using their knowledge of the field and form, or at games such as blackjack, where card-counting can give them a better edge. Betting on Your Dreams.
• A gambler is considered to be a professional if they gamble full time to earn a living and not merely for fun and excitement. Professional gamblers report their income and related expenses on Schedule C as self-employment income. Net Schedule C income is subject to federal income tax and to the self-employment tax, plus any state income tax.

Whether a gambler is an amateur or a professional for tax purposes is based on the 'facts and circumstances.' In Groetzinger, 480 U.S. 23 (1987), the Supreme Court established the professional gambler standard: 'If one's gambling activity is pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby, it is a trade or business.' The burden is on the gambler to prove this status.

In addition to applying the standard established in Groetzinger, courts sometimes apply the following nonexhaustive nine-factor test in Regs. Sec. 1.183-2(b)(1) used to determine intent to make a profit under the hobby loss rules to decide whether a taxpayer is a professional gambler:

Knowing what best gamblers do can open new gambling world for you. Simple, yet, effective tips that can improve your gambling performance.

• The manner in which the taxpayer carries on the activity;
• The expertise of the taxpayer or his advisers;
• The time and effort the taxpayer expended in carrying on the activity;
• An expectation that assets used in the activity may appreciate in value;
• The taxpayer's success in carrying on other similar or dissimilar activities;
• The taxpayer's history of income or losses with respect to the activity;
• The amount of occasional profits, if any, that are earned;
• The financial status of the taxpayer; and
• Elements of personal pleasure or recreation.

What if a professional gambler's 'ordinary and necessary' business expenses exceed the net gambling winnings for the year? In Mayo, 136 T.C. 81 (2011), the court held the limitation on deducting gambling losses does not apply to ordinary and necessary business expenses incurred in connection with the trade or business of gambling. Therefore, a professional gambler may report a business loss, which may be applied against other income from the year.

LIMITATIONS ON LOSS DEDUCTIONS

Some states do not permit amateur gamblers to deduct gambling losses as an itemized deduction at all. These states include Connecticut, Illinois, Indiana, Kansas, Massachusetts, Michigan, North Carolina, Ohio, Rhode Island, West Virginia, and Wisconsin. A taxpayer who has $50,000 of gambling winnings and $50,000 of gambling losses in Wisconsin for a tax year, for example, must pay Wisconsin income tax on the $50,000 of gambling winnings despite breaking even from gambling for the year.

Because professional gamblers may deduct gambling losses for state income tax purposes, some state tax agencies aggressively challenge a taxpayer's professional gambler status. A taxpayer whose professional gambler status is disallowed could face a particularly egregious state income tax deficiency if the taxpayer reported on Schedule C the total of Forms W-2G, Certain Gambling Winnings, instead of using the session method under Notice 2015-21. In this situation, the state may be willing to consider adjusting the assessment based on the session method if the taxpayer provides sufficient documentation.

For a detailed discussion of the issues in this area, see 'Tax Clinic: Taxation of Gambling,' by Brad Polizzano, J.D., LL.M., in the October 2016 issue of The Tax Adviser.

—Alistair M. Nevius, editor-in-chief, The Tax Adviser

The Tax Adviser is the AICPA's monthly journal of tax planning, trends, and techniques.

Also in the October issue:

• An analysis of executive compensation clawbacks.
• An update on recent developments in estate planning.
• A look at revisions to Forms 1042-S and W-8BEN-E.

AICPA members can subscribe to The Tax Adviser for a discounted price of $85 per year. Tax Section members can subscribe for a discounted price of $30 per year.

What Does A Professional Gambler Do

What Is A Professional Gambler

• tax advice including, for example, fees paid to ProfessionalGamblerStatus.com™
• subscriptions to gambling magazines and newspapers
• gambler guides and books
• seminars and ongoing education (if not merely qualifying a recreational gambler to become a professional gambler)
• start-up and organizational costs (paid after 10/22/04)
  • up to $5,000 maximum is deducible in the first year
  • any amount over $5,000 must be amortized over 15 years
  • this deduction is only allowed if tax return is not filed late
• dedicated telephone usage and long distance
• cell phone, pager and messenger fees
• wireless gaming fees
• cable fees
• on-line services and connection fees
• gambler tip services & newsletters and news service fees
• gaming chat room fees or subscriptions
• office rent (but not if paid to yourself)
• office supplies, postage, bank charges and wire fees
• certain club memberships, dues and fees
• clerical and record keeping expenses
• wages paid to your spouse, kids, or parents for their assistance
  
• interest expense paid:
  • on loans used for maintaining professional gambler's positions
  • including, in certain circumstances, your credit card interest
  • on home mortgage debt if an irrevocable §1.163-10T(o)(5) election is made
  • this so-called 'margin interest' is generally fully deductible for active traders because it is not subject to the regular 'investment interest' limitation on IRS form 4952
  • passive investment in separate gambler entities is subject to the §163(d)(1) limitation (as typically shown on IRS form 4952) update: IRS Rev Rul 2008-12 has officially agreed with this position. Further, IRS Announcement 2008-65 and IRS Rev Rul 2008-38 state that the allowable interest (typically from IRS form 4952) is deductible on Schedule E, rather than on Schedule A as was the previously held IRS position.
    
• depreciation on furniture, television, computer equipment and software
  • computers & equipment 5 year life (Rev Proc 87-56)
  • office furniture & fixtures 7 year life (Rev Proc 87-56)
  • it is penny wise and pound 'audit bait' foolish (or just plain ignorance) taking a deduction using other periods such as 3 year lives (which by law is basically limited to horses ( §168(e)(3))
    • 50% bonus depreciation rule may expire on 12/31/2004
      
• up to $125,000 of '§179 deduction' in 2007 ($102.,000 in 2004, $105,000 in 2005 and $108,000 in 2006 and retroactively modified from the original $112,000 for 2007) in lieu of depreciation (if proper election is filed)
  • computers, other equipment, software and furniture qualify.
  • automobiles and SUV's on a car chassis with unloaded GVW of 6,000 pounds and SUV's on a truck chassis , Trucks & Vans with a loaded GVW over 6,000 pounds may be eligible for §179 (through 10/22/2004)
  • Effective 10/23/2004 SUV's weighing 6,001 to 14,000 pounds may be eligible for §179 to a maximum of $25,000. SUV's over 14,000 pounds or holding a driver + 9 passengers still have the $102,000 limitation.
  • Effective 1/1/2008 SUV's weighing 6,001 to 14,000 pounds as proposed may NOT be eligible for §179. First year depreciation would be limited to $2,960.
  • $102,000 limit (as adjusted for inflation) is scheduled to revert to $25,000 on January 1, 2006 (on 10/22/04 this provision was extended to January 1, 2008)
  • to qualify for the annual $125,000 §179 deduction you must spend less than $500,000 in 2007 ($410,000 in 2004 and $420,000 in 2005 and $430,000 in 2006)
    
• travel and automobile expense
• auto mileage rate 2020 up to four cars at a time @ 57.5¢/mile (depreciation portion is 27¢, most of the remainder is based on insurance, repairs and fuel)
  • note that the medical & moving mileage rates are 17¢/mile (based mostly on fuel cost)
  • the charitable purposes mileage rate is 14¢/mile (this rate is fixed by law)
  • the military rate for airplane is $1.27 and for motorcycle is 54.5¢/mile and 17¢/mile for some other travel
• auto mileage rate 2019 up to four cars at a time @ 58.0¢/mile (depreciation portion is 26¢, most of the remainder is based on insurance, repairs and fuel)
  • note that the medical & moving mileage rates are 20¢/mile (based mostly on fuel cost)
  • the charitable purposes mileage rate is 14¢/mile (this rate is fixed by law)
  • the military rate for airplane is $1.26 and for motorcycle is 55¢/mile and 20¢/mile for some other travel
• auto mileage rate 2018 up to four cars at a time @ 54.5¢/mile (depreciation portion is 25¢, most of the remainder is based on insurance, repairs and fuel)
  • note that the medical & moving mileage rates are 18¢/mile (based mostly on fuel cost)
  • the charitable purposes mileage rate is 14¢/mile (this rate is fixed by law)
  • themilitary ratefor airplane is $1.21 and formotorcycleis 51.5¢/mile and 18¢/milefor some other travel
• auto mileage rate 2017 up to four cars at a time @ 53.5¢/mile (depreciation portion is 25¢, most of the remainder is based on insurance, repairs and fuel)
  • note that the medical & moving mileage rates are 17¢/mile (based mostly on fuel cost)
  • the charitable purposes mileage rate is 14¢/mile (this rate is fixed by law)
  • themilitary ratefor airplane is $1.15 and for motorcycle is 50.5¢/mile and 17¢/mile for some other travel
• auto mileage rate 2016 up to four cars at a time @ 54.0¢/mile (depreciation portion is 24¢, most of the remainder is based on insurance, repairs and fuel)
  • note that the medical & moving mileage rates are 19¢/mile (based mostly on fuel cost)
  • the charitable purposes mileage rate is 14¢/mile (this rate is fixed by law)
  • themilitary ratefor airplane is $1.17 and for motorcycle is 51.0¢/mile and 19¢/mile for some other travel
• auto mileage rate 2015 up to four cars at a time @ 57.5¢/mile (depreciation portion is 24¢, most of the remainder is based on insurance, repairs and fuel)
  • note that the medical & moving mileage rates are 23¢/mile (based mostly on fuel cost)
  • the charitable purposes mileage rate is 14¢/mile (this rate is fixed by law)
  • themilitary ratefor airplane is $1.29 and for motorcycle is 54.5¢/mile and 23¢/mile for some other travel
• auto mileage rate 2014 up to four cars at a time @ 56¢/mile (depreciation portion is 22¢)
  • note that the medical & moving mileage rates are 23.5¢/mile
  • the charitable purposes mileage rate is 14¢/mile
  • themilitary ratefor airplane is $1.31 and for motorcycle is 53.0¢/mile and 23.5¢/mile for some other travel
• auto mileage rate 2013 up to four cars at a time @ 56.5¢/mile (depreciation portion is 23¢)
  • note that the medical & moving mileage rates are 24¢/mile
  • the charitable purposes mileage rate is 14¢/mile
  • themilitary ratefor airplane is $1.33 and for motorcycle is 53.5¢/mile and 24¢/mile for some other travel
• auto mileage rate 2012 up to four cars at a time @ 55.5¢/mile (depreciation portion is 23¢)
  • note that the medical & moving mileage rates are 23¢/mile
  • the charitable purposes mileage rate is 14¢/mile
  • themilitary ratefor airplane is $1.31 and for motorcycle is 52.5¢/mile and 23¢/mile for some other travel
• auto mileage rate 2011 up to four cars at a time @ 51¢/ mile thru Jun. Jul to Dec @ 55.5¢ (depreciation portion is 22¢)
  • note that the medical & moving mileage rates are 19¢/mile thru Jun. Jul to Dec @ 23.5¢
  • the charitable purposes mileage rate is 14¢/mile
  • themilitary ratefor airplane is $1.29 and for motorcycle is 48.0¢/mile and 23.5¢/mile for some other travel
• auto mileage rate 2010 up to four cars at a time @ 50¢/mile (depreciation portion is 23¢)
  • note that the medical & moving mileage rates are 16.5¢/mile
  • the charitable purposes mileage rate is 14¢/mile
  • themilitary ratefor airplane is $1.29 and for motorcycle is 47.0¢/mile and 16.5¢/mile for some other travel
• auto mileage rate 2009 up to four cars at a time @ 55¢/mile (depreciation portion is 21¢)
  • note that the medical & moving mileage rates are 24¢/mile
  • the charitable purposes mileage rate is 14¢/mile
  • themilitary ratefor airplane is $1.24 and for motorcycle is 52.0¢/mile and 24¢/mile for some other travel
• auto mileage rate 2008 up to four cars at a time @ 50.5¢/mile thru Jun. Jul to Dec @ 58.5¢ (depreciation portion is 21¢)
  • note that the medical & moving mileage ractes are 19¢/mile thru Jun. Jul to Dec @ 27¢
  • the charitable purposes mileage rate is 14¢/mile
• auto mileage rate 2007 up to four cars at a time @ 48.5¢/mile
  • note that the medical & moving mileage rates are 20¢/mile
  • the charitable purposes mileage rate is 14¢/mile
• auto mileage rate 2006 up to four cars at a time @ 44.5¢/mile
  • note that the medical & moving mileage rates are 18¢/mile
  • the charitable purposes mileage rate is 14¢/mile, there's special rates for Katrina
• auto mileage rate 2005 up to four cars at a time @ 40.5¢/mile thru Aug. Sept to Dec @ 48.5¢
  • note that the medical & moving mileage rates are 15¢/mile thru Aug. Sept to Dec @ 22¢
  • the charitable purposes mileage rate is 14¢/mile, after Aug 24^th there's special rates for Katrina
• auto mileage rate 2004 up to four cars at a time @ 37.5¢/mile
  • note that the medical & moving mileage rates are 14¢/mile
  • the charitable purposes mileage rate is 14¢/mile
• auto mileage rate 2003 one car at a time @ 36¢/mile
  • note that the medical & moving mileage rates are 12¢/mile
  • the charitable purposes mileage rate is 14¢/mile
    
  A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.
  These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51. Notice 2012-72 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan
  

  To use the standard mileage rate, you must own or lease the car and:

  • You must not operate five or more cars at the same time, as in a fleet operation,
  • You must not have claimed a depreciation deduction for the car using any method other than straight-line,
  • You must not have claimed a Section 179 deduction on the car,
  • You must not have claimed the special depreciation allowance on the car,
  • You must not have claimed actual expenses after 1997 for a car you leased, and
  • You cannot be a rural mail carrier who received a 'qualified reimbursement.'

  Further, to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use the standard mileage rate or actual expenses.

  However, for a car you lease, if you choose the standard mileage rate, you must use the standard mileage rate method for the entire lease period (including renewals).

  To use the actual expense method, you must determine what it actually costs to operate the car for the portion of the overall use of the car that is business use. Include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to the portion of the total miles driven that are business miles.

  Other car expenses for parking fees and tolls attributable to business use are separately deductible, whether you use the standard mileage rate or actual expenses.

  http://www.irs.gov/taxtopics/tc510.html
  
  
• home office expenses¹.
• maid service and cleaning
• unreimbursed expenses (if business entity's papers are properly documented)
• on-premises athletic facilities (if your business entity is properly designed)
• deductible retirement plans, including the Single-Participant 401k on wages (click here for more) (if the business is properly designed)
• a non-deductible Roth IRA in lieu of a regularly deductible IRA
• fully deductible medical & health care expenses or even a §501(c)(9) VEBA trust (if the plans are properly designed) - Note effective in 2006, IRS is attacking 'abusive VEBA plans' that are promoted elsewhere on the internet.
• child care and other §125 cafeteria plan deductions (if the plan is properly designed)
• other fringe benefit plans (if the plans are properly designed)
• 50% deductible restaurant meals had with friends who are fellow professional gamblers, lawyers, bankers, advisors
• 50% deductible gifts to friends and entertainment with people who are fellow gamers, lawyers, bankers, advisors
• all the above with your spouse (if business purpose is properly documented and conducted)
• 100% deductible §119 professional gambler's daily pizza and Chinese take-out meals (if your c-corp or other entity is properly designed)
• 100% deductible §119 professional gambler's monthly residence rent payments (if your c-corp is very strictly and properly designed)
• Most start-up and early organization expenses incurred after October 22, 2004 for an entity are fully deductible, rather then being amortized over 60 months as the earlier rule required.
• Other Tax Deductions and Your Small Business
  

What Is A Professional Sports Gambler

Because of this favorable 'trade or business' treatment, a professional gambler's net profits are subject to Self-Employment tax, under IRS Code §1402 (a)(3)(A)
Taxpayers who qualify to file as Professional Gambler Status may 'elect' such classification each year by a filing an appropriate tax return with the IRS.
A Professional Gambler's Responsibilities
US Gambling Laws and Online Regulation?
What Is a Gambling Session?

Some other websites offering gambler tax content. Hmm, I wonder who's website first copied from whom?

Quicken's gambler information page

¹Deduction for Business Use of Your Home
One provision of the 1997 tax act, which was delayed to be effective for years after 1998, greatly relaxes the rules that must be met in order to deduct business use of your home.
A major change is the elimination of the rule that required the office be your 'principal place of business' - the place where you meet with customers or the place where you generate most of your income. That is not the current requirement.
The new rule is a simple test requires that the use of the office be an 'ordinary and necessary' expense for the business and, unless this is the only fixed location of the business, it must be the only place available where you can perform the necessary 'administrative or managerial' functions of the business.
Note that this does not change the requirement that the office must be used 'totally and exclusively' for the business, and have no other use whatsoever. This is very strictly interpreted, and any degree of non-business use will disqualify the office. (Theoretically, if you have your computer in your home office, and sometimes use it to track personal investments, surf the web, or play an occasional game that can cause you to lose all deductions for use of the home office for the year.)
Also, if the use of the office is as an employee, that use must clearly be solely for your employer's convenience, not yours. If you are provided a suitable place to work by your employer (even if that means a 25 mile drive to the office in the middle of the night, when you are on-call to return customer emergency calls), that precludes you from claiming deductions for use of your home.
Note that, if your office in home qualifies for a deduction under the revised laws, it can be considered a 'place of business' for determining your deductible business mileage, therefore it would not be non-deductible commuting.
The office in the home deduction generally is limited to an amount not to exceed your trading profits less your trading expenses. The excess office in the home deduction may be carried forward to be used in the following year(s).
Pass-thru entity unreimbursed expenses require proper documentation and must have no waived right for reimbursement.