Downside to Declaring as Pro Gambler for Favorable Tax Treatment

As tax obligations come upon us many may be considering declaring themselves professional gamblers
in order to be able to deduct expenses. I researched this and found that there is a downside to this.

1. Successful declaration will mean you are subject to a self employment tax in lieu of a s.s. tax which is not an obligation as a casual gambler.

2. The IRS may deny your request for a status as a professional gambler if they find a significant source of other income, namely a job.


Another source which I have cut and pasted has indicated that to circumvent the possibility of the IRS denying you status as a professional gambler you may be able to form an "entity" or corporation. One source that I have cut and pasted is a PhD dissertation from UNLV; the other is from a web source called professionalgamblerstatus.com. Of course, you would surely need an attorney and/or an accountant to assist you in making these decisions and to implement them.


Naturally with the ability to deduct the cost of a plane ticket to Las Vegas, hotel rooms, and the like everyone who has to claim gambling income would want to be considered a professional gambler. The tax court will consider one to be a professional, “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 within the meaning of the statutes with which we are here concerned (Groetzinger v. Commissioner, 1987).” In short, the court is saying that regardless of how good you are at gambling or how often you do it, you must really treat it as a business and rely on it for your livelihood. This is a standard that most cannot meet since for the most part simply having another job will usually eliminate your chances of being considered a professional. It is possible to still have a job and be considered a gambler, but this is quite rare (Barrish v. Commissioner, 1984). The above paragraph is from a UNLV PhD dissertation.


There are actually many benefits to filing under the umbrella of a Professional Gambling Entity, but the main one discussed here is to help thwart the #1 tool the IRS has to deny your Professional Gambler Status - that you did not do your gambling full-time and to the exclusion of all other income producing activities (or even all other social activities for that matter). The theory here is to have a separately filing taxpayer, an entity, properly formed for the sole purpose of gambling. The only activity of the entity is that of a professional gambler, and there are no other activities that can be pointed to to suggest that the entity had interests other than that of being a for-profit gambling operation. The entity is a "pure play" as a gambling operation and if the level of play achieved during the year is significant, regular, and continuous in the eyes of the law, then Professional Gambler Status is more readily assured. Another benefit is that some of the net gambling profits that pass through certain entities can be sheltered from the 15.3% self-employment tax. The above paragraph is from the web source professionalgamblerstatus.com


Yet another thought is that you may actually want to pay a self-employment tax in order to boost your s.s. payments if because of genetic factors and family history you believe that your life is likely to have greater than average longevity.

You got most of the pros/cons in your post but there is another positive to filing as a professional gambler: it's not just that you can deduct expenses, but also that you can write off gross losses on your schedule C and therefore your AGI (adjusted gross income) is not artificially inflated like it is if you file as a hobbyist. As a non-professional gambler you are "supposed" to declare gross winnings on the front of your 1040, and then deduct gross losses on your schedule A (which means you have to itemize whether it is beneficial for you or not).

An inflated AGI may not matter depending on your tax situation. It affects your eligibility for various credits and deductions and impacts the amount you can contribute to an IRA.

In addition, some states don't allow you to deduct gross gambling losses for your state tax return. Which is the most f***ing dumb, brain dead, OMG how can you be so illogical thing I have ever heard about taxes, and there are plenty of dumb things in the tax code. If you live in one of these states and declare your gross gambling winnings honestly as a non-professional, you are going to be screwed on your state taxes. Another benefit to filing as a pro if you can.

Quote: AcesAndEights

You got most of the pros/cons in your post but there is another positive to filing as a professional gambler: it's not just that you can deduct expenses, but also that you can write off gross losses on your schedule C and therefore your AGI (adjusted gross income) is not artificially inflated like it is if you file as a hobbyist. As a non-professional gambler you are "supposed" to declare gross winnings on the front of your 1040, and then deduct gross losses on your schedule A (which means you have to itemize whether it is beneficial for you or not).

An inflated AGI may not matter depending on your tax situation. It affects your eligibility for various credits and deductions and impacts the amount you can contribute to an IRA.

In addition, some states don't allow you to deduct gross gambling losses for your state tax return. Which is the most f***ing dumb, brain dead, OMG how can you be so illogical thing I have ever heard about taxes, and there are plenty of dumb things in the tax code. If you live in one of these states and declare your gross gambling winnings honestly as a non-professional, you are going to be screwed on your state taxes. Another benefit to filing as a pro if you can.

Good posts above. Pick your 'State' carefully, consider moving. New Zealand is a possibility, and Canada, and Costa Rica, and others. Not necessarily in that order.....

Quote: AcesAndEights

In addition, some states don't allow you to deduct gross gambling losses for your state tax return. Which is the most f***ing dumb, brain dead, OMG how can you be so illogical thing I have ever heard about taxes, and there are plenty of dumb things in the tax code. If you live in one of these states and declare your gross gambling winnings honestly as a non-professional, you are going to be screwed on your state taxes. Another benefit to filing as a pro if you can.

Ain't dumb. It's calculated to screw you. Oh, believe me, they have thought that one out.

You can definitely claim Schedule C business expenses for something you do part-time while you have a day job. I did it for years before I went full-time. But it has to be a legitimate business and has to be run like one -- separate bank account, business license, etc. If you just say "hey, I'm a professional gambler" and try to deduct your plane tickets from your last Vegas vacation with you and your buddies, that won't work.

I'd think an important concern would be whether the risk of an IRS audit -- and the accompanying expenses -- are worth the potential gains from tax savings by filing on Schedule C. That will depend on your gains. If you only make $20k/year APing, I'd think it wouldn't make sense, but it'd be interesting to hear from APs who actually do file Schedule Cs. Anyone? (My Schedule C isn't for gambling activities...)

Quote: TwoFeathersATL

Good posts above. Pick your 'State' carefully, consider moving. New Zealand is a possibility, and Canada, and Costa Rica, and others. Not necessarily in that order.....

Come to the UK. You will pay ZERO tax on your winnings. There will be no declarations to do. Casinos will not withhold taxes. Nothing! And it's all legal to do online if you wish, with no problems in the banking system.
HMRC have no interest in anything that you win or lose in a casino unless you ARE a casino.
We even have single zero roulette.
Come to the provinces and you can probably count BJ to your hearts content without getting noticed.
Mind you, doesn't America have some dumb rule about taxing your income wherever it arises in the world?

Quote: OnceDear

...Mind you, doesn't America have some dumb rule about taxing your income wherever it arises in the world?

Someone has to fund these wars we keep butting our noses into.

If you stay out of the country for 11 months of the year you can make up to 130k per year tax free. I don't know all the details about that.
I have filed as a professional for the last 13 years and haven't had any problems, but it is my only source of income.

Quote: Hunterhill

If you stay out of the country for 11 months of the year you can make up to 130k per year tax free. I don't know all the details about that.
I have filed as a professional for the last 13 years and haven't had any problems, but it is my only source of income.

Where do you hide 11 months out of the year? Not asking you out on a date here, just relevant info?

I don't hide out,I was just saying it is possible to avoid paying the U.S. tax if you do.

I think there is a lot of confusion about deducting losses. I know I'm not sure what is the absolutely correct way to do it.
For example: If you won $3,000 on Wednesday (at a table) and you lost $4,000 on Thursday how are you supposed to report that?
Are you supposed to say that you had a net trip loss of $1,000?
Or are you supposed to say you won $3,000 on Wednesday and then deduct your $4,000 Thursday loss.
Maybe in a state that doesn't allow you to deduct losses they would like for you to state that you won $3.000.
And it could even get more comical than that.
If you sat at a bj table for 2 hours and had 65 hands where you won $3,000 and 85 hands where you lost $5,000 maybe a state that doesn't allow you to deduct losses would like for you to report that you won $3,000. It's laughable.

Quote: lilredrooster

Are you supposed to say that you had a net trip loss of $1,000?

well, you are, but IMO the 1040 doesn't lead you to that naturally when a W2-g is involved. Thus, you do your taxes right and risk an audit to prove you did it right. Potentially, your record keeping will be rejected [it probably sucks alright]. What the likelihood of problems is, I don't know, but I don't plan to find out.

As long as you lose most of the time, and you keep decent records, you prolly will not have a problem. This has been my experience. (Sigh)

Quote: lilredrooster

I think there is a lot of confusion about deducting losses. I know I'm not sure what is the absolutely correct way to do it.

The IRS was discussing new rules about defining "sessions" for electronic wagering in the middle of last year, but I don't know what came of it. This could be a really important (that is, sizable) tax calculation for frequent slot players so I'd strongly advise talking to your tax professional and not just us.

Quote: MathExtremist

I'd think an important concern would be whether the risk of an IRS audit -- and the accompanying expenses -- are worth the potential gains from tax savings by filing on Schedule C. That will depend on your gains. If you only make $20k/year APing, I'd think it wouldn't make sense, but it'd be interesting to hear from APs who actually do file Schedule Cs. Anyone? (My Schedule C isn't for gambling activities...)

I'll be doing that. I'm in a bad state that doesn't allow sessions for non pros. I have $60K+ in W2-Gs but an $8,000 loss overall on video poker. Income of $xx,000 from regular poker (where xx is between 20 and 40). I didn't pay estimated taxes because my poker year started off break even for 6 months....

So probably a penalty, whatever.

Edit - and I log every session.

Quote: BTLWI

I'll be doing that. I'm in a bad state that doesn't allow sessions for non pros. I have $60K+ in W2-Gs but an $8,000 loss overall on video poker. Income of $xx,000 from regular poker (where xx is between 20 and 40). I didn't pay estimated taxes because my poker year started off break even for 6 months....

So probably a penalty, whatever.

Edit - and I log every session.

You are effed, you should run now, then hide. Your tax pro prolly ain't got a clue unless you happened to hire a professional with considerable expertise in an area that is undefined. It's the Wild West my friends, Welcome to Vegas ;-)

Quote: TwoFeathersATL

You are effed, you should run now, then hide. Your tax pro prolly ain't got a clue unless you happened to hire a professional with considerable expertise in an area that is undefined. It's the Wild West my friends, Welcome to Vegas ;-)

I don't think he's effed, at least on federal. Good records, maybe backed up by banking deposits and withdrawals, he declares his poker winnings and w2's, itemizes showing offsetting losses, pays tax on the net, I don't see the IRS getting too worried about it. I could be wrong, of course, but on the face of it, seems standard.

Interesting related article in the WSJ today. Unfortunately, if you aren't subscribed to the online version or get the paper, you won't be able to read it.

Not much that we haven't discussed, although one point of interest was certain gamblers getting casino debt forgiven. [I have been maintaining in other threads etc a lot of this can be phony run-up of debt and this seems to support that]. However, should this happen, and the IRS get hold of it, it counts as income, and in one case a person got nailed for $250,000 in 'income' to be taxed, it says.

http://www.wsj.com/articles/the-other-march-madness-what-the-irs-thinks-of-your-bracket-1458207007

Quote: TwoFeathersATL

You are effed, you should run now, then hide. Your tax pro prolly ain't got a clue unless you happened to hire a professional with considerable expertise in an area that is undefined. It's the Wild West my friends, Welcome to Vegas ;-)

The IRS probably has teams working in shifts anticipating my $22,000 income tax return.

Quote: BTLWI

The IRS probably has teams working in shifts anticipating my $22,000 income tax return.

The IRS is highly likely to believe that you are a much more profitable gambler than you say you are.
If only I could get my wife to have as much confidence in my gambling abilities as the IRS has.

The IRS is so underfunded now, (Per Clark Howard, Radio/TV financial guru) that 90% of the audits impact the top 10% income earners, and 10% of audits are those in the bottom 90%.

After all, that's where the money is.

Yes, be prepared should you get audited, but I wouldn't lose sleep over it. (unless you're in the top 10% of income earners)

Quote: ukaserex

The IRS is so underfunded now, (Per Clark Howard, Radio/TV financial guru) that 90% of the audits impact the top 10% income earners, and 10% of audits are those in the bottom 90%.

After all, that's where the money is.

Yes, be prepared should you get audited, but I wouldn't lose sleep over it. (unless you're in the top 10% of income earners)

As sad as it sounds, and as sad as it is, it doesn't take that much income to be in the top 10%. A quick google showed $166k/Yr to be in THE TOP 5% in the USA. Now I am depressed, and I have to go count my blessings, and my shrinking bankroll. Started to put a smiley/winky thing there, decided I'm not smiling.

Quote: TwoFeathersATL

As sad as it sounds, and as sad as it is, it doesn't take that much income to be in the top 10%. A quick google showed $166k/Yr to be in THE TOP 5% in the USA. Now I am depressed, and I have to go count my blessings, and my shrinking bankroll. Started to put a smiley/winky thing there, decided I'm not smiling.

Is that $166k for an individual or is that combined for household?

Quote: DRich

Is that $166k for an individual or is that combined for household?

Not sure. I typed the first sentence, then did a quick google for 'top us 10% income' or something, before continuing. I assume was household, but could be mistaken. Maybe the point to be made is if you go out, look around, work hard, and make 50K a year, you are doing quite well in the grand scheme of things, percentage wise. If you can read this post, then you can google your percentage as 'a comparable'. I don't want to get political here, don't want to be suspended for hijacking, but the numbers say alot if you think about them.

According to payscale.com, based on the 2010 Census, the 10 percent mark is "$135,000 to $139,999 - 9.85%."

With regards to the S-corp/LLC thing you are treading on thin ice in some cases (according to my tax prep guy, who is a pretty well known gambling tax accountant). If you do not generate lots of tax forms (e.g. W-2G or 1099-MISC) then you should be OK. It's actually a pretty common thing for professional poker players, especially cash game players who may play the occasional tournament, to do. The problem with doing a separate business and getting tax forms for gambling is that you then need to shift all them from your name into the business name and the IRS does not like you doing this. The IRS is very likely to ask a bunch of questions and, as this is actually a very grey area, you may end up in tax court and you will probably lose.

Quote: MathExtremist

You can definitely claim Schedule C business expenses for something you do part-time while you have a day job. I did it for years before I went full-time. But it has to be a legitimate business and has to be run like one -- separate bank account, business license, etc. If you just say "hey, I'm a professional gambler" and try to deduct your plane tickets from your last Vegas vacation with you and your buddies, that won't work.

Gambling is a special case, though. Filing a schedule C as a professional gambler has a higher standard than other part-time business, and it has to be your main source of income. In other words if you have a regular day job, you can't file as a professional gambler no matter how legitimate your AP pursuits are and how pristine you keep your records.

Quote: AcesAndEights

Gambling is a special case, though. Filing a schedule C as a professional gambler has a higher standard than other part-time business, and it has to be your main source of income. In other words if you have a regular day job, you can't file as a professional gambler no matter how legitimate your AP pursuits are and how pristine you keep your records.

You are also required to file quarterly estimated tax forms and remit payment every 3 months.

A bit off topic, but does one have to itemize to declare gambling losses against W2G wins?

Quote: Wizard

A bit off topic, but does one have to itemize to declare gambling losses against W2G wins?

Yes. You can't deduct any gambling losses without itemizing.

Quote: DRich

Quote: AcesAndEights

Gambling is a special case, though. Filing a schedule C as a professional gambler has a higher standard than other part-time business, and it has to be your main source of income. In other words if you have a regular day job, you can't file as a professional gambler no matter how legitimate your AP pursuits are and how pristine you keep your records.

You are also required to file quarterly estimated tax forms and remit payment every 3 months.

Yep. Unless you file jointly and your spouse has a working stiff job, and you can jack up the withholding on his/her paycheck to cover your taxes :)

I am going to try that this year. My schedule C business is not gambling, FYI, but the same approach would work.

Tax law, as it relates to Gamblin', particularly as a professional, is mostly being defined in court. That means, the mental giants in charge, well maybe they weren't mental giants....