Gambling return once you factor in taxes

Looking for tax deductions?
Online gaming & Casino gambling is fast... exciting... profitable... challenging... and tax deductible!
https://professionalgamblerstatus.com/

Why use Professional Gambler Status for tax return purposes?:
For IRS tax purposes there are non-professional or casual / recreational gamblers and then there are professional gamblers (US Supreme Court Commissioner v Groetzinger 1987). The casual gambler generally benefits by contemporaneously tracking his "daily gambling sessions" and then reporting the daily net gain for each wager type "above the line" rather than reporting only the gross winnings "above the line," as reported on the Form W-2G. The differences can be devastating to the unwary. Illustration by example: Let's assume a casual gambler (regular or sessions) has winnings where he received form W-2G's and 1099's for "comps" and cashback & free-play totaling $400,000 for the year. Let's further assume that at other times during the year he lost $420,000. Bottom line is he is down $20,000 + his travel and other out-of-pocket expenses for the year.

To keep this somewhat realistic, let's say the taxpayer has some interest & dividend income, is collecting Social Security and has a little part-time job earning $10,000 of which $4,500 is put into a Roth IRA.

Then oversimplifying this a bit for clarity in this example:
Filing as a regular casual / recreational gambler the $400,000 is reported on form 1040, line 21 "other income" and then $400,000* is deducted on Schedule A, line 16 "gambling losses" (line 28, before 2018)
* That's not a typo, only $400,000 is deductible, not the full $420,000 in losses.

If using contemporaneously maintained sessions the regular casual / recreational gambler the $400,000 (less his same sessions wagers and losses)* with the resulting net amount being reported on form 1040, line 21 "other income" and then the same amount is deducted on Schedule A, line 16 "gambling losses." (line 28, before 2018)
* That's not a typo, the Schedule A, line 16 deduction is limited to the amount of gambling income reported on Line 21. (line 28, before 2018)

Filing as a professional gambler the $400,000 is reported on Schedule C, line 1 "gross receipts" and then $400,000 is deducted on Schedule C, line 39 as "other costs" or line 48 as "other expenses."

The professional gambler's Schedule C therefore shows a net of zero with zero coming forward to Form 1040, line 12. Basically it is a wash with no negative tax repercussions. (operating expenses may have resulted in a negative amount coming forward to Form 1040, line 12 for years before 2018).

But the casual / recreational gambler has numerous changes starting with a higher Adjusted Gross Income (AGI) and higher itemized deductions, all of which cost him money:

His social security rather than being non-taxable is now 85% taxable because his AGI is over the threshold. This adds $18,000 to his taxable income.
His $12,000 standard deduction is wiped out and replaced with the itemized deduction, this in effect increases his taxable income by $12,000.
Various tax credits, earned income credit, child credits, education credits, and so on are eliminated because his AGI is over the thresholds.
His ability to have a deductible IRA, Roth IRA, or Roth conversion is prohibited because his AGI is over the thresholds.
For tax years before 2018, his $3,650 for each exemption / dependent listed on the tax return is eliminated because his AGI is over the thresholds.
The active gambler who files his taxes as a non-professional gets a raw deal. But if qualified to file as a professional gambler the income tax burden can be reduced by thousands of dollars.

Even better: if the professional gambler is modestly profitable for the year, while this means he is subject to an extra 15.3% self-employment tax (SECA) on top of his regular income taxes - it also opens the door to the earned income credit (EIC) which occasionally can actually exceed the SECA tax, and thereby offsetting it completely.

Having some self-employment income also can allow the professional gambler to deduct health insurance in full without itemizing and without the 7.5% AGI limitation. Also up to a $7,000 IRA contribution can be made or up to a $25,000 self-employed 401(k) plan contribution can be deducted.

Optionally, the forming a separately filing entity (such as a partnership, LLC or s-corporation) can help lock in professional gambler status and further protect all of these tax benefits.

Quote: link provided by ChumpChange

His social security rather than being non-taxable is now 85% taxable because his AGI is over the threshold. This adds $18,000 to his taxable income.

whoa!

Professional Gamblers need to be aware of their responsibilities under the law to maintain adequate books and records and document their activities.
https://professionalgamblerstatus.com/responsibilities.htm

The danger here is that when it comes to an Individual's Professional Gambler Status and Professional Gambler Status Entities, the lack of credible substantiation can lead to a revocation of Professional Gambler Status in its entirety and thus reverting the taxpayer to Casual Gambler Status.

Nobody gets receipts when they cash-out at the cage unless there's other paperwork involved. Even an ATM will spit out a receipt for money paid out. That makes most cage transactions unreportable as a gambler because there's no paper trail. You don't even get a buy-in receipt at the table unless you take a marker.

Quote: MichaelBluejay

Quote: TomG

For tax purposes, the most reasonable definition is for it to start on January 1 and end on December 31, for amateur level players. Professional level players would do it quarterly, like other businesses do.

That is what I would argue to the IRS or a judge. And if they disagreed, how would they be able to come up with a better accounting of my wins and losses by using a different definition of "session"?

Good luck with that.

https://www.journalofaccountancy.com/news/2009/dec/20092454.html

This is really great stuff. These were people who gambled throughout the year, which means it is likely they had multiple winning "sessions". Yet even in Tax Court, the IRS only cared about one, easily tracked winning "session". And despite the court ruling in 2008 about 2005 winnings, it looks like they let all of 06 and 07 slide. With no fines or jail time.

Based on this, if someone only claims winnings that are directly reported to the IRS, they're probably ok. And if it is like I do, where I claim an amount higher than what gets directly reported to the IRS, they would likely accept my accounting. And if they didn't accept it, how would they come up with something different?

Quote: terapined

The thought of somebody paying taxes on their gambling winnings makes me happy, very glad the system here in the US runs differently.

Most gamblers use roads to get to their destination. Somebody needs to pay for the roads :-)

Isn't that why there are registration fees and gasoline taxes? It cost me nearly a thousand dollars to register two cars in my first year in Arizona, plus a fee for a lien release and a change of title. A hefty chunk of the cost of a gallon of gas is supposed to go towards the roads.

Quote: billryan

Isn't that why there are registration fees and gasoline taxes? It cost me nearly a thousand dollars to register two cars in my first year in Arizona, plus a fee for a lien release and a change of title. A hefty chunk of the cost of a gallon of gas is supposed to go towards the roads.

I did say roads
But
What I was referring to is the whole infrastructure and govt agencies in this country supported by tax dollars that we all use.
We have a massive deficit
This country needs all the tax dollars it can get

If I keep winning at craps and losing at blackjack, I'll have to loosen my session definitions to cage cash-outs instead of table numbers. I probably won't need any of this information until I start triggering CTR's on the regular though. The best receipts are casino cashier checks, but some here say casinos aren't even good for that!

Quote: terapined

I did say roads
But
What I was referring to is the whole infrastructure and govt agencies in this country supported by tax dollars that we all use.
We have a massive deficit
This country needs all the tax dollars it can get

When we have alleged billionaires working the system so they pay a few hundred dollars in taxes, it seems obvious to me that the whole tax system is broken. Chasing lower-middle-class gamblers for extra taxes isn't going to get us out of the hole we are in.

The casinos in my area actually pay taxes, and maybe that's why they were built.