Claiming Gambling Income and Losses
Covered California MAGI Income Tax Return

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Winnings not losses – Professional Gamblers 

#Professional Gamblers

Professional gamblers’ decade long streak of being able to deduct a net loss from gambling as a trade or business was ended this year by P.L. 115-97, known as the Tax Cuts and Jobs Act of 2017 (TCJA)

a gambler engaged in the trade or business of gambling (“professional gambler”) can net gambling winnings against losses and business expenses on Schedule C, Profit or Loss From Business.

This article from the Journal of Tax Accountancy.com is a little too complex for me to summarize, especially since Covered CA prohibits agents giving tax advice.   Pleases click the preceding link and read it yourself.

Do you have Professional Gambler Status?

How does one make certain that he or she would be considered a professional gambler in the eyes of the IRS? You can’t be absolutely sure, but if you gamble regularly, frequently, with continuity and with the intent of earning and with the intent of earning your living from the winnings, then you are off to a good start.

As a professional gambler, you can deduct your expenses such as traveling, tokes to dealers, etc. You’re actually allowed to deduct these even if the income received and reported is from an illegal gambling operation (but you may not deduct illegal payments you made for gambling expenses).  You can also deduct the amount of your losses, but the losses can’t exceed the net of your gross winnings minus expenses.  (Note that it is arguable that the losses can’t exceed your gross winnings without regard to your expenses)

IRS Tax Court Summary Opinion January 4, 2005:

This case upholds the accepted rules for professional gambler status as laid out by the US Supreme Court in Commissioner v Groetzinger, supra at 33 – that if a taxpayer “devotes his full-time activity to gambling, and it is his intended livelihood source, it would seem that basic concepts of fairness * * * demand that his activity be regarded as a trade or business.”

This ruling is the same ruling that allows daytraders to deduct their expenses “above the line” rather than as an itemized deduction.

summary of major similarities and differences:

• security traders, filing with trader status, deduct expenses on Schedule C.
• gamblers, filing with professional gambler status, deduct expenses on Schedule C, consequently, a professional gambler does not have to itemize deductions to deduct gaming expenses.  
• security traders without trader status (i.e. investor status) deduct expenses on Schedule A subject to a reduction of 2% of Adjusted Gross Income (AGI). 
• gamblers without professional gambler status (a/k/a non-professional gamblers or casual gamblers) deduct expenses on Schedule A, subject to a reduction of 2% of Adjusted Gross Income (AGI).  
• security traders, filing with trader status, deduct trading losses either on Schedule D, limited to offsetting capital gains plus an additional $3,000  or on form 4797 where there are no limitations as to the amount deducted. 
• gamblers, filing with professional gambler status, deduct gaming losses on Schedule C,   limited to reported winnings, net of expenses.  i.e. the bottom line may not go below zero.   Consequently, a professional gambler does not have to itemize deductions to deduct gaming losses. 
  (Note #1 that using Schedule C is not necessarily written in stone. There is some discussion and flexibility as to exactly where to deduct gaming losses on the individual income tax return)
  (Note #2 that It is arguable that the losses can’t exceed your gross winnings without regard to your expenses via a literal reading of IRS Code  §165(d) and IRS Regulation §1.165-10 )
  (Note #3 some tax advisors ¹.proclaim that losses in excess of winnings are deductible against other non-gambling income.  The Courts have consistently knocked this theory down, assessing negligence penalties against those who attempt to get away with it. http://www.ustaxcourt.gov/) 
• security traders without trader status (i.e. investor status) deduct trading losses on Schedule D, limited to offsetting capital gains plus an additional $3,000. 
• gamblers without professional gambler status (a/k/a non-professional gamblers or casual gamblers) deduct gaming losses on Schedule A, limited to reported gaming winnings  but these are not subject to a reduction of 2% of Adjusted Gross Income (AGI) as are operating expenses. 
  
  
• security traders with or without trader status, generally are not subject to self-employment taxes on their trading gains.
• gamblers without professional gambler status are not subject to self-employment taxes on their gaming winnings. 
• gamblers with professional gambler status are subject to self-employment taxes on their net gaming winnings.^{professional gambler status.com}
• gamblers anonymous.org