Professional gamblers report their gambling income as self-employment income, which is subject to federal income tax, self-employment tax and state income tax. In addition, since gambling profits are traditionally considered miscellaneous income, it is not subject to self-employment tax. However, professional players may incur self-employment taxes on a player tax return. If you play regularly with the intention of making a profit, then it is effectively your daily work.
Instead of claiming your earnings as “other income” on your Form 1040, you can file Schedule C as a self-employed person. The following rules apply to casual players who are not in the gambling business or business. Winnings from gambling are fully taxable and you must report the income on your tax return. Gambling revenues include, but are not limited to, winnings from lotteries, raffles, horse racing and casinos.
Includes cash winnings and fair market value of prizes such as cars and travel. Professional players are treated differently from amateur players for tax purposes because a professional player is considered to be engaged in the trading or gambling business. The professional player reports the winnings and losses of gambling for federal purposes in Schedule C, Business Profit or Loss. To calculate his trading income, the professional player can cancel all betting activity, but cannot report a total betting loss.
In addition, the taxpayer can deduct ordinary and necessary business expenses (expenses other than gambling) incurred in connection with the business. Professional players report their results in Annex C. In addition to gambling losses that all players can deduct, professional players can also deduct business-type expenses. This includes things like travel expenses and educational materials.
They pay self-employment taxes on any net earnings. To prove that you are a professional player, you must prove that there is a profit motive involved. If you really qualify as a professional player (and not just because you got hot in the slots one night), then you can deduct ordinary and necessary business expenses related to the activity. Professional players are treated as self-employed persons who report their income and expenses (but only to the extent of gambling earnings) on Schedule C of Forms 1040 or 1040-SR.
Because professional players can deduct gambling losses for state income tax purposes, some state tax agencies aggressively question a taxpayer's professional player status. Here is the applicable, slightly summarized text of the fourth edition of Tax Aid for Players by Jean Scott, Marissa Chien and Russell Fox. Although most of the people who play are casual and non-professional players, there are those who do it enough to reach the level of a professional business or a commercial venture. To assess whether your clients qualify as professional players, you will need to compare their facts and circumstances with the factors in the 1987 Supreme Court Groetzinger case.
Therefore, a professional player can report a trading loss, which can be applied to other income of the year. To be considered a professional player, you must point out that you have no substantial income from other non-gambling activities. Casual players, who make up the vast majority of players, can deduct their game losses on Schedule A from their tax returns, up to the amount of their winnings. The only similarity that amateur players and professional players share is that the player's tax deduction for losses is limited to the amount of the game's winnings.
Secondly, professional players must also prove that they do not receive pleasure or personal recreation from the game. Therefore, the judge ruled that Zalesiak was not a professional player and could only deduct his game losses in Annex A.
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