Guest Author: Matthew R. Porter, Esq., Columbus, Ohio
This article addresses the question of what tax deductions are available to professional gamblers. On November 3, 2009, the citizens of Ohio passed the casino initiative authorizing legal gambling in four of Ohio's largest cities. The passage of the Ohio Issue 3, also known as the "Four Casinos Initiative," amends the Constitution of Ohio and authorizes gambling casinos in Cincinnati, Cleveland, Columbus, and Toledo. These new casinos mean that more and more gamblers here in Columbus, Ohio will need to understand what tax deductions are available to professional gamblers. The State of Ohio expects to create over 20,000 jobs and increase revenues for state and local governments.The tax lawyers at the Nardone Law Group, LLC expect more disputes between taxpayers claiming to be professional gamblers and the Internal Revenue Service (the " IRS " or the " Service ") on the amount that may be claimed as deductible gambling losses.
Professional versus Recreational Gamblers
The tax deductions available to professional gamblers for their gambling activities are vastly different from the tax deductions available to recreational gamblers. In general, gambling income is fully taxable and gambling losses may not exceed gambling winnings. If the taxpayer is engaged in the trade or business of gambling—i.e., you are a professional gambler—you may be able to deduct your gambling losses up to your winnings, as well as incidental business expenses that are ordinary and necessary expenses in the pursuit of your gambling activities, on your Schedule C. If you are an amateur gambler, you can only deduct gambling losses up to your gambling winnings as an itemized deduction on Line 28 of Schedule A (Itemized Deductions). Therefore, the most important question for gamblers is to determine at what point a gambling activity raises to the level of a trade or business such that you would be considered a professional gambler. When you become a professional gambler, your gambling losses are deductible in determining your adjusted gross income, as opposed to being taken as itemized deductions subject to limitations. Deducting your losses from adjusted gross income can result in huge tax savings, so understanding what it takes to become a professional gambler is of principal importance.
What is a Professional Gambler?
The IRS and reviewing courts will find that a gambling activity constitutes a trade or business only after examining all relevant facts and circumstances. Whether you play poker, slot machines, or are involved in horse racing, the facts and circumstances must show that your gambling activity is pursued full time, in good faith, and with regularity. In addition, yourgambling activity must also be your intended source of livelihood and cannot be recreational or a mere hobby. If you have a job outside of gambling, you must show that you not only pursued your gambling activity full-time, but that your gambling activity was your main source of earning a livelihood. It may notbe immediately clear whether your gambling activity will qualify you as a professional gambler. Thus, the tax lawyers at the Nardone Law Group, LLC recommend taking the following steps to ensure the greatest chance of success.
Recommendation for Professional Gamblers
If you consider yourself to be a professional gambler, you can increase your chances of being determined as such by the IRS by operating your gambling activities in a business-like manner. This involves setting up a separate bank account designated solely for your gambling activities. You should also have a detailed business plan outlining your strategy and indicating how you intend to make a profit from gambling. The motive to make a profit is the key ingredient. Therefore, your business plan should clearly provide your plan to make money and should reference any and all research you have done to increase your chances of making your gambling activities profitable. Further, you should keep a log of the time you spent gambling also keeping track of the money you bring with you gambling, tracking your winnings and your losses. Never rely on a casino's player's card or a Form W-2G to track your winnings. You must maintain your own records. You should also limit the recreational aspects of gambling. If you are a professional gambler, you should treat gambling like any other job. If you gamble with friends for casino perks, then it will be much more difficult to prove to the IRS you are truly a professional gambler. Finally, you must be able to document your expertise in your gambling activity. You must be able to show what research you have done to show that you believed you could make a profit gambling, even if you have not done so. Your research should be referenced in your business plan and the books you have read and experts you have consulted with should be citied to and referenced accordingly.
Contact Nardone Law Group, LLC
If you consider yourself a professional gambler, and you have significant gambling losses, you should contact an experienced tax lawyer today. The tax lawyers at Nardone Law Group, LLC have vast experience representing clients before the IRS and negotiating with IRS revenue officers to obtain tax deductions for professional gamblers. Our experienced tax lawyers will thoroughly review your case to determine whether you are a professional gambler such that you can maximize your deduction for your gambling losses. Contact us today for a consultation to discuss your case.