Key Takeaways
- Professional gamblers report income on Schedule C and pay self-employment tax at 15.3%
- Starting in 2026, new tax law limits loss deductions to 90% of winnings under the OBBBA
- The IRS uses a nine-factor test to determine professional status, with record-keeping being the most critical factor
- Professional status allows deducting ordinary business expenses like travel, lodging, and research materials
- Quarterly estimated tax payments are required to avoid underpayment penalties
Professional gambling can be a viable career path, with top earners making six figures annually. The IRS recognizes gambling as a legitimate business when pursued with regularity and profit intent. Understanding the tax implications of professional gambling is essential for long-term financial success, especially with significant changes coming in 2026.
Professional gamblers face unique tax obligations compared to casual players. They report all gambling income and expenses on Schedule C, pay self-employment tax, and must make quarterly estimated tax payments. Recent legislation has introduced new limitations that will affect how professional gamblers calculate their tax liability starting in 2026.
What Makes You a Professional Gambler for Tax Purposes?
The IRS established the professional gambler standard in the landmark 1987 Supreme Court case Commissioner v. Groetzinger. According to this ruling, gambling activities pursued full-time, in good faith, and with regularity for the production of income constitute a trade or business.
To qualify as a professional gambler, you must meet specific criteria that demonstrate your gambling activities are a business rather than a hobby. The IRS evaluates your status using a comprehensive nine-factor test that examines various aspects of your gambling activities.
The Nine-Factor Test for Professional Status
The IRS considers these factors when determining whether you qualify as a professional gambler:
- How you conduct your gambling activities in a businesslike manner
- The time and effort you spend on gambling versus other activities
- Whether you depend on gambling income for your livelihood
- Your expertise and skill level in specific gambling activities
- Your history of income and losses from gambling
- The amount of occasional profits you earn relative to losses
- Your financial status and other sources of income
- Elements of personal pleasure or recreation involved
- Your success in other similar business activities
Can You Be a Professional Gambler With a Full-Time Job?
Yes, qualifying as a professional gambler while maintaining another job is possible if you gamble regularly and continuously throughout the year. Linda Myers, a trucking business owner, spent 25 to 35 hours weekly running her company and about 40 hours playing slot machines. The Tax Court classified her as a professional gambler because she demonstrated consistency and profit motive.
Sporadic gambling won’t qualify you as a professional, regardless of the time spent. The IRS requires continuous engagement throughout the year, not just occasional intense periods of gambling activity.
| Gambler Type | Income Reporting | Loss Deductions | Business Expenses | Self-Employment Tax | Key Requirements |
|---|---|---|---|---|---|
| Professional | Schedule C as business income | Up to 100% of winnings (2025) Up to 90% of winnings (2026+) | Fully deductible up to gambling income | Yes (15.3%) | Regular activity, profit motive, detailed records |
| Amateur | Form 1040, Schedule 1 as other income | Only if itemizing, up to winnings amount | Not deductible | No | Frequent gambling without professional intent |
| Social | Form 1040, Schedule 1 as other income | Only if itemizing, up to winnings amount | Not deductible | No | Occasional recreational gambling |
Professional Gambler
Up to 90% of winnings (2026+)
Amateur Gambler
Social Gambler
How Professional Gamblers Report Income on Schedule C
Professional gamblers report all gambling winnings as business income on Schedule C (Form 1040), Profit or Loss From Business. This classification allows you to net wins and losses to arrive at your business profit or loss for the year.
Unlike amateur gamblers who must report winnings as other income on Schedule 1, professional gamblers benefit from reporting gambling activities as a trade or business. This approach avoids increasing your adjusted gross income, which can trigger phase-outs for various deductions and credits.
Understanding Form W-2G Requirements
Gambling establishments must issue Form W-2G, Certain Gambling Winnings, when your winnings meet specific thresholds:
- $600 or more from horse racing if the amount is at least 300 times the wager
- $1,200 or more from bingo or slot machine betting
- $1,500 or more from keno, minus the amount wagered
- $5,000 or more from poker tournaments, reduced by the buy-in amount
The payer typically withholds 24% for federal taxes when issuing a W-2G. Professional gamblers include this income with their other gambling winnings on Schedule C rather than reporting it separately. You won’t receive W-2G forms for winnings from roulette, craps, blackjack, or baccarat, but you must still report all income from these games.
Tax Deductions Available to Professional Gamblers
One significant advantage of professional status is the ability to deduct ordinary and necessary business expenses related to your gambling activities. These deductions reduce your taxable income and overall tax liability.
Gambling Losses as Business Deductions
Professional gamblers can deduct gambling losses up to the amount of their winnings. Under the Tax Cuts and Jobs Act provisions effective through 2025, all gambling-related expenses, including losses, cannot exceed your gambling income. According to the 2011 Tax Court case Mayo v. Commissioner, ordinary and necessary business expenses remain deductible even when they exceed net gambling winnings.
Starting in 2026, new limitations will further restrict loss deductions, which we’ll cover in detail below.
Deductible Business Expenses for Professional Gamblers
You can deduct these business expenses related to your gambling activities:
- Travel expenses to casinos, card rooms, and tournaments
- Lodging costs during gambling trips
- 50% of meal expenses while traveling for gambling purposes
- Tournament entry fees and buy-ins
- Subscriptions to gambling analysis services and betting advice
- Software and tools for odds calculation and game analysis
- Educational materials, books, and courses related to gambling
- Home office expenses if you have a dedicated gambling workspace
- Banking fees for separate gambling accounts
- Professional fees for tax preparation and tax consulting services
All expenses must be ordinary and necessary for conducting your gambling business. Keep detailed receipts and documentation to substantiate your deductions in case of an IRS audit.
Self-Employment Tax Requirements for Gambling Income
Professional gamblers are considered self-employed and must pay self-employment tax on their net gambling income. This tax covers Social Security and Medicare contributions that would typically be withheld from an employee’s paycheck.
The self-employment tax rate is 15.3%, consisting of:
- 12.4% for Social Security on income up to $168,600 (2025 limit)
- 2.9% for Medicare on all net earnings
- Additional 0.9% Medicare tax on earnings exceeding $200,000 for single filers or $250,000 for married filing jointly
Quarterly Estimated Tax Payments
Professional gamblers must make quarterly estimated tax payments because gambling income isn’t subject to withholding like traditional employment. The IRS requires estimated payments if you expect to owe $1,000 or more when filing your return.
Estimated tax due dates are:
- April 15 for income earned January 1 through March 31
- June 15 for income earned April 1 through May 31
- September 15 for income earned June 1 through August 31
- January 15 of the following year for income earned September 1 through December 31
Failing to pay sufficient estimated taxes can result in underpayment penalties. According to IRS Publication 505, if you don’t pay enough tax through withholding or estimated payments, you may face penalties.
🚨 Critical Update: 2026 Tax Law Changes
The One Big Beautiful Bill Act (OBBBA) introduces a permanent amendment starting in the 2026 tax year that significantly impacts all gamblers. Under this new law, gamblers can only deduct up to 90% of their losses against their winnings.
What This Means: Even if you break even over the course of a year, you will owe taxes on 10% of your winnings. This effectively creates taxation on “phantom income” for gamblers operating on thin margins.
Timeline: This 90% limitation applies to tax years beginning in 2026. For 2025 and prior years, professional gamblers may still deduct 100% of losses and expenses up to the amount of winnings.
Who It Affects: This limitation applies to both professional and amateur gamblers. Professional gamblers will combine their losses and business expenses, subject to the 90% cap.
How the 2026 Changes Impact Your Taxes
Scenario: Professional Gambler – Break-Even Year
Annual Activity:
- Total Winnings: $100,000
- Total Losses: $85,000
- Business Expenses (travel, meals, fees): $15,000
2025 Tax Treatment (Current Law)
$100,000
($85,000)
($15,000)
$0
Result: No federal income tax owed (you broke even)
2026 Tax Treatment (90% Limitation)
$100,000
$100,000
($90,000)
$10,000
Result: You owe federal income tax on $10,000 of “phantom income” despite breaking even financially
Tax Impact: At a 24% tax bracket, this gambler would owe approximately $2,400 in federal income tax on the $10,000 of phantom income, plus $1,530 in self-employment tax (15.3% on $10,000), for a total additional tax liability of $3,930 despite not making any profit.
Record-Keeping Requirements to Prove Professional Status
Meticulous record-keeping stands as the most critical factor courts examine when determining professional gambler status. A Las Vegas couple learned this lesson the hard way when the Tax Court refused to classify them as professional gamblers despite winning over $19,000 at video poker. Their failure to maintain their own gambling records weighed heavily against them.
Essential Documentation for Professional Gamblers
Create a comprehensive record-keeping system that includes:
- Date and location of each gambling session
- Type of gambling activity (poker, sports betting, slots, table games)
- Starting and ending times for each session
- Amount wagered and won or lost by session
- Names of other participants or witnesses when applicable
- Documentation of winnings (tickets, statements, receipts)
- Business expense receipts with dates and purposes
- Bank statements for your dedicated gambling account
Don’t rely solely on casino win/loss statements. The IRS and Tax Courts prefer contemporaneous records that you create yourself. According to IRS guidelines, maintaining a daily diary or log demonstrates the businesslike manner required for professional status.
Creating a Business Plan for Gambling Activities
Professional gamblers should develop a written business plan that outlines:
- Your primary gambling activities and games of focus
- Strategies for improving skills and increasing profitability
- Annual income goals and projections
- Budget for business expenses
- Plans for managing winning and losing periods
- Professional development activities (coaching, education, analysis)
A documented business plan demonstrates your profit motive and businesslike approach to gambling activities. Remember, as a professional, you’re gambling to make money, not for entertainment.
Common Tax Mistakes Professional Gamblers Make
Understanding common pitfalls helps you avoid costly errors and potential IRS scrutiny.
Inadequate Record-Keeping
Many gamblers fail to maintain detailed, contemporaneous records of their gambling activities. Casino statements alone don’t satisfy IRS requirements. Create your own session-by-session logs that document all wins, losses, and related expenses.
Incorrectly Reporting W-2G Income
Professional gamblers sometimes mistakenly report Form W-2G income separately rather than combining it with other gambling income on Schedule C. All gambling winnings should be reported together as business income.
Failing to Pay Estimated Taxes
Gambling income arrives irregularly, making it tempting to delay tax payments. However, the IRS requires quarterly estimated payments. Calculate your liability after each significant win and set aside funds for tax payments to avoid underpayment penalties.
Claiming Losses in Excess of Winnings
Even professional gamblers cannot deduct gambling losses that exceed their winnings. The limitation under IRC Section 165(d) applies regardless of professional status. Starting in 2026, even this deduction becomes limited to 90% of winnings.
State Tax Considerations
Several states don’t allow amateur gamblers to deduct gambling losses as itemized deductions, including Connecticut, Illinois, Indiana, Kansas, Massachusetts, Michigan, North Carolina, Ohio, Rhode Island, West Virginia, and Wisconsin.
Professional gamblers conducting business can typically deduct losses as business expenses at the state level, even in states that disallow amateur loss deductions. However, state tax agencies may scrutinize professional gambler claims more aggressively.
For detailed information about claiming gambling losses in your specific situation, consult with a tax professional familiar with both federal and state gambling tax laws.
Mixing Personal and Business Expenses
Deducting personal expenses as business costs raises red flags with the IRS. Only deduct expenses directly related to your gambling business. A vacation to Las Vegas where you gamble a few hours doesn’t make the entire trip deductible. Document the business purpose of each expense you claim.
Do You Qualify as a Professional Gambler?
Next Steps:
- Report income and expenses on Schedule C
- Deduct ordinary and necessary business expenses
- Pay self-employment tax (15.3%) on net income
- Make quarterly estimated tax payments
- Maintain meticulous records for audit protection
Professional gamblers face complex tax situations. Our tax attorneys specialize in gambling income taxation and can help you maximize deductions while staying compliant with IRS requirements.
Get Expert Tax GuidanceFree consultation • No obligation
How to Report:
- Report winnings on Form 1040, Schedule 1 as other income
- Deduct losses only if itemizing (up to winnings amount)
- No business expense deductions available
- No self-employment tax required
- Keep records of wins and losses for deductions
Not sure if you're reporting gambling income correctly? Our team can review your situation and ensure you're taking advantage of all available deductions.
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FAQs About Professional Gambler Taxes
Can I deduct all my gambling losses as a professional gambler?
No. Professional gamblers can deduct gambling losses only up to the amount of their gambling winnings, just like amateur gamblers. The difference is that professionals report these on Schedule C as business expenses rather than as itemized deductions. Under current law through 2025, you can deduct 100% of losses up to your winnings. Starting in 2026, the OBBBA limits this deduction to 90% of winnings.
What happens if I file as a professional gambler but don’t qualify?
The IRS may reclassify your filing status during an audit. If you claimed professional status without meeting the requirements, you could face additional taxes, penalties, and interest on the underpaid amount. The Tax Court case involving James Zalesiak demonstrates this risk. Despite spending extensive time playing poker, the court ruled he wasn’t a professional because he lacked regularity (taking significant time off) and didn’t depend on gambling for his livelihood (98.1% of his income came from his construction management job).
Do professional gamblers qualify for the Qualified Business Income (QBI) deduction?
This remains a gray area. The IRS hasn’t issued definitive guidance on whether professional gambling activities qualify for the 20% QBI deduction under Section 199A. Some tax professionals argue that gambling constitutes a specified service trade or business that would be excluded from the deduction. Consult with a tax attorney to evaluate your specific situation and potential qualification.
How do state taxes affect professional gamblers?
State tax treatment varies significantly. Some states like Connecticut, Illinois, Indiana, and Wisconsin don’t allow amateur gamblers to deduct losses at all, meaning gross winnings are fully taxable. Professional gamblers typically fare better because they conduct a business and can deduct losses as business expenses even in states that disallow amateur loss deductions. However, state tax agencies may scrutinize professional gambler returns more closely. If you gamble in multiple states, you may need to file nonresident returns in each state where you had gambling income.
Get Expert Help With Your Professional Gambling Taxes
Tax law changes regularly, and the 2026 modifications to gambling loss deductions represent significant challenges for professional gamblers. Our team of tax attorneys understands the complexities of gambling income taxation and can help you navigate federal and state requirements while maximizing legitimate deductions.
Silver Tax Group provides comprehensive tax services including tax planning, representation, audit defense, and resolution of tax disputes. We offer a free case evaluation to understand your unique situation.
