- All gambling income is taxable. Gamblers may receive Form W2-G from payers if their winnings exceed certain limits, like $600 for horse racing and $1,200 for slot machine betting.
- Types of gamblers include professional, amateur, and social. The type of gambler you are impacts tax implications and requirements.
- Eight tax tips for professional gamblers:
- Make sure you’re considered a professional
- Keep records of wins and losses
- Treat income as business income
- Pay the self-employment tax
- Pay quarterly estimated taxes
- Deduct business expenses
- Don’t use losses to offset income
- Work with a tax professional
- Avoid common pitfalls for professional gamblers, like getting penalties if you didn’t pay enough estimated taxes or didn’t report W2-G income incorrectly.
Most people gamble for fun or to win big, and they don’t pursue the hobby as an actual profession. Gambling can, however, be a lucrative career for some. This is especially true if you are committed to learning tips and tricks for gambling, consulting with experts, and continuing to improve your approach.
The national average professional gambler salary in the U.S. is $51,128, according to ZipRecruiter. That means the top tier make six figures each year.
One component of professional gambling, or any type of gambling for that matter, that people often overlook is paying taxes. You may dream about winning a lottery jackpot, for example, and forget that a portion of your winnings goes to the government.
Professional gamblers are able to treat their winnings as normal income since they’re essentially running a business. How does this work? How are professional gamblers and amateur gamblers taxed differently? This guide covers everything you need to know about taxes for a pro gambler.
Do Gamblers Have to Pay Taxes?
Let’s first talk about general tax requirements for gambling for the everyday, nonprofessional gambler. Any kind of gambling is subject to taxes, whether you’re playing the lottery, heading to the horse track, playing in a poker tournament, or hitting the slot machines. You also have to pay taxes on the fair market value of prizes you win, like a vacation or vehicle.
Gamblers need to report their winnings as income on their tax return using Form 1040. In addition, whoever paid the gambler has to issue them a Form W-2G, Certain Gambling Winnings. Winners sometimes need to pay estimated taxes each quarter on what they win.
How much do you have to win to receive a W2-G? Here is a quick breakdown:
- $600 or more at horse racing, if the amount is at least 300 times the wager
- $1,200 or more for bingo or slot machine betting
- $1,500 for keno, minus the amount wagered
- $5,000 or more for poker tournaments, reduced by the amount wagered or the buy-in
Casinos may withhold a percentage of your winnings to send to the IRS before issuing your payment for certain types of wins. Withholding is only on net winnings (that’s your payout minus what you wagered) if a win from a sweepstakes or lottery is over $5,000, or if any game has at least 300-to-1 odds and the payout was more than $5,000.
You won’t need to receive a W2-G form for winnings from roulette, craps, blackjack, or baccarat, no matter how much you win. You still, however, need to pay taxes on those winnings, even though you don’t get a tax form from the payer. The tax rate for gambling winnings, if reported on Form W2-G, is 24%.
Types of Gamblers
The way gambling winnings are reported varies depending on the type of gambler. Most people are casual gamblers, but some are professionals who get their income from gambling. Let’s look at the different types of gamblers:
Qualifying as a professional gambler means a person makes all or most of their money from gambling. They usually have one primary game, like poker, table games, or sports betting. Professional gamblers make their living from these activities and are considered self-employed. They work when they want to and improve their skills with time and experience. These gamblers are considered to be engaging in a trade or business, so they report their income on Schedule C, unlike amateur or casual gamblers.
Amateur gamblers are much more casual. They may want to win big and gamble frequently, but it’s not their primary source of income. Amateurs may study to improve their skills in betting games or they may research sports and players to make better sports bets. They don’t, however, consider gambling to be their job or business. Any eligible wins are reported on Form 1040, line 21, as other income.
Social gamblers are a bit different. They are amateur gamblers, but they’re even more casual. They may engage in home poker games or go to casinos with friends or family members on special occasions. Social players don’t really consider themselves gamblers, and they don’t do it very often. They just like the social interaction of gambling. A social gambler would, however, still treat any winnings like an amateur gambler, reporting all gambling income on their regular Form 1040 as other income.
These differences are important because they impact how a gambler pays taxes. One Supreme Court case from 1987, Commissioner of Internal Revenue v. Groetzinger, created a sort of definition for what’s considered professional gambling. Gambling must be “pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby, it is a trade or business.”
Winnings are reported as business income if this is the case. Talk to a tax attorney if you’re not sure what this means for you.
Eight Tax Tips for Professional Gamblers
Professional gamblers need to understand exactly how to treat their winnings so they stay compliant with tax law. Here are some tax tips to help professional gamblers:
1. Make Sure You’re Actually Considered a Professional
Keep in mind that you’ll have a different process for taxes if you’re not a professional. Professional gamblers generally:
- Conduct their activities in a businesslike manner
- Study strategies and meet with experts
- Spend at least 40 hours a week gambling
- Make a profit from gambling
Keep this list in mind if you’re wondering how to become a professional gambler. You probably are not a professional if these qualities don’t reflect what you do. Amateurs have different requirements for reporting their winnings, as previously mentioned.
2. Keep Records of Wins and Losses
Losses must be reported to the IRS, just like your winnings. Keep detailed records of each win and loss throughout the year. Not only do great records help you when tax time comes each year, but you’ll also have proof for your claims if you ever have to go through a tax audit.
3. Treat Income as Business Income
Professional gamblers need to report all wins and losses on Schedule C. This is considered business income as a self-employed person, so they also need to include business expenses. (More on this below.)
4. Plan to Pay the Self-Employment Tax
Any self-employed person needs to pay self-employment tax, which includes Medicare and Social Security taxes. The rate is currently 15.3% – that’s 12.4% for Social Security and 2.9% for Medicare. This is required since professional gamblers don’t have a regular employer to withhold this tax from their paychecks.
5. Pay Quarterly Estimated Taxes
Professional gamblers are also on the hook for quarterly income taxes. This is because no one is regularly withholding tax from their paychecks, so it’s up to them to pay taxes throughout the year. Estimated taxes are due each quarter, usually on April 15, June 15, Sept. 15, and Jan. 15. Remember that some gambling winnings may be subject to tax withholding by the payer. The taxes you pay throughout the year will be both that withholding amount and the estimated taxes you pay.
6. Deduct Business Expenses
The IRS defines deductible business expenses as “ordinary and necessary” to carry out the trade or business. Business expenses may include travel costs, costs of periodicals or data that are relevant to the profession, online wagering costs, or relevant meal costs.
7. Don’t Use Losses to Offset Income
Professional gamblers previously were able to claim net losses from gambling activities. They can now, however, only deduct wagering losses to the extent of their gambling winnings. In other words, deductions for your losses can’t be more than your winnings income.
8. Work With a Tax Professional
Tax law is complicated, and it can be especially frustrating for professional gamblers. Always use the services of a tax professional if you’re not sure how to handle your income and losses. You want to be sure you are paying the least amount of tax possible while closely following all laws and requirements.
Professional gamblers are essentially small business owners, so they have to pay self-employment tax and estimated taxes. Remember that this also means you can deduct business expenses, which is a big plus. Talk to a tax attorney if you’re having a tax issue or have questions about gambling taxes.
Common Tax Pitfalls for Professional Gamblers
Gambling income is treated differently than other types of income or businesses. This makes it pretty confusing when you sit down to do your taxes. Here are a few pitfalls to watch for and how to avoid them if you’re a professional gambler:
Research Tax Laws for the Self-Employed
Maybe you’re considering going professional as a gambler and are still trying to weigh the pros and cons. Read up on how self-employed individuals report their income and expenses and pay taxes throughout the year. You will have this same responsibility as a professional gambler even though you may not see your activities as a “business” that you run.
Keep Spotless Records
You will need to report exact numbers for everything you won throughout the year, so you’ll thank yourself if you have organized records when it’s time to do your annual return. Clean records are also important if the IRS decides to audit you. You need records for both your wins and losses.
The IRS states that “if you don’t pay enough tax, either through withholding or estimated tax, or a combination of both, you may have to pay a penalty.” Make sure you calculate how much you need to pay for estimated taxes when the payer doesn’t withhold for you.
Report W2-G Income as Business Income
Professional gamblers, unlike casual gamblers, don’t report their W2-G income as such on their tax returns. This income is included with their reported business income.
Always Report Your Income and Losses Honestly
Many people think gambling is a gray area of tax law, but it is pretty straightforward. You need to report all income you receive from gambling. You don’t want to risk getting into trouble with the IRS, which can have much more expensive consequences in the long run.
Do the work in making sure you file and pay your taxes correctly each year. There are plenty of resources out there if you need help. Talk to a tax attorney if you’re new to the professional gambling world and don’t know how to proceed. You never want to do anything wrong in terms of taxes, or you risk fines and even potential legal trouble.
Contact Silver Tax Group With Questions About Taxes for Gamblers
Tax law changes regularly. There have been several changes that impact professional gamblers in just the last few years. Make sure you do plenty of research and talk to an expert before doing anything you’re not clear on.
The team at Silver Tax Group is ready to help you succeed. We understand tax laws and can explain any new or upcoming changes. We know how to treat the different gambling scenarios, whether a taxpayer is a professional or amateur gambler.
Our team of tax attorneys provides a range of tax services, including emergency services, representation, tax debt relief, audit defense, seizure of assets, IRS investigations, and much more. We can also offer you a free case evaluation so we’re on the same page moving forward. Reach out to Silver Tax Group today to speak to a tax expert about professional gambler tax.