Gambler

[Kurly]

Hey folks:

I have a client that has $14,000 wages, $9,000 Pension, $13,000 Social Security. She has been a part time gambler for about 25 years. She has been winning $10,00 - $60,00 per year. This year she has $120,000 winnings with an betting total of $60,000.

Question what is the criteria to classify as a Schedule C Professional gambler? Where would I find additional info, IRS site not very helpful. Maybe someone from like the state of Nevada. All suggestions or ? appreciated. Are we stuck with the Schedule A deduction?

What does the IRS wording If gambling is conducted as a business, the losses are deductible as business losses, but only to the extent of gains. Words that are not defined by IRS EXTENT OF GAINS. Are the gains classified as total winnings?

Example: $40,000 winnings expenses $20,000 = $20,000 profit.

$40,000 winnings expenses $60,000 = $20,000 loss ??

Rational: Loss does not exceed the $40,000 gain if the gain per IRS is winnings. Therefore a $20,000 loss. ???????


Thanks Kurly

[Bees Knees]

Gambling losses are limited to gambling winnings, even if the gambler is a professional gambler. Section 165(d) makes no distinction between professional and non-professional gamblers. The income limit applies to both.

The only distinction is whether you can deduct losses up to income in arriving at AGI, or whether you have to deduct the losses on Schedule A, NOT subject to the 2% AGI limit. There is very little difference, except in areas where AGI phases out other tax benefits, such as passive loss rules for rental real estates, and things like that.

Kleinrock’s has a list (below) of court cases that made distinctions between professional gamblers and non-professionals. You might want to look those court cases up to see what the criteria is.

Skeeles v. United States, 95 F. Supp. 242 (Ct. Cl.), cert. denied, 341 U.S. 948 (1951); Offutt v. Commissioner, 16 T.C. 1214 (1951); Commissioner v. Groetzinger, 480 U.S. 23 (1987); Gajewski v. Commissioner, 84 T.C. 980 (1985), aff'd. without published opinion, 578 F.2d 1383 (8th Cir. 1978); Ditunno v. Commissioner, 80 T.C. 362 (1983); Stein v. Commissioner, T.C. Memo. 1984-403.

[taxmandan]

Hey folks:

Question what is the criteria to classify as a Schedule C Professional gambler? Where would I find additional info, IRS site not very helpful. Maybe someone from like the state of Nevada. All suggestions or ? appreciated. Are we stuck with the Schedule A deduction?

What does the IRS wording If gambling is conducted as a business, the losses are deductible as business losses, but only to the extent of gains. Words that are not defined by IRS EXTENT OF GAINS. Are the gains classified as total winnings?

The advantage to being a Sch. C "pro gambler" would be to deduct expenses of travel to tournaments, etc. against winnings. If their losses exceeded their winnings, I don't see any point in putting it on the Sch. C. (And they're not much of a professional in that case anyway) There's no carry over of losses to subsequent years that I know of for gambling losses (heard that one once from a "gambler/tax expert").

The winnings go on line 21 of 1040 and losses on Sch A up to the amount of winnings. Don't net them out on line 21!

[ED SMITH]

Hey folks:

I have a client that has $14,000 wages, $9,000 Pension, $13,000 Social Security.

She has been a part time gambler for about 25 years.

I think it says it right there. She is a part time gambler and not a full time professional and she has a job.

At least you are looking out for your client.

ED

[Unregistered]

According to Gear-Up, you cannot take a schedule C loss as a professional gambler.

[RLymanC]

Pro Gambling

From one of many Google "professional gamblers" search

In 1987, the Supreme Court issued a decision upholding a taxpayer’s claim that his gambling constituted a business. The Court affirmed the findings of the Court of Appeals and the U.S. Tax Court by ruling that the proper test to determine if an activity is a “trade or business” is that the taxpayer must be involved in the activity with regularity and continuity with the primary purpose or expectation of making a profit. To illustrate the scope of this decision, the following quotes from the Court’s opinion are presented:

“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 (if there is much of that in the income tax law) demand that his activity be regarded as a trade or business just as any other readily accepted activity, such as being a retail store proprietor or, to come closer categorically, a casino operator or an active trader on the exchanges.”

“A sporadic activity, a hobby, or an amusement diversion does not qualify.”

To summarize, we can now state that qualifying taxpayers can consider their gambling activity to be a business for tax purposes. This means that you report your gambling activities on a Schedule C instead of under “Other income” on Page 1 of Form 1040, and your losses under “Other miscellaneous deductions” on Schedule A.

You should consider if you want to file as a pro, a large net profit would generate schedule SE, not so if reported on Line 21. You may be money ahead with your line 21 income and schedule A losses.

[Bees Knees]

“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 (if there is much of that in the income tax law) demand that his activity be regarded as a trade or business just as any other readily accepted activity, such as being a retail store proprietor or, to come closer categorically, a casino operator or an active trader on the exchanges.”

Except that the income tax laws specifically identify and codify the prohibition that you can't deduct losses. Period. It is irrelevant whether the activity is as a pro or as a hobby. Code section 165(d) prohibits losses from wagering transactions to the extent they exceed gains.

No different than a trade or business that is denied a deduction for fines and penalties under Section 162(f), even if incurred while conducting business.

[RLymanC]

Losses

Agreed, agreed and agreed, BUT, as a pro you can use all the expenses that are allowable
as a self employed person UP TO ZERO net income, if not a pro, you can only deduct your losses not to exceed your winnings.

EXAMPLE:
Pro-winnings $50,000, schedule C expenses $20,000, losses $30,000= zero income
Not a pro $50,000, no schedule C. Line 21 50,000, losses $30,000= 20,000 taxable

[Bees Knees]

Agreed, agreed and agreed, BUT, as a pro you can use all the expenses that are allowable
as a self employed person UP TO ZERO net income, if not a pro, you can only deduct your losses not to exceed your winnings.

EXAMPLE:
Pro-winnings $50,000, schedule C expenses $20,000, losses $30,000= zero income
Not a pro $50,000, no schedule C. Line 21 50,000, losses $30,000= 20,000 taxable

That is a good example of why you want professional status.

The few cases I have read on the subject suggest the courts are very cautious about awarding professional status to gamblers. I would think in this case any outside earnings, such as the W-2 wages in the original post would make the pro-gambler status difficult. Probably more of an addiction than a professional.