Three Questions Every Gambler Should Ask Before Filing Their Income Tax Return
If you take home casino winnings, or money from private card games, federal tax laws require you to report it as income. For most of the gamblers this is considered hobby income, which means that not all gambling costs can be deducted. But, when you qualify as a professional gambler you get to deduct all your gambling costs and losses, just like other business professionals. Here’s what you need to know:
1 – Are My Winnings Business Income? link vào cmd368
One or two winning pots taken home from the casino or poker games with your friends does not make you a professional gambler. A professional gambler is a business, not just out to win a game or two. In an audit, the professional gambler will need to prove that his or her gambling activities qualify as a business.
The IRS has classified gambling as a hobby because most people gamble for fun. This is why gambling winnings are often included along with other miscellaneous income. Even though this is bad because every penny of gambling income must be claimed, the hobby gambler does not get to deduct all the costs involved. A professional gambler, however, can take full advantage of the business tax laws that permit self-employed people to deduct all the qualifying losses and costs.
Tracking wins, losses and costs are the same for both the hobby and professional gambler, and it is a tax audit to survive if you have the IRS rules. Fail to do so and those costs and losses could be disqualified. To save the hobby classification a gambler must be prepared to prove that they are engaged in making “genuine and honest” efforts to produce a profit. The desire to win is not big enough.
2 – Can I Prove That Gambling Is My Business?
Documenting your gambling in a business-like manner is a critical part of proving to the IRS that you are not a recreational gambler. Professional gamblers need to keep a log of all gambling activities. This should include the date and location of each event, your starting bank, closing bank, and net win or loss.
With every gambling event, along with hotel costs, entry fees, meals, tips, and private coaching, you may want to survive. If the casino “comps” your expenses they are not deductible; Only expenses paid by you are deductible.
3 – Do I Have To Pay Self-Employment Tax on My Winnings?
There is no self-employment tax on hobby gambling income; However, most business profits on self-employment tax.
Self-employment taxes fund your personal Medicare and Social Security accounts. When you are employed by someone else, your employer pays half of your taxes and the other half of your paycheck. The self-employed person pays it all. However, many times this tax can be avoided by financing a private retirement account set up for your business.
In other words, whether or not you pay for self-employment taxes depends on how much you know about current small business tax laws. Working with a qualified tax accountant, one recommended by other gamblers, is the best way to reduce your self-employment tax.
If you think you qualify as a professional gambler you shouldn’t be getting your own tax return. Because in this industry, it is highly possible that the qualified tax accountant will seek guidance from the IRS.
KiKi Canniff is a tax consultant with a talent for making IRS rules easy to understand. She is the author of a series of financial workbooks for self-employed individuals including Gambling My Business: A Financial Organizer for Professional Card Players & Other Gamblers. This book is about what the IRS expects of professional gamblers, how to document events, costs and losses, and make it easy to keep records that will beat a tax audit. More information.
