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Gambling Expenses Deductible For Professional Gamblers

Professional gamblers are now able to deduct gambling expenses incurred as part of their job

Prior to a January 2011 ruling by the U.S. Tax Court, gambling expenses related to a gambling trip were equated with gambling losses – in that they were deductible only to the extent of their winnings.

Although professional gamblers may still only deduct gambling losses to the extent of gambling winnings, the taxpayer may further deduct the “ordinary and necessary” gambling expenses, such as travel expenses, incurred with the taxpayer’s business of gambling. This may cause a professional gambler to have business loss, which may be applied against other income.

With this decision, gambling is considered a business trade that is not any different than any other profession and can now deduct business-related gambling expenses.

Prior to this decision, Sec. 162(a) allowed a deduction for all ordinary and necessary expenses paid or incurred in carrying on a trade or business. However, the issue for professional gamblers was that Sec. 165(d) specified that deductible losses from wagering transactions would be limited to the gains from such transactions. In the past six decades, the Tax Court has generally followed the Offutt rule, under which courts have applied Sec. 165(d) to limit the deductibility of professional gamblers’ trade or business expenses.

In Offutt, the petitioner’s principal occupation and source of income was bookmaking and betting on horse races. He sought to claim and carry back a net loss from these activities against other income, arguing that, because gambling was his regular business, he should be treated differently from a taxpayer who undertook such activities for profit but only sporadically. The Tax Court noted that the predecessor statute to Sec. 165(d) (which contained identical language) made no such distinction and ruled against the taxpayer.

The ruling in January 2011 by the U.S. Tax Court covered questions sought by Robert Mayo, a professional gambler from California. Mayo wagered $131,760 on horse racing in 2001, collecting $120,463 on his wagers. As part of his tax return that year, Mayo listed expenses of $10,968, which included automobile expenses for travel to the racetracks, and fees for race handicapping information and other research purposes. The court ruled those gambling expenses were not a wagering loss, but business expenses that contributed to a net operating loss for the year.

For additional information, see IRS Chief Counsel Memorandum on Professional Gambler’s Wagering Losses and Business Expenses.

Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for our clients. We are not only tax preparation and representation experts, but strive to become valued business partners and help you understand your gambling expenses. Tax Samaritan is committed to understanding our client’s unique needs; every tax situation is different and requires a personal approach in providing realistic and effective solutions.

Click the button below to request a Tax Preparation Quote today to get started with the preparation of your US tax return and determining your qualified gambling expenses.

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Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US tax preparation and representation. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.

When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts). If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).

Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.


Published by Randall Brody
Updated: October 4, 2013

About Randall Brody

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