Professional gambler tax status, and its limits

The IRS divides gamblers into two groups. Its own guidance opens by saying the ordinary rules apply “to casual gamblers who aren’t in the trade or business of gambling.” If gambling is your trade or business, you report on Schedule C rather than as other income plus an itemized deduction.

That is a factual test about how you actually operate, not a box you tick. The Supreme Court set it in Commissioner v. Groetzinger in 1987, for the statutes the Court was deciding. Gambling is a trade or business if it is “pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby.”

Two real things. Your losses, and the business expenses of your gambling, come off on Schedule C rather than as an itemized deduction. So you no longer need to beat the standard deduction for them to count. A casual gambler’s travel to a casino is a personal cost, or at best a miscellaneous itemized deduction, and 26 U.S.C. 67(h) allows none of those for any year after 2017.

Second, you report only your net gambling income on Schedule C, above the line. Your gross winnings do not swell your adjusted gross income, which drives your state tax, phase-outs and credits. The net is still worked out after the 90 percent cap, so a break-even year still leaves some income.

The first of these is significant. For a casual gambler who takes the standard deduction, losses are worth nothing federally.

The conference report on the 2017 act says the limit reaches a gambler’s “otherwise deductible” expenses, and it names the Tax Court case about a professional’s business expenses that it reverses. IRS Publication 525 (2025) speaks of “professional gambling losses and expenses”. An older IRS publication, Publication 529 (December 2020), says gambling losses include expenses such as travel to a casino without saying who may count them. A publication is not law, and we follow the statute and the conference report here.

Before 2018, a professional could deduct business expenses beyond winnings and report a net loss. The 2017 act closed that, and paragraph (2) of the 2025 text keeps the rule. A professional cannot use gambling to shelter other income.

The 90 percent haircut applies to a professional as well. The statute makes no distinction: subparagraph (A) takes 90 percent of losses whoever incurred them.

IRS Publication 525 says gambling as a trade or business “is considered self-employment”, so Schedule C income is also subject to self-employment tax, which a casual gambler does not pay on winnings. For some filers that outweighs the deduction benefit entirely.