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When a taxpayer can claim gambling as a trade or business, the gambling winnings, losses and expenses are reported on Schedule C.
For all other taxpayers like amateur or casual gamblers, gambling winnings are reported as “other income” on line 21 of Form 1040, and gambling losses are reported on line 28 of Schedule A as miscellaneous itemized deductions.
In either case, the gambler tax deduction for gambling losses for both professional and casual gamblers is limited to the amount of gambling winnings.
A professional gambler is classified as a trade or business. A profit motive is necessary for an activity to be classified as a trade or business. In determining whether an activity is engaged in for profit, all facts and circumstances with respect to the activity are to be taken into account. No one factor is crucial in making this determination.
The following factors are considered which are indicative of a profit motive
The Supreme Court ruled that an individual could be in the trade or business of gambling (a professional gambler) if he pursued gambling: Full-time in good faith with regularity as a livelihood rather than as a hobby
Professional gamblers can deduct their ordinary and necessary business expenses, in addition to their wagering losses, on Schedule C. However, wagering losses cannot exceed gambling winnings. Any excess gambling losses over gambling winnings cannot be carried forward or carried back to offset gambling winnings from other tax years. This is a significant benefit for the professional gambler tax return. A few common professional deduction are subscriptions to gambling magazines and newspapers, travel and meal costs during tournaments and legal and professional fees