If you take home casino winnings or money from private card games, federal tax laws require you to report it as income. For most players, this is considered hobby income, which means not all gaming expenses can be deducted. But, when you qualify as a professional gambler, you can deduct all of your gambling expenses and losses, just like other business professionals. This is what you need to know:

1 – Are my earnings business income?

One or two winning pots you take home from the casino or poker games with your friends doesn’t make you a professional player. A professional player is running a business, not just to win a game or two. In an audit, the professional gambler will be required to prove that his gambling activities qualify as a business.

The IRS has classified gambling as a hobby because most people play for fun. This is why gambling winnings are usually included along with other miscellaneous income. This is bad because even though every penny of gaming income must be claimed, the hobby player cannot deduct all of the expenses involved in producing that income. However, a professional gambler can take full advantage of business tax laws that allow self-employed individuals to deduct all qualifying losses and expenses.

Tracking profits, losses, and expenses is the same for both the amateur and professional players, and must be done in accordance with IRS rules if you want to survive a tax audit. Otherwise, those expenses and losses could be disqualified. To escape hobby classification, a player must be prepared to show that he is making “real and honest” efforts to generate profit. The desire to win big is not enough.

2 – Can I prove that the game is my business?

Documenting your game professionally is a critical part of proving to the IRS that you are not a recreational player. Professional players must keep a record of all gambling activities. This should include the date and location of each event, your opening bank, closing bank, and net profit or loss.

All expenses involved in getting to each betting event, along with hotel costs, entrance fees, meals, tips and private training must also be documented if you want to survive an audit. yes the casino “offsets” your expenses are not deductible; only expenses paid by you personally are deductible.

3 – Do I have to pay self-employment tax on my earnings?

There is no self-employment tax on income from hobby gambling; however, there is a self-employment tax on most business earnings.

Self-employment taxes fund your personal Medicare and Social Security accounts. When you are employed by someone else, your employer pays half of those taxes and you pay the other half. The freelancer pays for everything. However, many times most of this tax can be avoided by funding a private retirement account set up for your business.

In other words, whether or not you pay self-employment taxes really depends on how much you know about the current tax laws for small businesses. Working with a qualified tax accountant, one recommended by other players, is the best way to reduce your self-employment tax.

If you think you qualify as a professional player, you do not need to prepare your own tax return. Because an audit is very possible in this industry, you’ll want the guidance of a qualified tax accountant when dealing with the IRS.