 Newsletter Signup
Stay informed with the
NEW Casino City Times newsletter! I. Nelson Rose Archives
More Strategy Experts
|
I. Nelson Rose Gaming Guru  Gambling tax hike threatens professionals7 July 2025
By I. Nelson Rose Professional and high-stakes poker players, sports bettors and handicappers are about to be taxed out of business. Either that or they will move their action overseas to foreign jurisdictions that don’t report gambling winnings to the IRS. As a lawyer, I must warn you that the Internal Revenue Code requires Americans to report their income from everywhere in the world. The IRS knows that gamblers don’t voluntarily report winnings, so it requires U.S. payors — casinos, sports books, racetracks, card rooms — to file W-2Gs and 1099s on certain big winnings. All winners can deduct their losses up to the amounts won. Professional gamblers can go further and itemize and deduct the expenses related to this business income. At least they could before President Donald Trump and the Republicans in the Congress changed that law. Starting on January 1, 2026, professional gamblers and high-rollers who receive those W-2Gs and 1099s cannot stay in business. Whether they quit or move abroad, U.S. casinos, sports books, racetracks, OTB parlors, card rooms — in fact, everyone in the business of gambling — are about to lose their best patrons. Even casino high-limit slot machine rooms will close. For decades IRC § 165(d) limited deductions for gambling losses to 100% of winnings. Gambling expenses for professionals were a separate category, deductible the same as for any other “trade or business.” The version of Trump’s bill that passed the House of Representatives contained this little-noticed revision: IRC § 165(d) would add: “For professional gamblers, the total of losses and business expenses could not exceed the total of gambling losses and expenses incurred.” That would have been bad. But the Senate version was much worse: “Limit gambling losses to 90% of the gambling losses incurred,” and “For professional gamblers, the total of losses and business expenses are reduced to 90% of gambling losses and business expenses incurred.” On July 3rd the Senate version was approved by the House of Representatives by a vote of 218 to 214. Not a single Democrat voted in favor. But only two Republicans voted against. The impact on gamblers and the gaming industry will be immense. With that new 90% limit, a frequent visitor to Las Vegas who breaks even over the course of a year, winning $200,000 and losing $200,000, no longer breaks even on his taxes. With a 90% limit, he can only deduct $180,000 in losses. So, he must pay income taxes on $20,000 in phantom winnings. And if he can’t prove the losses, he must pay tax on 100% of the $200,000 that was won. Winnings are often reported. To prove losses, the player either must get statements from the casino, sports book, etc., or keep a detailed session log of dates, places, bets, wins and losses. If you make wagers for a living, your situation is much worse. Until Trump signed his bill into law on the fourth of July, if you won $1,000,000 in total over the year, lost $910,000 and had $50,000 in ordinary and necessary business expenses you would report gambling income of $90,000 ($1,000,000 minus $910,000) and then deduct the $50,000, to have a taxable income of $40,000. The federal income tax on $40,000 is $4,562. Under the Trump/Republican new law, for professional gamblers losses and business expenses are lumped together and only 90% can be deducted from winnings. So, you have a total of $960,000 in combined gambling losses and expenses. You can only deduct 90% of that, or $864,000. The $1,000,000 in reported winnings must be reported, but you can only deduct $864,000, creating a taxable income of $136,000. Note that you, the professional gambler who won $90,000, will now have to pay taxes as if you had won $136,000. The federal income tax on $136,000 is $25,935. And then there are state income taxes. Many states will change their tax laws to also hit professional gamblers with the double whammy of lumping together losses and expenses and then limiting that combination to a 90% deduction. The reason Trump and the Republicans want to screw gamblers? To make up for the trillions, that’s thousands of billions of dollars in tax cuts for millionaires and billionaires, who don’t need the extra money. Obviously, taxing gamblers won’t make up for this enormous deficit. So, Trump and the Republicans are also eliminating Medicaid for 12 million poor people and making it much harder to get food stamps. But why target gamblers? It is always easy to raise the sin taxes on alcohol, tobacco and gambling, especially if you are religious conservatives who want to impose your personal morality on everyone else. When the lawmakers of Mississippi legalized casinos to compete with Louisiana’s, they required that all gambling had to be on riverboats or on barges floating in the Gulf of America’s Hurricane Alley, surrounded by holy water. Think of the Christian nationalist Republicans in Congress, who either never make a bet or only go to Mississippi’s casinos a couple times a year. They undoubtedly thought that being able to deduct 90% of losses and expenses was a nice compromise, since they wanted to eliminate all gambling deductions. But what happened to the so-called moderate Republicans in swing districts who came out publicly against cutting off health insurance and food stamps for millions of the poorest Americans just to lower taxes for the top one-tenth of one percent? And the extremely conservative Republicans who wanted even more cuts to prevent adding another $5 or $6 trillion to the national debt? Trump called them into the Oval Office and won them over with autographed souvenirs. Is there any way to beat the new draconian tax laws? All gamblers need to keep complete records of wins and losses and professionals of their expenses so they can at least provide the proofs required under the new 90% rule. You can, of course, not report all your winnings. I cannot advise this. And the IRS’s computers are very good at matching 1099s and W-2Gs with the amounts taxpayers claim as their winnings for the year. Of course, not all winnings get reported to the IRS. If you receive a 1099 or W-2G you will know that a copy has also been sent to the IRS. Sometimes the sports books, casinos, etc., give your copy immediately after a big win; sometimes you only receive them at the end of the year. In my next Blog I will describe the sometimes complex rules that apply to the reporting of gambling winnings by operators.
Gambling tax hike threatens professionals
is republished from Online.CasinoCity.com.
Regulator drops appeal in prediction market case13 May 2025
I must start by saying I like prediction markets. Allowing people to trade event contracts, that is, make bets on future real-world events, has led to extraordinarily accurate forecasts. Of course, it invites insider trading. But that is not always bad. In 2003 the Pentagon’s Defense Advanced Research ... (read more)
New Jersey to allow esport competitors to bet on themselves21 February 2025
What could possibly go wrong? New Jersey Assembly Bill No. 2172 has passed out of committee and now will be voted on by the entire Assembly. A companion bill is being considered in the State Senate. If either bill passes both houses and is signed by Governor Phil Murphy, betting on esports will be greatly expanded. ... (read more)
How to not get arrested22 August 2024
“Spanky,” Gadoon Kyrollos, one of the top sports bettors, and my client and friend, invited me to speak at his 2024 BetBash. In return, I gave a talk on a topic his attendees would appreciate: When does betting, especially on sports, become a crime? Spanky has been running BetBash for years, though this is my first time. ... (read more)
What should daily fantasy sports do now?The two big daily fantasy sports (DFS) operators, FanDuel and DraftKings, and their backers are, in the immortal words of former President George H.W. Bush, in "deep-doodoo." But lawyers with legal shovels can probably dig them out.As recently as last year, the DFS industry's problems were relatively insignificant. ... (read more)Gambling and the Law: Are daily fantasy sports legal?Technology is speeding up changes in the world of gaming. It took almost two centuries for poker to evolve from Straight Poker – five paper cards dealt face down with no draw – to Internet Hold ‘Em linking players using computers in different states and even on different continents. Decades passed before ... (read more)Gambling and the Law: Culture clashIt is not easy to do business in Asia. Or in the U.S.This is especially true of heavily regulated businesses, like legal gaming. And the problems are compounded when an individual who is a product of one culture wants to expand into a foreign market.Sometimes, the barriers are structural. How, for example, ... (read more)Gambling and the Law: Be Afraid! Be Very Afraid!Opponents of legal gambling are notorious within the industry for making up numbers. Robert Goodman, for example, is a discredited "anti" and the founder of the grandly named, though now defunct, "United States Gambling Research Institute." He is infamous for proclaiming, "The American Insurance ... (read more)Gambling and the Law: 'Blackjack and the Law' wins case for casinoIn one of the very first cases heard by the federal court in Las Vegas in 2011, Harrah’s (now renamed Caesars) once again won the right to kick out card-counters. Roger L. Hunt, Chief U.S. District Judge for Nevada, based his decision, in part, on a book I co-authored in 1998, BLACKJACK AND THE ... (read more)I. Nelson Rose |
I. Nelson Rose |
