Professional Gambler vs Casual Bettor: Tax Implications

The IRS does not treat all sports bettors the same way. How you are classified, as either a professional gambler or a casual bettor, determines which tax forms you file, what deductions you can claim, and whether you owe self-employment tax on your winnings.

Most sports bettors fall squarely into the casual category. But if you bet regularly, treat it like a business, and rely on gambling income to pay your bills, the IRS may consider you a professional. That distinction carries real consequences at tax time, both advantages and drawbacks.

This guide explains exactly how the IRS draws the line between professional and casual, what each classification means for your tax return, and how to avoid common mistakes that trigger audits. For a broader overview of gambling tax obligations, see our complete sports betting tax guide.

Important: This guide is for general educational purposes only and does not constitute tax, legal, or financial advice. Tax laws change frequently, and individual circumstances vary. Always consult a qualified tax professional for advice specific to your situation.

How the IRS defines professional gamblers vs casual bettors

There is no single dollar amount, number of bets, or hours-per-week threshold that automatically makes you a professional gambler. Instead, the IRS uses a facts-and-circumstances test that looks at the totality of your gambling activity.

The landmark case is Commissioner v. Groetzinger, 480 U.S. 23 (1987), where the Supreme Court ruled that a full-time gambler who bet on greyhound races was engaged in a trade or business. The Court established that a taxpayer is a professional gambler if they gamble full-time, in good faith, with regularity, and for the production of income for a livelihood, not merely as a hobby.

Key factors the IRS considers include:

• Regularity and continuity. Do you gamble on a consistent, ongoing basis rather than occasionally?
• Profit motive. Is your primary purpose to earn income, not entertainment?
• Business-like conduct. Do you maintain records, track results, study strategy, and treat betting as a business?
• Time and effort. Do you devote substantial time to gambling activities?
• Reliance on income. Do you depend on gambling winnings as a meaningful source of income?
• Expertise. Have you developed specialized knowledge or systems?

Most recreational sports bettors, even those who bet frequently and occasionally profit, do not meet this standard. The bar is high, and the IRS scrutinizes professional gambler claims closely.

Tax obligations for casual bettors

If you are classified as a casual or recreational bettor (which applies to the vast majority of sports bettors), your tax obligations follow these rules:

Reporting winnings. You report all gambling winnings as "Other Income" on Schedule 1 (Form 1040), Line 8b. This includes every winning bet, regardless of amount and regardless of whether your sportsbook issued a W-2G. For step-by-step reporting instructions, see our guide on how to report sports betting winnings.

Deducting losses. You can deduct gambling losses, but only if you itemize deductions on Schedule A. Losses are limited to the amount of your gambling winnings for the year. If you won $5,000 and lost $8,000, you can only deduct $5,000 in losses. You cannot create a net gambling loss to offset other income. Learn more about this in our gambling loss deduction guide.

OBBBA changes for 2026. Under the One Big Beautiful Bill Act, casual bettors can only deduct 90 percent of their gambling losses starting in 2026. This means a bettor who breaks even (say $10,000 in wins and $10,000 in losses) would owe tax on $1,000 of phantom income.

No expense deductions. Casual bettors cannot deduct gambling-related expenses such as betting software subscriptions, data services, travel to sportsbooks, or internet costs. These are considered personal expenses.

No self-employment tax. Casual gambling winnings are not subject to self-employment tax (Social Security and Medicare taxes).

Tax obligations for professional gamblers

Professional gamblers face a different and more complex tax framework:

Schedule C filing. Professional gamblers report gambling income and losses on Schedule C (Profit or Loss from Business) rather than Schedule 1 and Schedule A. This is a fundamental difference. Your net gambling income (or loss) flows through as business income.

Business expense deductions. Unlike casual bettors, professionals can deduct ordinary and necessary business expenses beyond just gambling losses. Deductible expenses may include:

• Sports data and analytics subscriptions
• Betting software and tools
• Computer equipment used for gambling
• Travel expenses to casinos or sportsbooks
• Home office deduction (if you have a dedicated space)
• Professional development (books, courses, conferences)
• Accounting and tax preparation fees related to gambling

Net operating losses. Because gambling is treated as a business, professional gamblers can potentially generate net operating losses (NOLs) in losing years. NOLs can be carried forward to offset future income, subject to current tax law limitations.

Self-employment tax. Here is the major drawback. Net earnings from Schedule C are subject to self-employment tax of 15.3 percent (12.4 percent for Social Security up to the wage base, plus 2.9 percent for Medicare). This is in addition to regular income tax. A professional gambler who nets $80,000 would owe roughly $12,240 in self-employment tax alone, on top of income tax.

Quarterly estimated taxes. Professionals must make quarterly estimated tax payments (Form 1040-ES) since no employer is withholding taxes from their income. Missing quarterly payments triggers penalties and interest.

OBBBA impact. The 90 percent loss deduction cap under OBBBA applies differently to professionals filing on Schedule C. The specific interaction between OBBBA and Schedule C gambling businesses is an area where professional tax guidance is especially important.

Professional gambler vs casual bettor: side-by-side comparison

Category	Casual Bettor	Professional Gambler
Report winnings on	Schedule 1, Line 8b (Other Income)	Schedule C (Business Income)
Deduct losses on	Schedule A (must itemize)	Schedule C (direct offset)
Loss deduction limit	Up to winnings amount only	Can create net operating loss
Business expenses	Not deductible	Deductible on Schedule C
Self-employment tax	No	Yes (15.3% on net earnings)
Quarterly estimated taxes	Usually not required	Required
Recordkeeping burden	Moderate	Extensive (business-level)
IRS audit risk	Lower	Higher (professional claims scrutinized)
OBBBA 90% loss cap	Applies to Schedule A deductions	Interaction with Schedule C under review

Example scenario. Consider a bettor who won $50,000 and lost $45,000, with $3,000 in betting software and data expenses:

• As a casual bettor: Reports $50,000 income, deducts $45,000 in losses on Schedule A (if itemizing). Cannot deduct the $3,000 in expenses. Taxable gambling income: $5,000. No self-employment tax. Under OBBBA (2026+), can only deduct $45,000 x 90% = $40,500, making taxable gambling income $9,500.
• As a professional gambler: Reports $50,000 income on Schedule C, deducts $45,000 in losses and $3,000 in expenses. Net Schedule C income: $2,000. Owes self-employment tax on $2,000 (~$306). The expense deduction saves money, but self-employment tax is an additional cost.

How to determine your filing status

Honestly evaluating your situation is critical. Here are questions to ask yourself:

• Do you gamble full-time or close to it?
• Is gambling your primary source of income?
• Do you maintain detailed business records of every bet?
• Do you study and develop strategies systematically?
• Do you treat gambling as a business with defined hours and processes?

If you answered yes to most of these, professional status may apply. If you bet recreationally, even if frequently, you are almost certainly a casual bettor.

When to consult a professional. If you are on the fence, or if you want to claim professional status, work with a CPA or tax attorney experienced in gambling taxation. The consequences of incorrectly claiming professional status can include back taxes, penalties, and interest if the IRS reclassifies you. Maintaining thorough records is essential regardless of your classification. Our sports betting recordkeeping guide covers exactly what to track.

Common mistakes to avoid

Claiming professional status without meeting the criteria. Some bettors assume that frequent betting or significant volume qualifies them as professionals. It does not. The IRS looks at the full picture, and incorrectly claiming professional status invites an audit.

Failing to pay self-employment tax. Professional gamblers who forget about self-employment tax face a surprise 15.3 percent bill on top of income tax. This is one of the most common oversights.

Not keeping adequate records. Both casual and professional bettors need records to support their returns. Casual bettors need records to substantiate loss deductions on Schedule A. Professionals need business-level documentation including a betting diary, profit-and-loss statements, and expense receipts. Without records, the IRS can disallow deductions entirely.

Ignoring state tax implications. State treatment of gambling income varies significantly. Some states follow federal classifications, while others have their own rules. A few states do not allow gambling loss deductions at all. Check your state's sports betting tax rate and rules.

Mixing personal and gambling finances. Professional gamblers should maintain separate bank accounts and credit cards for gambling activity. Commingling funds makes it harder to substantiate business claims and invites IRS skepticism.

Frequently Asked Questions

What makes someone a professional gambler in the eyes of the IRS?

The IRS uses a facts-and-circumstances test based on the Supreme Court ruling in Commissioner v. Groetzinger (1987). You must gamble full-time, with regularity, for the production of income as a livelihood, not merely as a hobby. Key factors include time devoted, profit motive, business-like conduct, expertise, and reliance on gambling income. There is no specific income threshold or hours requirement.

Do professional gamblers pay more or less in taxes than casual bettors?

It depends on the situation. Professional gamblers can deduct business expenses that casual bettors cannot, and they can offset losses directly against income on Schedule C. However, professionals owe self-employment tax (15.3 percent) on net earnings, which casual bettors avoid. For profitable gamblers with significant expenses, professional status may reduce overall tax. For others, the self-employment tax can outweigh the benefits.

Can I deduct sports betting software and subscriptions as a casual bettor?

No. Casual bettors can only deduct gambling losses (up to the amount of winnings) on Schedule A. Expenses like betting software, data subscriptions, travel, and internet costs are considered personal and are not deductible. Only professional gamblers filing on Schedule C can deduct these as business expenses.

Do I need to pay self-employment tax on gambling winnings?

Only if you are classified as a professional gambler. Casual betting winnings are reported as other income and are not subject to self-employment tax. Professional gamblers report on Schedule C, and their net earnings are subject to the 15.3 percent self-employment tax (Social Security and Medicare combined).

How many hours do I need to bet to qualify as a professional gambler?

There is no specific hourly threshold. The IRS considers whether you devote substantial time and effort to gambling as a primary activity, not a side hobby. Full-time involvement is a strong indicator, but the IRS weighs all factors together. Someone betting 10 hours a week alongside a full-time job is unlikely to qualify.

Can I switch from casual bettor to professional gambler status?

Yes, your classification can change as your circumstances change. If you transition from recreational betting to full-time professional gambling, you would begin filing on Schedule C for the tax year in which the change occurs. Document the transition carefully and consult a tax professional to ensure proper filing. The change applies going forward and cannot be applied retroactively to previous tax years.

What happens if I claim professional gambler status and the IRS disagrees?

If the IRS reclassifies you as a casual bettor, your Schedule C deductions are disallowed. Your gambling income moves to Schedule 1 and losses to Schedule A. You would owe additional income tax on any business expenses you deducted, plus penalties and interest on underpaid taxes. In some cases, accuracy-related penalties of 20 percent may apply. This is why proper documentation and professional tax advice are critical before claiming professional status.

Responsible Gambling Notice

Understanding your tax obligations is part of responsible sports betting, but it should not overshadow the importance of betting within your means. Whether you are a casual bettor or considering gambling professionally, the financial risks are significant.

Professional gambling is not a guaranteed income source. The vast majority of sports bettors lose money over time, and even skilled bettors experience extended losing streaks. If you find yourself betting more than you can afford, chasing losses, or feeling stressed about gambling, help is available through the National Council on Problem Gambling at 1-800-522-4700.

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Disclaimer: This article is for general educational and informational purposes only. It does not constitute financial, tax, or legal advice and should not be relied upon for making tax filing decisions. Tax laws are complex, vary by jurisdiction, and change frequently. The information provided may not reflect the most current legal developments or your specific circumstances.

Before filing your taxes: Always consult with a qualified tax professional, certified public accountant (CPA), or licensed tax preparer who can review your complete financial situation. For authoritative and up-to-date guidance, refer to the IRS website at irs.gov and your state department of revenue.

Last updated: February 2026