Why Is Larry's Professional Gambling Considered A Business Or A Hobby By The IRS?
Facts
Larry is a professional gambler for dog racing. He spends 50 to 60 hours per week studying various forms of racing as well as placing bets at the track. His only income is from his winnings during the year of $240,000 on $380,000 of bets placed. His wife, Jane, earns $55,000 annually as a university professor. They also have $15,000 in income from investments. Since Larry devotes the majority of his time to his dog-racing activities, he feels it should be considered a business and should be allowed to deduct his losses against their other income.
Issues
Is Larry’s professional gambling considered a business or a hobby by the IRS? Would Larry be able to deduct the loss he incurred in his “business” against their other income?
Conclusions
Larry’s professional gambling is considered a business since he has no other income and spends 50 to 60 hours a week on his gambling studies. Larry can deduct normal and ordinary business expenses for his gambling business, but he cannot deduct the gambling losses against their other income. He can only deduct the gambling losses up to and equal to the …show more content…
162(a) states an individual is allowed to deduct ordinary and necessary expenses paid or incurred during the taxable year in carrying any trade or business including a reasonable allowance for salaries or other compensation for personal service rendered. Professional gamblers would have to go through the hobby test to make sure their gambling strategies are qualified as a business, not a hobby. Larry spends 50 to 60 hours a week studying the forms of racing and placing bets as well as his winnings from gambling being his only income. Therefore, his gambling is considered a business. The wagering losses rule of Sec. 165(d) states an individual’s loss from wagering transactions can only be deducted to extent of their gains in a transaction. He cannot deduct the gambling losses against their other income because it is not part of his gambling
Larry is a professional gambler for dog racing. He spends 50 to 60 hours per week studying various forms of racing as well as placing bets at the track. His only income is from his winnings during the year of $240,000 on $380,000 of bets placed. His wife, Jane, earns $55,000 annually as a university professor. They also have $15,000 in income from investments. Since Larry devotes the majority of his time to his dog-racing activities, he feels it should be considered a business and should be allowed to deduct his losses against their other income.
Issues
Is Larry’s professional gambling considered a business or a hobby by the IRS? Would Larry be able to deduct the loss he incurred in his “business” against their other income?
Conclusions
Larry’s professional gambling is considered a business since he has no other income and spends 50 to 60 hours a week on his gambling studies. Larry can deduct normal and ordinary business expenses for his gambling business, but he cannot deduct the gambling losses against their other income. He can only deduct the gambling losses up to and equal to the …show more content…
162(a) states an individual is allowed to deduct ordinary and necessary expenses paid or incurred during the taxable year in carrying any trade or business including a reasonable allowance for salaries or other compensation for personal service rendered. Professional gamblers would have to go through the hobby test to make sure their gambling strategies are qualified as a business, not a hobby. Larry spends 50 to 60 hours a week studying the forms of racing and placing bets as well as his winnings from gambling being his only income. Therefore, his gambling is considered a business. The wagering losses rule of Sec. 165(d) states an individual’s loss from wagering transactions can only be deducted to extent of their gains in a transaction. He cannot deduct the gambling losses against their other income because it is not part of his gambling