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From tracking gambling sessions to offsetting winnings with losses, professional gamblers and enthusiasts alike need to know how to beat the house when it comes to taxes. Join Certified Public Accountant Zak Zimbile, owner of a remote CPA firm specializing in gambling taxation, as he breaks down federal and state requirements for reporting gambling income. Zak leverages his decade-plus of experience advising recreational and professional gamblers across the country to explain what counts as gambling income, how to properly track activity, when winnings must be reported, and how losses can be used to lower your tax bill. With insights ranging from tax forms to watch out for to foreign reporting requirements, this episode helps gamblers and tax professionals alike formulate strategies to minimize the house's take.
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Chapters
- (00:00) - Preview: How professional gamblers stay under the radar
- (00:57) - Earn Free CPE
- (01:18) - Welcome Zak to the show
- (03:31) - How did you get into this niche?
- (05:05) - What is considered gambling income?
- (06:36) - How do people keep track of all of their winnings and losings?
- (08:19) - How do you recommend your clients keep track of all of this?
- (11:03) - Why is it so important to track this data
- (15:10) - Do you direct your clients to any specific sites that keep good records of bets?
- (16:35) - Where does the IRS publish this information on gambling and sessions
- (19:08) - Why can a W-2G and tracking by session be beneficial?
- (22:24) - Do these tax laws apply the same for professional vs recreational gamblers? And lets talk a little more about how pros are defined
- (25:15) - How does the IRS treat gambling winnings on a tax return?
- (30:34) - Does the IRS push back on the professional vs amateur classification
- (31:59) - How do taxes vary state to state on gambling wins and loses
- (35:45) - Do you see gamblers relocating specifically for tax purposes?
- (37:51) - Has video game gambling taken off?
- (39:20) - Are there any other tax forms I may receive or deal with related to gambling?
- (44:24) - What do I need to know about gambling in a foreign country?
- (49:20) - What is your favorite and the hardest part about this niche?
- (53:03) - Wrap up and where to reach Zak
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Connect with Our Guest, Zak Zimbile
Twitter: https://twitter.com/ZakTheCPA
LinkedIn: https://www.linkedin.com/in/zachary-zimbile-cpa-5a4b2224/
Learn more about Zachary Zimbile, CPA
Website: https://www.zakthecpa.com/
Connect with Blake Oliver, CPA
LinkedIn: https://www.linkedin.com/in/blaketoliver
Twitter: https://twitter.com/blaketoliver/
Creators & Guests
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Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding!
Zak Zimbile: [00:00:00] And I think it's interesting to watch not or see not only how these people beat the games, but how they deploy capital to effectively spread out as much as they can, because for me, it's difficult. But for some of these people, it's not as hard as you think to find edges in any avenue of gambling. The harder part is, you know, how are you getting the money down without getting limited at a sportsbook or getting kicked out of a casino? So the as much information as they share with me about how they're doing this, that's the part that I find interesting.
Blake Oliver: [00:00:32] If you'd like to earn CPE credit for listening to this episode, visit Earmark Cpcomm. Download the app, take a short quiz and get your CPE certificate. Continuing education has never been so easy. And now on to the episode. Hey, everyone, and welcome back to the show. I'm Blake Oliver. And we're talking today about gambling taxes with Zach Zambelli. Zach, welcome to the show.
Zak Zimbile: [00:01:03] Great, thanks for having me, Blake. Appreciate you having me on and trying to clear up anything that is unclear for those who have some gambling winnings or losses throughout the year.
Blake Oliver: [00:01:10] I'm personally very interested about this topic because I go to conferences in Las Vegas all the time. I'm only 4 or 5 hour drive away here in Phenix from Las Vegas. And a lot of these accounting conferences that we go to are they're at a convenience, I think. And it's also fun. Right? And and so, you know, I'm around gaming and I see people who are really into it. I myself, you know, I've never like gambled enough to get a 1099 or after reported on my tax return. But I know a lot of people do. And so it's an area of specialty and it's something that as accountants, we got to be able to understand and deal with.
Zak Zimbile: [00:01:52] Yeah. And with the growing prevalence of, you know, online gambling and sports betting, it's really affecting more people. And on the surface, it seems, you know, relatively straightforward how to report the winnings and losses. But getting to those figures and kind of taking into account some of the sessions or how you're looking at your winnings and losses, there's a little bit more that goes into it. So just here to provide some information about the best way to track that information or show that information and anything else that could come up while you're gambling at the casinos or online.
Blake Oliver: [00:02:23] That's a really good point, right? I feel like this happened really fast where, you know, now it's all on an app on your phone. You don't even have to go to Vegas anymore to to gamble on sports or anything like that. Like it's legal everywhere, it seems like. So, yeah, we got to be able to help our clients with that.
Zak Zimbile: [00:02:36] Yeah, I think I think somewhere in the neighborhood of 40 states have legalized online sports wagering. I casino gaming is a lagging behind. You know, there's only a handful of states that allow that. But with everything making it so much easier to gamble, whether it's on sports or, you know, casino and table games, it's just something that everybody now has access to and from all age groups. So it's important to educate people who are younger and they're growing up with this or, you know, older, and they now have an easier time getting into whatever type of gambling it is that they enjoy.
Blake Oliver: [00:03:06] So we're going to talk all about the details of that. But first, I'm curious, how did you get into this? I see that you are based in Las Vegas. Was it proximity or or did the specialty draw you there?
Zak Zimbile: [00:03:18] Yeah, it was a little bit proximity. I went to school for accounting. I decided to make a little detour, go to the finance route for a year. I determined that that wasn't for me. So then I moved out to Vegas and started working for a firm and. And kind of was exposed to professional and recreational gamblers. I'd always been familiar with gambling, whether it was, you know, playing online poker or just kind of staying current with general gambling news. And then the more that I learned about tax and the code when it came to gambling, the more I realized that you needed a lot of nuanced interpretations of the tax code. And in general, gamblers always, you know, had unfavorable guidance when it came from the IRS. So really it was kind of my goal to just get in front of it and help any type of gambler, whether it's a professional or recreational gambler, minimize their tax obligations and just be aware of everything that was out there that could potentially do that. So now I've worked with gamblers for over ten years, whether it's, you know, poker players, advantage players, you know, sports bettors, video poker players, gambling syndicates, you name it. I've kind of, you know, worked with a ton of different people. And now that, like I said, iGaming and sports betting is is been growing across the country, more people are going to be affected. So really it's just get information out there and let everybody know that there's there are some things you can be doing to to help yourself.
Blake Oliver: [00:04:36] Yeah. It's not just for those professional gamblers anymore. Right. So let's start with, you know, the the most important question I suppose that will lead to all the others is what is gambling income? At what point do I have to start asking this question? Yeah, it's.
Zak Zimbile: [00:04:54] A pretty broad definition. I think most people just assume they think of right away casino games, so table games and things like that. But really it's any amount of money that you earn from placing a wager on a game of chance. So that could be table games, you know, blackjack or roulette, it could be slots keno, sports betting, and that could be done both in the physical space and a brick and mortar casino or online. And then it ranges from, you know, horse or dog racing to lotteries, certain sweepstakes, peer to peer wagers. So if you make a wager with a friend or some type of a prop bet that would count poker, home games and then daily fantasy sports, although daily fantasy sports has a different legal definition from a tax perspective, it's considered gambling. So any of that, whether it's regulated or unregulated, because there are some sports books or other poker sites that are unregulated, all of that is considered gambling winnings and needs to be reported properly.
Blake Oliver: [00:05:48] Oh, interesting. So even the at home poker game that. I play technically is if I win. I guess if I lose to write its income and loss from gambling.
Zak Zimbile: [00:06:00] Technically, it should be. Yeah, I can. Yeah. I can assure you that there's a large percentage of people that are not including that on their return. But, you know, it should be factored into all of your records.
Blake Oliver: [00:06:09] Well, so that's a lot of different sources of income. I mean, different websites, different places you go, you know, I'm sure some is just all cash, some is not. So how do how do people keep track of all this?
Zak Zimbile: [00:06:25] It's tough, but the best way to keep track is whatever works for you. Whether it's using an app or an Excel spreadsheet or notes on your phone or a physical journal where you're writing down your results every day. Whatever gets you to concurrently track your results is going to be the best result. That way you have everything tracked from the year and at the end of the year, just as if you were having you had a from your QuickBooks file. You're going to have everything you need to file your tax return. So what you're going to want to do is, for all intents and purposes, track the date that you gambled, the location, the duration of your play, the game type. So whether it was a table game or poker or keno, and then you want to track the stakes and then eventually the buy in and the cash out. So if you have all that information, that's all you're going to need. If you decide that you need something else to help track for personal reasons, you can add any information that you find necessary, but from the standpoint that should have you covered.
Blake Oliver: [00:07:21] So it's sort of like a mileage log, but with little, little extra information added in there. So I've got date location, the type of the game you said buy in, cash out. Was there anything else.
Zak Zimbile: [00:07:34] That's pretty I mean, that's that's going to be the major part of it. But really the the key is doing it concurrently. I know I have a hard time remembering what I did two weeks ago, let alone five months ago. So if you get to November, December, and you don't have, you know, those results from January and February, it's going to be almost impossible to go back and recreate those sessions.
Blake Oliver: [00:07:54] So what do you recommend to your clients? Do you recommend like pen and paper or notes? Or is there a special app that you can use on your phone for this?
Zak Zimbile: [00:08:03] Certain apps are better than others. There's a couple poker specific apps that help, but from a general standpoint of whether you're playing casino games or sports betting, I would usually suggest Excel. For me, that's the easiest. You can have a new spreadsheet for each gambling type. That way it's separated or you can just do everything in one and make sure you have everything labeled correctly. But very easy to sort and go through everything at the end of the year. And a lot of these apps or online sites, you can even export a lot of your results directly to excel anyway. So you can go ahead and take what they have and export it to excel. Although I do always recommend keeping personal records and then comparing them to the records that whether it's these online casinos or physical casinos have, that way you know that you have your records and then if you want to just tie them out to other records, which may or may not be accurate, just so you have an idea of where things stand.
Blake Oliver: [00:08:58] I'm trying to picture a client at the casino actually opening up a laptop or a tablet and typing this stuff into a spreadsheet. It probably doesn't happen concurrently as much as it should.
Zak Zimbile: [00:09:09] No, no, definitely not. So from that standpoint, I would say that your Excel spreadsheet should probably just be your eventual landing spot. So if you have, you know, a notes app in your phone, maybe just jot down the information and then at the end of the night or at the end of your trip, you can say, Hey, look, I was there for three days. Here's each of my days or sessions results and then move on to the next trip.
Blake Oliver: [00:09:30] I wonder if this is something that I could help with. I feel like if I kept this information or if a client kept this information and say Apple notes, maybe you could like copy paste it into a GPT and then say, Hey, make me a spreadsheet. I feel like that would be Yeah.
Zak Zimbile: [00:09:45] Yeah, absolutely. Or you can you can do some type of, you know, voice memos and then have it translated to text. And then any way you can get GPT integrated into this to make it less difficult is, is definitely going to be a positive.
Blake Oliver: [00:09:58] Yeah, I've been playing around with that a lot myself doing this analysis on like unstructured data and it does a pretty good job. Like, I mean, I don't like actually tally it up myself to double check it, which I probably should, but yeah, like as long as it doesn't hallucinate. Yeah.
Zak Zimbile: [00:10:14] No, I mean that's, I think that's what from my experience, that's what people who gamble need. They need a, a essentially personal assistant at the time of the action. That way, as soon as it happens, it can be recorded because again, three days go by and it's not top of mind because for a lot of people this is not, you know, the utmost importance. But if you can just do it and make a daily habit of it or how often you're gambling, it won't be as bad.
Blake Oliver: [00:10:38] So why is it important to track activity like this in a systematic way, and especially just to do it concurrently?
Zak Zimbile: [00:10:47] Tracking their activity is probably the most important thing that they can do. Not only does it give you accurate records to kind of take a look back and say, hey, look, I've won or lost this much money gambling just from a general budgeting perspective, but it could really help you come tax time. The IRS allows you to use the session method when totaling your gross winnings and your gross losses. That means instead of, you know, going through every slot pool or winning or losing hand of blackjack, you can take a net result from the gambling period in which you're participating. So if you are playing slot machines for the entire day and you look at your results and you're down $500, you can put in your gambling log that you had a $500 losing day on that day. And that's important because you may have hit 3 or 4 jackpots that produced W-2 GS in that day. And the IRS might look at your your day from the trip and say, hey, you had gross winnings of $12,000. But per the session method, you actually had a $500 loss. So over time, this is potentially going to greatly reduce your adjusted gross income. So if your adjusted gross income is less, it really trickles down through your tax return in a number of ways, but it will end up sending saving you or most likely a decent amount of tax as it reduces kind of all of the gross figures that float throughout your return.
Blake Oliver: [00:12:11] Okay. So a gambling session, is that how did you define it? Like I sit down at a machine and when I get up, that's a session? Or is it like the whole time I spend at the slots that day?
Zak Zimbile: [00:12:23] Yeah. So it's different by every game type. So for slots, the IRS has come out and said you can have a 24 hour day or 24 hour period could be considered a session for slot machines. So even if you go to multiple places each 24 hour period, you can you can net out for slot machines. Now, if you play table games, they're going to want to look at each continuous session of play or continuous period of play as a session. So if you playing blackjack for three hours and then you go ahead and switch games and you play craps for two hours, you're going to have two separate sessions, one for blackjack and then one for craps for poker. It's going to be a little bit more black and white. Each tournament that you enter is going to be a session. And then the same with cash games. Each continuous period of play is going to be considered a session. So unless you're changing game types from, let's just say no limit hold'em to two pot-limit Omaha, everything's going to be the same session until you go ahead and change game types. The one session that a lot of people have an issue with right now is the sports betting session. For now, it's going to be each wager that you place. So the thing with sports betting is it's volume based. So there's going to be a ton of wagers and a ton of gross winnings and a ton of gross losses. So while some of that is up for interpretation, as of right now, each wager is going to be considered a session. So that part is really going to have a pretty big impact on your gross winnings and gross losses.
Blake Oliver: [00:13:47] Yeah, So that's that's a huge record keeping problem. Like it's making me think of like the whole issue with crypto, right? Where you got to track every transaction. You're saying for sports betting, we got to track every single bet. I hope that these apps, these sites have a way to export this. Do they?
Zak Zimbile: [00:14:04] Some do, some don't. Some are better than others. You'd be surprised at how many of these sites don't track everything or have net results that are actually different than the actual results. A lot of the regulated sites are better at it than the unregulated sites. But if you're if you're using an unregulated site to play sports bets, at best you're going to have a month or two of data that they save and then it could just be gone. So I would say from from that perspective, make sure that you're tracking everything simultaneously. You might have a little bit of leeway from the regulated sites, but I still wouldn't count on the information that they provide, as it's not always 100% accurate.
Blake Oliver: [00:14:45] Which ones do a good job? Like, do you direct your clients to use a particular site if possible because they have good records?
Zak Zimbile: [00:14:54] I don't. So when it comes to to gambling, usually the people that will care about the site, they're going to be going to whichever sportsbook offers them the odds that they think are the best. So they're going to be line shopping and they're going to be playing at 10 to 15 books across the state, depending on where they are and just getting the best odds. So from a from a record keeping perspective, I don't want that to supersede, you know, what's going to help them profit in the end. So what I say is always rely on personal records. And if you want to track where those bets were placed in your spreadsheet, go ahead. That way you can compare it at the end of the year to the records that each site provides. But as long as you have a record of it somewhere, it's not terribly important.
Blake Oliver: [00:15:38] Guess people who do a lot of sports betting like this are probably super analytical, So that probably helps a lot. They're probably interested in keeping records.
Zak Zimbile: [00:15:47] Usually the people that have a large amount of wagers are analytical. But, you know, I deal with a lot of recreational gamblers that make a certain amount of bets each week. And, you know, over a 52 week period, that does add up. So it's not going to be thousands of bets. But even tracking hundreds of bets becomes very challenging for somebody that just wants to, you know, play for or have 4 or 5 bets going on an NFL Sunday, that adds up over time.
Blake Oliver: [00:16:11] So you mentioned a few different definitions for gambling sessions based on the type of the game. Where does the IRS publish this? Where should I go to find out what is what?
Zak Zimbile: [00:16:23] I don't know. Off the top of my head, they have one for slots, but that's it. Hold on. 2015. 21. So that's. And there's another one.
Blake Oliver: [00:16:31] 2015. 21. Was that the one you said?
Zak Zimbile: [00:16:34] Yeah. Yeah. Did you, did you pull up the PDF itself.
Blake Oliver: [00:16:36] Yeah. So it says section 61 Gross income defined safe harbor method for determining a wagering gain or loss from slot machine play.
Zak Zimbile: [00:16:44] Yeah. And if you go to page six, you'll see that in 0.04 session of play. It lays out this is just for slots the calendar day.
Blake Oliver: [00:16:55] I see. So how do they do it? How do they where do they define that for like other games they don't.
Zak Zimbile: [00:17:02] So there's another there's another one which is the I think the one from 2008, 2008 dash 11, which is essentially a continuous period of play. So they kind of use that as a session, but it opens up a whole it opens up a whole gray area because when you're playing online, what if I'm continuously doing something or even with sports betting online? You know, if I'm if I'm making an arbitrage play and I'm only betting these three games because I know that the sum of all the parts is a winning bet, is every is every all the three bets in my. Gross Or is it only the net winnings? Because to me that should be the net but there's that's not really outlined anywhere.
Blake Oliver: [00:17:44] And then where did they say like that You have to track every single bet in a sports betting site that's separate.
Zak Zimbile: [00:17:51] That's so the there's no sports betting language, but it goes based off of essentially horse racing language that they have not it's not set in stone, but they say that every horse race is essentially its own event. And that has been applied to sports betting, saying every game is its own event.
Blake Oliver: [00:18:09] So just like everything else, it seems with the IRS, we've got a lot of very gray, unclear guidance.
Zak Zimbile: [00:18:15] Yeah, exactly. And really and really what you could do is if if you if you can tell the agent, hey, look, this is how I considered my sessions for certain things, you might be able to persuade them even though it's not you know, stated anywhere that your session method makes a lot of sense based off of how you do things.
Blake Oliver: [00:18:32] Got it. Okay. So, so we've got this concept of sessions we need to track by sessions, and we're doing that very diligently in our spreadsheet. Okay, good. You mentioned W-2 GS and that tracking by session can be beneficial. Why is that?
Zak Zimbile: [00:18:52] So the IRS from a gambling perspective, will only know about or will only be reported your winnings that are shown on form W-2 G. So those are issued by the casino directly to the IRS. But these only show jackpots. So again, you could be at a slot machine and you can be issued 4 or 5 W-2 G's in one session and the IRS thinks you won $15,000 when in reality, in that session you lost $500. The same could go for a number of different gambling types, but slots is usually the easiest to lay out at the end of the year, the IRS is going to expect you to show at least $15,000 worth of gambling winnings because that was what was reported to them. However, at the same time, they allow you to show your gambling winnings on a session basis. So what you do is you show your results on a session basis. And in this instance, if that was the only time you gambled all year, you chose zero gambling winnings and zero gambling losses, you then have to disclose somewhere on your tax return. Normally on form 8275 that you're taking a position that you're using the session method of accounting. And that's why the numbers reported to the IRS are going to be different than the numbers that you reported on your tax return. But at the same time, we know how the IRS works. They don't always read everything that's disclosed on the tax return and a notice is sent out. And then you kind of have to just go back and forth with them to say, hey, look, I'm aware that there's reported gambling winnings, but here's how I accounted for everything.
Blake Oliver: [00:20:16] So the required reporting that casinos do on the W-2 g G, I assume stands for gambling only, only reports your wins. And you said it's jackpots. There's a threshold, I take it.
Zak Zimbile: [00:20:30] Yeah, for slot machines, the threshold is $1,200. For poker tournaments, it's $5,000 less. Your buy in and then for table games, really only if you hit some type of progressive will you receive a W-2 g because you have to win more than $600 and the wager has to be more than 300 to 1 odds. So most of the time you're going to receive tax forms for slot wins and poker tournament wins.
Blake Oliver: [00:20:52] Got it. And then if you do the session method of accounting, you can basically reconcile your actual gains and losses to those W-2 G's you got. And because the losses aren't included in there, you're going to benefit from that. Okay?
Zak Zimbile: [00:21:08] Right. Yeah. So they won't actually reconcile because you'll have these gross figures that aren't going to tie to your net figures from those sessions. So it's important to keep your W-2 G's just so you are aware of what's on file with the IRS. But at the end of the day, if you have great concurrent records, you can go off of all of those net earnings or losses that you have kept throughout the year, and then you'll only be taxed on the net amounts instead of the gross amounts that that being said, your net amounts become your gross amounts. So all of you you'll take all of your winning sessions throughout the year and you'll add those up and that becomes your gross win. You'll add up all of your losing sessions throughout the year and that becomes your gross loss. So your gross win and gross loss figures could be much lower than W-2 G reported amounts because those only take into account each slot pull or each poker tournament win.
Blake Oliver: [00:21:59] Interesting. And does this apply the same for professional versus recreational gamblers?
Zak Zimbile: [00:22:05] The concept applies the same. How it's reported on the tax return is a little bit different since professional gamblers are self-employed, but the concept of using the session method and only showing the net results of each session versus the gross results of each wager are the same.
Blake Oliver: [00:22:23] Okay, So let's talk about the differences then between the pros and the recreational gamblers. What how do we how do we define nine? What is a professional gambler versus somebody who just does it as an amateur?
Zak Zimbile: [00:22:36] Yeah, there's no black and white definition of professional gambler versus recreational gambler, just as in differentiating a, you know, what's a business activity from what's a hobby? There's a set guidelines that the IRS will outline, but there's not one set or, you know, it's not, hey, if you check off five of these boxes, you can be professional gambler. So really it's addressed on a case by case basis. But the general idea is that you need to be treating gambling as a profession. So that means you need to be gambling regularly with the intent to make a profit. You should have a separate bank account and a separate credit card, and you should be able to provide an idea on how what you're doing is going to be long term profitable. So this applies to everyone. So if you have a full time day job and you're still pursuing gambling full time, you'll still be able to file as a professional gambler, you're just going to have a higher bar to clear because the IRS is going to say, hey, you know, you can't be a professional gambler because you have a W-2, wages of $100,000 a day. But here really the biggest thing is showing the IRS agent, if this ever comes to pass, is that the world of gambling is a little bit different. And just because this player is only going to gamble maybe 20 to 25 times a year or whatever the case may be, they're spending a lot of time studying or they're spending a lot of time putting in hand histories. If they're a poker player or they're scouting games, if they're an advantage player. And all of this goes into the amount of time that they eventually put in at the table. So we really try to give them an overall outlook of, you know, you know, this person's kind of like a baseball player. They might only play a certain amount of games per year, but they're also practicing their spring training, their offseason workouts. Everything goes into this overall activity of eventually trying to become a winning gambler.
Blake Oliver: [00:24:29] So it's possible that I could call myself a pro, even if it's also a side hustle.
Zak Zimbile: [00:24:36] Exactly. Yep. If you can if you can present your case that shows that you put in a lot of time, you're eventually going to be profitable and you're treating everything like a business and you should have no issue showing that with whatever sources of income you have outside of gambling.
Blake Oliver: [00:24:50] So I'm keeping good records. I have established myself as a professional. I am I'm ready to pay my taxes. How does the federal government treat gambling winnings on my tax return?
Zak Zimbile: [00:25:09] Yeah. So if you're a recreational gambler, kind of on the surface, it seems relatively straightforward. You take your gross gambling winnings and that's included as part of your other income, and then you can deduct your gross gambling losses if you itemize your deductions. So a lot of recreational gamblers, especially if they're married, are penalized. Since the standard deduction for married filing jointly individuals is so high. So a lot of the times if we have a recreational gambler who's married and they have, let's just say, $15,000 worth of gambling winnings and they also have, you know, $20,000 worth of gambling losses, the best that you can do is show break even. So we could show $15,000 of winnings and $15,000 of losses. But if they are not already itemizing their deductions, then technically they're not really receiving the benefit of those gambling losses. So at the federal level, they're almost paying tax on that $15,000, even though they had a losing year. So when it comes to recreational betting, especially on sports betting side of things, you may only be wagering 20 to $30 a game, but your gross winnings could pile up very quickly. And before you know it, even in a losing year, you may end up owing some tax.
Zak Zimbile: [00:26:22] So that's from the recreational side of things. If you do have net winnings for the year, let's just say you want $10,000. Your gambling winnings are taxed at marginal tax rates, so there's no special flat tax or different tax rate for gambling winnings. It's treated as any other income would be on the tax return, subject to whatever your individual tax rates are. And then if you're filing as a professional gambler, you're getting the same treatment as somebody who's self-employed. So you would follow the same reporting requirements as somebody who's filing schedule C, you'd show your gross winnings and your gross losses. Except as a professional gambler, you can also deduct any expenses related to gambling. So whether that's travel or study time or home office, you get a benefit of all those deductions. And then once you determine your net profit, you'd pay tax at the same marginal tax rate and then you'd also owe self-employment tax of up to 15.3% depending on your total income. So there's a little bit of a difference between pro and amateur. But the general concept of reporting the winnings itself is pretty similar.
Blake Oliver: [00:27:26] Sounds like there's a real benefit to being considered a pro versus an amateur. I mean, especially if you're married and that standard deduction amount is high and you're not itemizing, you should really try and and call yourself a pro.
Zak Zimbile: [00:27:43] Yeah. If you aren't going to be able to itemize, you have to keep your standard deduction. If you file as a professional gambler and you will be able to deduct any expenses that you have related to your play. The problem that a lot of people run into is they realize that maybe, you know, maybe filing as a pro would end up saving them taxes, but they don't meet those thresholds of treating it like a business or they haven't been tracking their gambling activity as they should have been, including their expenses. So it's hard to make that argument for those types of people just because they don't really meet the definition of self-employed. But for those people that have been tracking everything that way and they have been treating it as a business, a little bit easier for them to go ahead and say, hey, look, I didn't realize I was even going to gamble this much or it was going to get to this level. But now at the end of the year, I realize it did. It makes more sense.
Blake Oliver: [00:28:33] Is this something that the IRS tends to push back on? Like you've got to watch out for the professional versus amateur classification? Or is it something that, you know, as long as you're in. In substance, you know, making an effort like you tend to not have issues with it depends.
Zak Zimbile: [00:28:52] I think a lot of the time the IRS will push back if they think that filing as a professional. The person filed as a professional gambler simply for specific tax benefits. So the one the largest benefit, I would say, outside of maybe some deducting some expenses, is that everything that happens on Schedule C does not affect your AGI. So if you're a sports bettor that has, you know, $800,000 worth of winnings and $800,000 worth of losses, if you're showing that as a professional gambler, your AGI remains untouched, Everything nets out on Schedule C and whatever other income you have, your AGI will just be based off of that. And this could be beneficial for people who are trying to stay underneath certain thresholds for credits or eligibility for health insurance or even Medicare, Medicaid, anything that relies on AGI. So if the IRS thinks that you might be doing something to skirt around those, then you will definitely see some pushback. But you shouldn't be filing as a pro just to receive the benefits. It should be based off of the facts and circumstances of you actually treating it like a business.
Blake Oliver: [00:29:58] And what about all the different states? Is it a patchwork of differences or are they fairly consistent?
Zak Zimbile: [00:30:05] Yeah, states is kind of kind of where it gets interesting, especially from like I talked about the gross winning side of things. Most states follow the federal guidelines, so they'll allow you to take your gross winnings and deduct it against your itemized deductions and you'll pay tax on the difference. There's a couple states, notably New Jersey and Pennsylvania, very favorable for gamblers. You just you net your winnings and your losses and you'll only pay tax on the net and you'll only report the net. So you don't have to worry about itemizing or any other separate deductions and that's for everybody. Then there's that. That's the best solution for everybody. But then you have other states that make it very difficult. So you have Connecticut, Ohio, North Carolina, a couple others. They don't allow a deduction for gambling losses at all. So whatever your gross winnings are, you're going to owe tax on that amount at the state level. So that's why it's important to track your sessions or at least be aware of this, because if you're gambling in Ohio and you have gross winnings per W-2 GS of $150,000, but from per your session method, it's only $15,000, you know, you're only going to pay tax on $15,000 versus the 150. So it could be considerable amount of tax savings doing it that way. But it's also just something to be aware of because a lot of these sports bettors in the unfavorable states, they'll have a lot of gross activity. They'll break even at the end of the year or have a small losing year. And then they'll notice that because their state assesses, you know, 3 to 8% state tax, they're going to owe that amount no matter what. And that really affects their bottom line.
Blake Oliver: [00:31:39] So you didn't mention Nevada. I would think that Nevada would have great rules for, you know, gamblers.
Zak Zimbile: [00:31:47] So from a from a state tax perspective, Texas, Nevada, any of the states that don't assess state income tax, you don't even have to worry about. So you won't be filing a state tax return. So if you're gambling in any of those states, nothing to worry about. It's just if you're going out of state or if you're a resident of one of those unfavorable states, that's really just the most important thing to be aware of.
Blake Oliver: [00:32:09] And is this a nexus kind of thing where if I am in Nevada, I don't have to worry about income tax, I live in Nevada. I have my what is it, residency in Nevada. And I go to New Jersey and I gamble there in Atlantic City. Right. Do I do I have to file a New Jersey return?
Zak Zimbile: [00:32:25] You should be. I can guarantee you that most gamblers are not doing this. But gambling income is subject to tax where it's earned both. So if you're if you're in let's just say you're a California resident, you travel to New Jersey to gamble, you win money in New Jersey, and then you come back to California. It would be the same as working in New Jersey and then being a resident in California. You should be paying tax in New Jersey for those winnings and then going ahead and filing your California return and looking to get a credit for the tax paid to New Jersey. So you're not being double taxed, but you you will owe tax in both the state that you earned it and your state of residency.
Blake Oliver: [00:32:59] And does that apply to both pros and recreational gamblers?
Zak Zimbile: [00:33:02] It does. The only the only positive thing that professionals get to kind of hang their hat on is that whether they're in a state that that allows gambling losses or not, everything is related to a business. It's effectively connected to their their gambling trade. So if you live in Ohio, a state that does not allow a gambling loss deduction at the state level, you'd still be allowed those deductions as a professional gambler since it's related to your business. So they get a little bit of favorable treatment at the state level. But again, you'd still have to file a tax return just like an athlete would. If they go ahead and play away games, you'd have to go ahead and file state tax returns in any of those states where you went and traveled to play poker tournaments or any type of advantage play.
Blake Oliver: [00:33:45] Do you see a lot of professional gamblers relocating specifically for the tax benefits?
Zak Zimbile: [00:33:49] Not as recently years ago when online poker was was not quite legal anywhere in the US. People were kind of relocating outside the US. But now people tend to stay closer to where they want to live versus specifically for tax purposes, especially since gambling is so widespread. As recent as ten years ago, you know, Nevada still had kind of a stranglehold on the on the market. So a lot of people potentially, you know, would move here if they were already spending 3 to 4 months here playing poker tournaments. But, you know, now that they have such availability for casinos or home games in other parts of the country, they're usually just kind of staying where they are. And then if it's if it's less tax advantageous, I'll let them know. But, you know, they most likely, most likely will still remain where they are.
Blake Oliver: [00:34:37] It's interesting that gambling, online gambling, sports betting has exploded. It's available everywhere now. You would think that Las Vegas would be hurting. But the past few times I've been to Vegas, it's doing great.
Zak Zimbile: [00:34:51] It seems like it is, whether it's conventions or back in town and gambling in general. I think now this is just, you know, anecdotal. But I think generally now that more people have been exposed to gambling, you might have the same amount of people saying, hey, look, you know, I've gone to a local casino or I've gambled online, but, you know, it's not Vegas. It's not, you know, those 15 casinos right next to each other. So I still think that in general, the appetite for gambling is high. And it seems like, again, from what I've what I've been, you know, seeing that there's still people flocking to Vegas for a number of different reasons. I'm not sure if gambling is still the number one reason for that, but it seems like there's a decent amount of gambling still being done within the state.
Blake Oliver: [00:35:33] Yeah. For me, I mean, it's it's about the food. I just can't get enough of the great food in Vegas these days.
Zak Zimbile: [00:35:39] Yeah, well, I mean, and then we might have a couple extra sports teams coming here. So outside of the, the Raiders, some rumors, you know, circling about other sports teams. So those away fans will get any reason to come to Vegas. And I don't blame them.
Blake Oliver: [00:35:51] These days when people talk about gaming, they more often are referring to video games which have just exploded in popularity. It's now even bigger than, you know, film and TV. It's like the one of the largest, you know, types of entertainment in the world. And what comes with that is sports gaming. What's the word I'm looking for? Like competitive video games, right? Tournaments and all that stuff. Are people are people gambling a lot on that? Is that something you've seen growing?
Zak Zimbile: [00:36:20] I, I think that segment of the market was expected to grow faster than it actually did. So I know that gaming in general is wildly successful and more popular than it's ever been, but I think that the game types offered or the bets offered for those have not quite met regulations at a lot of the the regulated sports books so you don't see too many. Options to bet on gaming as you would for the NFL or the NBA or the NHL. So I think that that was something that gaming specifically thought would be very popular. And I'm not saying it's not popular, but I think that it's considerably considerably behind any of the other offerings just because at a certain point it's tough for regulators to offer markets on everything and depending on your state, they may not even allow betting on certain things. So gaming is one of those things where it's kind of hard to not only get it through regulation, but then have the markets support it.
Blake Oliver: [00:37:19] So going back to the tax forms we mentioned W-2. Gs Is there anything else I might receive as a gambler that I should look out for in the mail?
Zak Zimbile: [00:37:28] Yeah. So W-2 GS are going to be the most popular. Like we said, it's the W-2 W-2 GS normally issued by the casino and you should receive that if you're at a physical casino right at the time of the win. If you are on a gambling on an online casino, you probably will receive it at the time of the win. If not, you'll receive one lump sum of all your W-2 GS at the end of the year. So you should be on the lookout for an email from your online gambling websites. You could also receive a 1099 miscellaneous from a casino. So if you entered a slot or if you were entered into a slot tournament as a benefit of your rewards status and you won the slot tournament, a lot of casinos consider that some type of a sweepstakes win or a prize instead of an actual gambling winnings. So you'll you'll receive a 1099 from the casino. In actuality, this is still gambling winnings. You needed to gamble in order to essentially be awarded that seat into the slot tournament or whatever tournament ends up being. And you can go ahead and include that with the rest of your gambling winnings. And that would be the same as if you receive, let's just say, a expensive comp from a casino and it's more than, you know, $600.
Zak Zimbile: [00:38:40] And they say, hey, we have to give you a tax form because we gave you this using a grand example, a car. You'd have to go ahead and include that with the rest of your gambling winnings. The most controversial tax form that you might receive is going to be a 1099. So a lot of business owners know 1099 is are generated as a third party processing transactions on your behalf. Well, when the IRS went ahead and changed the rule to have instead of, you know, being $20,000 in a certain amount of transactions to receive a 1099, they went ahead and lowered that threshold down to $600. And what happens is a lot of these sports betting websites, people are funding and so they're withdrawing and depositing money using third party payment processors. So whether that's PayPal or Venmo or Cash app, whatever these sites are accepting, they're going ahead and they're withdrawing money from these sites using those vendors at the end of the year. Paypal saying, hey, look, you you withdrew $25,000 from DraftKings, so we're sending you a 1099 for $25,000. And this is an issue because that 25,000 also.
Blake Oliver: [00:39:47] Sends you something. Is it getting double counted?
Zak Zimbile: [00:39:49] So so, yeah. And and that $25,000 from PayPal, that's not taxable income. That's just that's just mirroring the flow of money to and from the website. Right. All the taxable transactions happen as you're betting whether or not you withdraw that money, it doesn't matter. It's still taxable at the time that you want it. So now taxpayers are receiving these 1099 for $25,000. And on top of that, they're reporting their gambling winnings as they should. So they have to try to figure out a way to make these 1090 nine seconds show as not taxable. So it's a tough balance now between reporting these 1099 KS and showing them as non taxable and already alluding to the fact that all of these winnings are shown properly and other portions of the tax return. It's more paperwork and it's more headaches. And anybody that receives these forms definitely going to hear correspondence from the IRS and it's something that you're going to have to follow up with. So when it comes to 1099 KS, biggest advice there is if you're going to withdraw or deposit to any sports betting site, do it using ACH or straight from your bank account. If you use PayPal or any other third party payment processor, it's definitely going to add to the headache at the end of the year.
Blake Oliver: [00:40:58] Yep, I can just see it now. The IRS gets those 1099 KS and they say, Hey, you underreported your income and now you got to go back and forth and deal with this better just to do ACH and not have to worry about it.
Zak Zimbile: [00:41:10] Yeah, I mean, it's already happened. And luckily, you know, we kind of postponed that threshold for another year. The IRS kind of ignored it, hoping that we can either postpone it or change the limits. But if not, the best way to avoid it, like we said, is to just not use those third party payment processors. And then one other form that you may come into contact with if you're in a poker tournament and you know people are helping you pay for your buy in, you have some backers or if you're playing slot machine and you guys pull money and you hit a jackpot, the W-2 is only going to be issued in one person's name, the person who was playing. So if you want to split the jackpot, there is a form that you can fill out form 5754. If everybody is present, you can sign that form and you can give it to the casino and you can say, Hey, look, I won this jackpot for $50,000, but I'm splitting it with John Smith. Can we each have a W-2 G for 50 for $25,000? A lot of casinos won't facilitate this, but some will. So it's worth offering if they don't facilitate kind of the splitting of the winnings at the end of the year. Whoever won the amount, let's just say in this scenario it was me, I'd have to send a 1099 miscellaneous to John for $25,000. That way I'm passing the tax burden off from myself to him.
Blake Oliver: [00:42:23] Got it. So up to this point, we've been talking all about requirements inside the United States. What about outside? If I travel to what's that little micro country in Europe that everyone likes to go to? James Bond likes Macao. There. Oh, Macau, we got Macau in. That's is that in Asia and then we've got.
Zak Zimbile: [00:42:45] Macau is right. Yeah. Macao's right outside China.
Blake Oliver: [00:42:48] What's the one near Italy where it's like a, you know, it's like the whole country is a casino. That's it.
Zak Zimbile: [00:42:54] Oh.
Blake Oliver: [00:42:56] I can't remember it right now.
Zak Zimbile: [00:42:57] I was I was going to say the Isle of Man, because that's where all the online poker companies are located. But you are talking about Monaco. Monaco. Jeez. Yes, that's.
Blake Oliver: [00:43:06] It. Monaco, Right. So Monaco is like. Right. That's. That's like the famous casino. Like. Yep. So. Okay. Wherever we're going, we're going outside the country, right? And we're gambling like, what's the deal there? What do I have to worry about there?
Zak Zimbile: [00:43:21] Yeah. So if you're going outside the country to gamble, you don't have to worry about a lot of reporting requirements If you're just, you know, bringing money with you, anything you win outside of the US is still going to be taxable. In the US, you're taxed on your worldwide income. So a session in Monaco is going to be treated the same as a session in the United States or wherever else you're gambling. Most of those countries don't have a requirement for nonresidents to pay tax on those gambling winnings, But you're going to want to go ahead and check, depending on which country that you're traveling to. For some people that are using unregulated sports betting sites or poker sites or any online gambling that's not regulated, you're going to want to check to see if you need to file an FA or some type of foreign reporting form to see more of just from an informational standpoint, if the IRS needs to know about that information. So essentially. It's kind of a gray area with the IRS. But right now, if you are playing on an online poker site, the IRS says, okay, we probably don't need to know about your balances, but if you are playing on a site that offers or acts as a casino, well, then you fall.
Zak Zimbile: [00:44:25] Then you fall into the foreign bank account reporting requirements. And we're going to need to know your balance if it's over $10,000. So if you are unsure of what type of the type of gambling that you're doing online or the type of sites that you're using, you're going to want to do a little bit of research or just, you know, talk to your tax professional to see if you need to file an FA. The threshold for an FA is $10,000 across all of your accounts. So if you have more than $10,000 in your online gaming accounts, it could be something to look into. And like I said, it's just an informational form. So it's not like this is something that gets reported to the IRS. Income tax reporting division goes to the Anti-Money Laundering and Theft Division, but it's the same as cryptocurrency where there's kind of a gray area as to if these balances need to be reported on these forms. For me, when in doubt, I would just go ahead and get those forms submitted. They're not terribly complicated and it kind of saves you in the long run if needed.
Blake Oliver: [00:45:21] Well, that's a great overview, Zack, of. What we need to know if we're going to serve those who are doing gambling and help them with their taxes. Is there anything that I missed that we haven't covered that you want to add?
Zak Zimbile: [00:45:35] I don't think so. I think really just the general sentiment is that gambling has been growing so much in the past 5 to 10 years. And based off of, you know, legislation that's being introduced, it's just going to continue to grow. So really being aware of the both local and federal guidelines regarding tax and gambling is just something that you're going to want to get in front of. That way you're not surprised at the end of the year if if you live in one of those unfavorable states or you're going to be losing your standard deduction. And then what I often see with players, too, is that you never really know when a big win is going to come. So you might have players that gamble quite consistently, you know, just on a recreational basis, but, you know, they might be down 20 or 30 or $40,000, you know, throughout the year, and then all of a sudden they win $100,000, you know, in November. And now they don't have records throughout the whole year because they were just losing. And they thought to themselves, you know, well, I don't need to keep records because I'm always a losing player.
Zak Zimbile: [00:46:30] But you never know when that big win is going to come. So if you're keeping accurate records throughout the whole year, you now have substantiation for all of those losses and you have no issue deducting those from that $100,000 win that you have. So although it may be, you know, a little bit of a pain and a little bit of extra work, you're definitely going to want to go ahead and track everything that you're doing that way in case it's ever needed. You have the information ready to go or, you know, you can tie your personal records to bank withdrawals that you have. Anything that makes it easier for an agent to go through these agents that if you are audited, are not gambling specialists. So it's really going to be up to you to educate them on the type of gambling that you're doing, how you track everything and how the relevant guidelines apply to you. And then if you can make your case, it usually makes it a lot easier on the agent.
Blake Oliver: [00:47:19] Well, thanks for all that info, Zach. Before we go, I'm just curious, I want to ask you two questions. And the first one is what's your favorite thing about this niche?
Zak Zimbile: [00:47:31] I would say it is the people involved and not only the people involved, but what they're doing in the gambling space. So like you said, a lot of the professional gamblers are really analytical and it's interesting to see how these people may be migrated from more of a finance background and just came over into the gambling space and how they treat everything. As to them not gambling, they're just taking advantage of inefficiencies in markets or they have found out a way to statistically beat certain games or have edges on games. And I think it's interesting to watch not or see not only how these people beat the games, but how they deploy capital to effectively spread out as much as they can, because for me it's difficult. But for some of these people, it's not as hard as you think to find edges in any avenue of gambling. The harder part is, you know, how are you getting the money down without getting limited at a sportsbook or getting kicked out of a casino? So the as much information as they share with me about how they're doing this, that's the part that I find interesting.
Blake Oliver: [00:48:33] Yeah, it's it's you. You find that edge and then you got to figure out how do I exploit that edge within the rules that I'm held to? Yeah.
Zak Zimbile: [00:48:42] Exactly.
Blake Oliver: [00:48:43] And without making myself an enemy of the casino.
Zak Zimbile: [00:48:46] Yep. Yeah. And like you said, with or with sportsbooks now they limit winning players almost quicker than ever. So it's challenging to exploit something that you found at a consistent long term basis without having to just hop from one sportsbook to another.
Blake Oliver: [00:49:02] Second question What's the hardest part about this niche?
Zak Zimbile: [00:49:06] The hardest part is. I often tell people what needs to what what would make their life easier. But in a world such as gambling, not everyone is as organized as in other spaces. So when you have so many haphazard sessions or when people are moving back and forth between game types or they're placing thousands of bets a day, whatever it is, record keeping is always going to be the issue. So the hardest thing to do is help players reconcile or get them on the right track from a record keeping standpoint. Just because the world of gambling is pretty much a cash business. So when you have, let's just say like the World Series of Poker that was just in town, you have 60 days or 50 days of poker tournaments. These people are not going to be going to the bank every day to withdraw money for, you know, poker cash games or for tournaments. They're going to bring $50,000 with them or they're going to have, you know, friends that have money with them. They're going to be borrowing money from people. They're going to be putting money in their safety deposit boxes. There's no trace of this money other than tournament buy ins. So it's hard to reconcile 50 days worth of cash transactions if they're not tracking it as it's going. So, yeah, it's it's hard to get an IRS agent to understand the life of a gambler because for them it's just not conducive to make a trip to the bank every day to show some type of paper trail. I try to outline best practices for these people, but the general sentiment within the gambling space is that 99% of people aren't reporting their income correctly anyway. And when one person talks to another person talks to another person, and you know they've never been audited or they do something one way, it's hard to try to make sure that we outline the guidelines. And just because somebody isn't doing it doesn't make it okay by the IRS standards. So there's just there's a lot of pushback.
Blake Oliver: [00:51:03] Zach, thank you so much for sharing your expertise with us. If our listeners want to get in touch with you, connect with you online, where's the best place for them to do that?
Zak Zimbile: [00:51:11] Yeah, best place is on my website. It's Zach the CPA. Com So it's Zach the CPA. Com And you can also send me an email. It's Zach, Zach the CPA. Com So it's just Zach Zach the CPA. Com. Do you have any gambling questions or you want to set up a call. Talk to people all the time just outlining their situation if I can help or just, you know, give them general advice based on the situation. Definitely love to hear from you.
Blake Oliver: [00:51:39] All right, Zach, great chatting with you. Thanks for all the helpful info. And I hope to see you around next time. I'm in Vegas.
Zak Zimbile: [00:51:48] Absolutely. Thanks. And when you're in town, reach out. I don't live that far from the Strip, and we'd love to see you in town.
Blake Oliver: [00:51:53] Sounds great.
Speaker3: [00:51:54] Thanks, Zach. You got it.
Blake Oliver: [00:51:59] Thanks for listening. I hope you enjoyed this episode and that you learned something new. And if you did, wouldn't it be nice to get some CPE credit for it? Well, I've got great news. My new app, Earmark CPE, offers free Naspa approved CPE credits for listening to podcasts, including this one. Visit Earmark cpcomm. To download the app, take a short quiz and get your CPE certificate. That's earmark cpcomm.