Question

Would you say that winnings from gambling should be taxed as do regular trading income?

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Answer 1

Winnings from gambling may or may not be taxes as regular trading income as per rules of IRS. To decide whether the gambling income is other income or trading (Business) income one first have to decide that the income is whether in form of business or casual income.

A person engage in business of gambling can report its gambling income as a regular business income and can claim deduction of business expenses for earning that income and losses as for regular trading income but if receiver of income is a casual receiver of gambling income, than it must be reported as “Other Income” in Form 1040. Casual receiver in not entitled to deduct any expenses from his gambling income although he can deduct his losses from gambling for the tax year up to income from gambling.

To claim deduction of losses of gambling casual receiver must keep record of his losses and have to report them in miscellaneous deduction itemized section in form 1040.

Whether a gambler is an amateur or a professional for tax purposes is based on the "facts and circumstances." If one's gambling activity is pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby, it is a trade or business."

Otherwise it will be treated as other income and must be reported in form 1040.The burden of proof is on the professional gambler to prove this status.

Nonresident cannot deduct losses on gambling in any course.

So from above description one can know that whether the winning from gambling can be reported as business income or other income as per facts and circumstances and what will be the treatment in both cases with gambling losses, recordkeeping requirement and reporting procedure of it in form 1040.