Tax counsel for professional gamblers.
Poker pros, sports bettors, advantage players, and high-volume recreational players face a part of the Code that rarely works the way it should. §165(d) caps losses at winnings. Starting with the 2026 tax year, only 90% of those losses count, which means a breakeven year now produces taxable income. The session method is misunderstood by the people who most need it, professional status is a factual fight, and the records almost never match what the IRS expects. This is the deepest part of my practice: I have published on gambler taxation in Tax Notes Federal and testified at the IRS hearing on the proposed §165(d) regulations.
Not sure where you stand?
Ten questions, about two minutes, answered on your own device with nothing sent anywhere. It tells you whether the 2026 cap actually reaches you, what is worth sorting out before year end, and what records to have in hand. If it does not reach you, it says so. Run the self-assessment →
You got an IRS notice about gambling winnings
A CP2000 or similar matching notice usually means the IRS lined up a W-2G or 1099-K against your return and found a gap. The number on the notice is almost never your real liability, because the automated system does not see your losses, does not apply the session method, and does not know whether you are a professional. There is a response deadline on the letter. The work is a substantive, documented reply before that date, not a check for the proposed amount. The longer a notice sits, the fewer options remain.
You are being audited, or expect to be
Gambling audits turn on records. The examiner wants to see a contemporaneous log, session-level detail, and support tying your reported figures to casino statements, betting platform records, and bank activity. Reconstruction after the fact is harder and weaker than a clean log, but it is often what is actually available, and there are defensible ways to do it. The goal in an exam is to control the record and the narrative before the examiner builds their own.
You need to know if you are a professional
Professional versus amateur is not a label you choose. It is a facts-and-circumstances test, and it changes how winnings, losses, and expenses are reported, and what you owe in self-employment tax. Getting this wrong in either direction is expensive: claim professional status you cannot defend and you invite an adjustment; fail to claim it when you qualify and you overpay. The determination should be made deliberately, with the supporting facts documented, not assumed at filing time.
The 2026 rule: taxed on money you never made
For tax years beginning in 2026, only 90% of wagering losses are deductible, and for professionals the same haircut applies to wagering-related expenses. The cap at winnings still applies on top. Run the arithmetic: win $500,000 and lose $500,000 in the same year, a true breakeven, and you deduct $450,000 and pay tax on $50,000 of income that never existed. The higher your volume, the worse it gets, and no carryforward softens it. High-volume players need to model this now, in-season, while there is still time to manage 2026 gross figures and estimated payments. After year-end the only question left is how big the number is. Ten questions on what it changes for you.
How you count a session decides the whole return
Gross winnings and gross losses are measured by session, not by individual wager and not by calendar year, and the 90% rule made the definition worth real money: the convention you use determines whether your 2026 liability approximates your economic result or exceeds it. The IRS's session guidance was written for slot play. For sports betting there is essentially none, which means the position has to be constructed and documented deliberately. If your return treats every bet as a separate event, or nets the year the way you would net a session, the numbers will not survive a matching notice, let alone an exam.
The accounts or the W-2Gs are in someone else's name
Betting through a spouse's, relative's, or friend's account is common, and it creates two separate problems: information returns issued under the wrong name and taxpayer identification number, and the question of who actually owes tax on the winnings. There is a mechanism for splitting reported winnings at the time of payment, and decades of case law on arrangements made before a win versus after one. Fixing this at filing time is possible, but it has to be built on documentation and done deliberately. Done casually, it reads to the IRS like income shifting.
Your state does not follow the federal rules
Several states cap or deny gambling loss deductions entirely, tax gross winnings, or are adding their own withholding and reporting regimes on top of the federal rules. Where you sit on January 1, where the books are licensed, and how your state conforms to the 2026 federal change can move the real-world result more than the federal analysis does. The state answer is separate work and it is frequently the more expensive half.
You are structuring a staking deal
Backing arrangements raise characterization questions before anyone files anything: is a payment a loan, an investment, or income, who reports the winnings, and how are makeup provisions and markup treated. These are answerable, but the answer depends on the deal terms, and the time to fix the structure is before the money moves, not after a backer and a horse disagree about who owes tax on a score.
What is the new 90% gambling loss rule?
For tax years beginning after December 31, 2025, §165(d) allows a deduction for only 90% of wagering losses, still capped at wagering winnings. For professionals, wagering-related business expenses are inside the same limit. The practical effect: a breakeven year produces taxable income, and there is no carryforward of the disallowed piece.
Can I deduct gambling losses?
Only against gambling winnings, never below zero, and from 2026 only 90 cents on the dollar. Casual players must itemize to deduct losses at all, while winnings are reported in full, which inflates adjusted gross income even in a losing year and can cost you credits and deductions keyed to AGI.
Do professional gamblers pay self-employment tax?
Yes, on net wagering income. Professional status still matters: it moves the activity onto Schedule C, changes the AGI picture, and affects the qualified business income analysis. What it no longer does, since 2018, is unlock expense deductions beyond winnings. Expenses of the wagering business sit inside the §165(d) cap.
What counts as a gambling session?
The unit of measurement for winnings and losses. The IRS's published approach was built for slot play; for sports betting there is essentially no guidance, and the definition you adopt changes your gross figures and, from 2026, your actual liability. It is a position to construct and document, not a box to check.
What if my W-2G is in someone else's name?
The clean mechanism for splitting reported winnings works at the time the payment is made. After the fact, the question becomes who was actually entitled to the money under the arrangement that existed before the win, and what the records show. It is fixable in many cases, and it should be handled deliberately before filing, because handled casually it looks like income shifting.
Published and heard on exactly these issues
I wrote on the taxation of gamblers in Tax Notes Federal (May 2026), testified at the IRS public hearing on the proposed §165(d) regulations (July 2026), and have been quoted on the CFTC-versus-states prediction markets fight. The 2026 rules are new for everyone. They are not new to me. The writing is here.
Have one of these situations right now?
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