Year-End Tax Tips for Gamblers

As the end of the year approaches, it is important to revisit your 2023 gambling activity and determine if there are any additional tax strategies available to reduce your tax liability. Below are important considerations for all gamblers before year-end:

Organize Documentation

Before you can utilize the strategies below, you will need to have an idea of your current winnings, losses and expenses for the year. If you kept a detailed log of your play and expenses, you are already ahead of the game. If you need to revisit your figures, it’s best to do so sooner, rather than later.

While you may not receive certain tax documents until early 2024, your log will reflect the most accurate representation of your winnings and losses for the year. It is important to keep a copy of any tax forms received for your records. However, you should not rely solely on these documents. This includes W-2Gs, win/loss reports, bet histories or any other documents received from the casino or sports book. These documents should be used solely to supplement your log.

Year-End Expenses

If you are a professional gambler, it is not too late to expedite or prepay expenses. Gamblers will almost always use the cash basis of accounting. This means expenses are deductible in the year they are paid. This includes prepaid expenses for subscriptions or other software and tools used in relation to your gambling income. 

If you plan on upgrading your computer in January, you can shift that expense to 2023 to recognize an immediate tax benefit. The same can be done for year-long subscriptions. You can prepay up to 12 months of training sites, data feeds, or other necessary subscriptions for your business. 

Consider Retirement Contributions

As sole proprietors, professional gamblers can make retirement contributions based on their net income from gambling activities. There are a number of options available with varying deadlines for contributions:

• Solo 401(k): Employee contributions must be made by December 31. Employer contributions can be made up to the tax filing deadline (including extensions)

• Self-Employed Pension (SEP) Plan: Contributions can be made up to the tax filing deadline (including extensions)

• Traditional & Roth IRA: Contributions can be made up to the April tax filing deadline

There are a number of income factors to consider, but professional gamblers can contribute up to $66,000 in Solo 401(k)s or SEPs. Traditional & Roth IRAs are available to both professional and recreational gamblers, with a contribution limit of $6,500.

Health Insurance & Health Savings Plans (HSA)

As self-employed individuals, professional gamblers receive a tax deduction for the cost of health insurance premiums. If you haven’t already, now is the time to look over your health plan options before the end of open enrollment. If you are using the marketplace, it could be helpful to have a conversation with your tax professional about your projected income. This can help determine your eligibility for the Premium Tax Credit and associated considerations.

As you are looking for a plan, consider those that are HSA-eligible. Both recreational and professional gamblers are eligible to deduct HSA contributions. Funds can then grow, and be withdrawn, free of tax for eligible medical expenses. For 2023, HSA contribution limits are $3,850 for individuals and $7,750 for families. These contributions can be made up until the April tax filing deadline.

Determine Final Estimated Payment

Due to the nature of variance, it is often difficult for gamblers to make accurate estimated tax payments. The goal is to make payments based on your net profit throughout the year to prevent underpayment payments. However, you do not want to overpay your estimates, hit a downswing, and have to wait until filing season for a refund.

Now that it’s the end of the year, you should have an accurate representation of your taxable gambling income. After factoring in any of the strategies above, you can estimate the total tax owed for 2023. This allows plenty of time to make a payment before the 4th quarter deadline of January 15th.

This year, more than ever, it is important to make timely estimated payments, as the IRS interest rate was recently increased to 8% for underpayment of tax.

Contact Your Tax Professional

If you have any issues with any of the above guidance, it is not too late to reach out to your tax professional. A quick conversation could go a long way to help plan your end-of-year activities. It can also be helpful to discuss your overall tax year and determine which strategies, if any, can be utilized. Certain strategies must be addressed before the end of the calendar year. You do not want to miss out on deductions or retirement planning that could have reduced your tax burden.

I would recommend doing this ASAP as many tax professionals will be difficult to reach during the holidays!