Self Employment Income of Gambling Winnings

Call the number on the notice. The first step is to find out why they did this, and they're the only ones who can tell you.

-- Phil Marti Clarksburg, MD

Must disagree with this advice. It would only reduce an amount already in error. OP didn't say just how he was "notified", but normally this is either an audit or a CP 2000 letter, in which case perhaps a visit to a local tax pro, either an EA or a CPA will help get rid of that 8,000$, an amount not to be sneezed at. ChEAr$, Harlan Lunsford, EA n LA

If those expenses were purchasing a lottery ticket, that isn't going to help (but it also is clear that it's not self-employment income). If he went to Nevada every other week and counted blackjack, the IRS has a strong case. But you're right, of course, his travel expenses, hotel rooms (unless comped), half his meals, etc. are deductible by his business. Seth

Thanks for the reply. Unfortunately, I don't have much in the way of expenses. The only thing I can think of would be using my house as an office. Other than that, I can't think of any expenses.

After thinking about this some more, the questions are how did you win $ 60,000 and how much earned income did you have from your stated oddupation?

The IRS has a fairly sucessful history of fighting claims of "Professional Gambler" as an occupation. There are no professional Lottery, Keno, Slots, or Craps players. But there are professional Blackjack and Poker players. In the latter two, you would have expenses to get to and stay at casinos - unless you were playing at home on the Internet or even worse running the game at your home.

Without a full understanding of the facts, I suspect you're going to need a tax professional with audit experience!

Adams' Rule #1: NEVER represent yourself before the IRS.

Dick

...or not. If it's self-employment income, and he didn't max out on his FICA through other employment income, the IRS is probably going to come out ahead with his self-employment taxes (which is presumably the source of that $8k tax bill). That is, unless the poster spent an awful lot of money on gambling expenses, such as airfares. Entertainment expenses probably wouldn't be allowed as a biz expense.

Do you just gamble on line, or do you travel somewhere to do it? If you travel, those expenses are deductible. If you use a home office, you can write off part of your rent or depreciate part of your house, and deduct a part of your utilities. Stu

Especially if you simply listed a dollar amount on line 21 and nothing else. The instructions say to list the "type" as well as the amount, so in your case you should have written "Gambling winnings" on the dotted line next to the dollar amount on line 21. If you didn't do this, or attach a statement, that might be the problem right there. Did you receive a W-2G for your winnings showing withholding (common for larger amounts)? If so that also should have been attached to your return. If you received a CP2000 letter, this is not actually a change to your return, but a proposed change (a CP2000 letter is considered a correspondence audit). A written response documenting the nature of the income should be sufficient. Just read the letter carefully and follow the instructions. As previously posted by the OP and others, this does not appear to be self-employment income by any stretch.

-Mark Bole

I had to think about this one for a few hours, but the only

*right* answer is that the IRS has made a mistake in reclassifying your income. And the only way that happened is if they didn't notice that it was gambling income. I suspect - but I'm not betting on it - oops, maybe I will; what odds are you offering? - that if you point out that the income was gambling income, they will quickly move it back to where you had it on your tax return. Do not expect an apology nor embarrassment nor even a "thank you" from the IRS; they make this type of trip-up all the time. All the time. All the time.

Go a step further, if it is to your benefit, amend the last two returns taking gambling losses on a Schedule C. That may help put it in perspective for them.

I live in England, Great Britain and I am a professional gambler I usually make a profit every year of between in US$

70,000 to $100,000 a year, over here winnings from gambling are not classed as earned income and are therefore exempt from Income Tax, also as I have several health problems I collect disability income of around $12,000 a year. When I first started my professional gambling career my social security benefits were a lot more and in fact legally speaking as my rent, property tax, Disability and additional income related benefits amounted to around $24,000 a year I could legally have still been entitled to this providing my savings were less than about $24,000 and for a while I did claim and collect this until I started to invest in Apartments and Houses which bought my assets to over the $24,000 limit for income realted benefits. I dont have any moral problem with claiming social security/welfare benefits as I still pay high tax on the alcohol and tobacco I purchase along with sales tax on other goods I purchase. It looks like you have a raw deal in the USA compared with some other countries. John Wilson

What TAX year are is the OP dealing in this situation?

TY2006 is not IN CYCLE for CP 2000 processing yet, BUT special programs & EXAM might be looking at this!

TY2005 CP2000 season began this Spring/Summer.

TY2004 is winding down to a trickle with ASED approaching

4/15/2008 I would recommend contesting the proposal, with a clear explanation of what is on line 21, Copy of W2g would help, I hope the payer did not use a 1099-Misc, as that might have triggered a CP2000 situation I think this might be an instance of a CODE& EDIT error, the editor may have incorrectly placed special potential skipped SE tax indicator on the return, possibly if the notations on line 21 were -NOT- clear enough... as mentioned by other responders.