Understanding the New Tax Impacts on Professional Gamblers

In an unforeseen move within Donald Trump’s "Big Beautiful Bill," Republican senators quietly altered the federal income tax regulations. This amendment is aimed at generating billions from professional and high-stakes gamblers over the next decade. While the billion-dollar figure may seem substantial, it pales in comparison to the trillions in tax relief provided to affluent donors, such as Elon Musk. The real impact of these new rules on revenue generation remains unclear, as gamblers are now required to pay taxes on "phantom winnings" – earnings they no longer possess. With the new stipulations, winners will be permitted to deduct only up to 90% of their gambling losses, even if their actual losses exceed their gains. Moreover, unlike other businesses, professional gamblers cannot fully deduct all business-related expenses; their deductions are restricted to 90% of their total wins, regardless of expenses incurred.

Effects on U.S. Gambling Industry

The federal government collects billions annually through specific excise taxes on gambling activities, including a 0.25% levy on every sports wager handled by legal bookmakers. High-stakes gamblers, who contribute significantly to this tax pool, are increasingly moving their activities abroad, where winnings escape IRS reporting and no excise taxes are levied. This offshore migration doesn't just impact sports betting. Even U.S. poker rooms might experience a downturn in tournament participation, as they are mandated to report any winnings over $5,000. For instance, if a player wins $10,000 but continues to lose thereafter, only $9,000 in other gambling losses can be deducted annually. The situation is even tougher for professionals, as their deductions for total gambling losses paired with essential business expenses are capped at $9,000. Reporting requirements apply not only to gambling but also to everyday services, linking professional gambling closely with these intricate tax regulations.

Legislative Responses and Industry Impact

States with prominent casino industries, like Nevada, have seen democratic representatives recognize the detrimental effects Trump's tax bill could impose on local economies. Even some Republican legislators, like Guy Reschenthaler from Pennsylvania, have proposed counter-legislation such as the "Shifting Limits on Thresholds" ("SLOT") Act. This bill aims to mitigate the negative impacts by increasing the reporting threshold for slot machine winnings from $1,200 to $5,000, adjusted for inflation.

Yet, religious conservatives in Congress, seeing gambling as immoral, stall these initiatives to avoid conflicting with Trump’s policies. An attempt to reverse the 90% deduction cap through the "Fair Accounting for Income Realized from Betting Earnings Taxation" ("FAIR BET") Act saw bipartisan support, but also failed to advance beyond committee review. The American Gaming Association, representing casino operators, tried to protect high-limit slots but misinterpreted rule changes pertaining to different tax forms, showcasing ongoing challenges in navigating these complex regulations. The industry faces a potential downturn unless a political shift occurs to repeal these stringent rules.