On January 1, 2023, sports betting became legal in Ohio. I started with an initial bankroll of $2,421.69.

By January 3, I’d already withdrawn more winnings than my initial bankroll, and since then, I’ve remained successful enough to support my family on the earnings. I immediately started thinking about my future tax liabilities.

A primer on gambling and taxes

I’ve written about the U.S. federal income tax differences between professional and hobby gamblers before. Whether a gambler is a professional or hobby gambler for tax purposes boils down to what the IRS calls the “facts and circumstances.” In Commissioner v. Groetzinger, 480 U.S. 23 (1987), the Supreme Court established the professional gambler standard: “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.”

The burden is on the gambler to prove their status.

In addition to applying the standard established in Groetzinger, courts sometimes apply the following subjective nine-factor test from the IRS in I.R.C. § 1.183-2(b)(1), used to determine intent to make a profit under the hobby loss rules to decide whether a taxpayer is a professional gambler:

• The manner in which the taxpayer carries on the activity
• The expertise of the taxpayer or his advisers
• The time and effort the taxpayer expended in carrying on the activity
• An expectation that assets used in the activity may appreciate in value
• The taxpayer’s success in carrying on other similar or dissimilar activities
• The taxpayer’s history of income or losses with respect to the activity
• The amount of occasional profits, if any, that are earned
• The financial status of the taxpayer
• Elements of personal pleasure or recreation

Quite helpfully, the IRS also provides guidance for code section 183 on how to determine if gambling activity would be considered hobby or professional: Activities Not Engaged for Profit Audit Technique Guide. While this document has a clear disclaimer on the front that reads in part, “This document is not an official pronouncement of the law or the position of the Service and cannot be used, cited, or relied upon as such,” it contains useful nuggets for someone looking to be a professional gambler.

Expand your knowledge with BtrBet

BtrBet exists to create tools that connect sports bettors in ways that allow them to find the community with which they can grow their knowledge and bankrolls together, as well as provide professional gamblers critical information come tax season. To that end, BtrBet has been working on two main efforts:

1. This weekly newsletter that you’re currently reading.
2. A web tool that provides a single source of truth of all of your sports betting activity and provides analysis on your gambling to suggest ways you can bet better.

This weekly newsletter features recent news relevant to sports bettors, an educational topic that BtrBet users may find useful, and a brief update on what new tools we’re building at BtrBet.

We’ll start this programming in our next issue with a look at break-even percentages and how to use them to find “good bets.” Make sure you’re signed up to receive Gambler’s Gain!

And our web tool is live! You can link your sportsbook accounts to automatically ingest the gambling activity from each book into a unified gambling diary that you can use to support your claim of being a professional gambler. In addition to exporting the diary to provide to your tax prep professional, you can also filter your diary to drill down to specific types of bets.

The gambling diary is at the core of another BtrBet feature: automated analysis of your gambling that surfaces where you’re the most profitable and where you could bet at least a little better. You can view the analysis for the last week, month, quarter, year-to-date, or for all of your bets for all time.

Some of the tools we’re currently building provide: ways to share bets in a trustworthy way, alerts for arbitrage opportunities, and alerts for contests that match user-provided filters. If any of those tools sound particularly useful to you, drop me a line at zach@btrbet.app and I’ll make sure to get you into our beta tests!