Sports Betting Taxes also Loom as March Madness Approaches in the US
People are experiencing legalized gambling in new ways as online sports betting becomes available in more states. Yet, you will have to pay taxes on your gains whether you wager on March Madness from your couch or go to Las Vegas for a weekend at the tables.
Before the current explosion of the sports betting business, the IRS had unambiguous regulations regarding gambling profits. In other words, winnings from a wager are taxed income, just like wages or gains from investments.
If you itemize, you may be able to deduct a portion of your losses from your gains, but not more.
“Anything you earn is subject to taxation in the United States unless specifically stated differently”, according to April Walker, lead manager for tax practice and ethics at the American Institute of CPAs.
If you’re fortunate enough to be profitable, keep in mind the following tax issues.
What is the W-2G form?
The IRS and gambling establishments often give each other with a record of your taxable profits. This includes digital operations like online sportsbooks.
The W-2G statement gives a summary of your gaming profits as well as any withholdings you chose when you provided the establishment with your tax information.
According to the IRS, gambling enterprises are obligated to disclose payouts that exceed specific levels. If any or all of the following apply to you:
- Won at least $1,200 playing slots or bingo.
- Earned at least $1,500 from keno.
- Winnings from a poker event exceeded $5,000.
- Acquired $600 or more from another gambling activity, such as sports betting, where the payout was at least 300 times the stake.
All gambling earnings, are they taxed?
It’s important to keep in mind that not all scenarios in which you might win a bet are covered by these rules. For instance, your winnings may fall below these minimums, but bear in mind that you must still pay taxes on any winnings. Hence, if you receive a W2-G, you may be confident that anything the casino or sportsbook has mentioned there is known to the IRS.
The coworker who set up the March Madness bracket challenge at the office is also unlikely to email you and the IRS documentation of your involvement.
Yet, if you win, Walker, who is from North Carolina, says it’s still considered income. She continues, “How you handle it from there is between you and the priest.
How may gambling losses be deducted?
Losses from gambling can be deducted, but there are some considerable obstacles. To begin with, you are only permitted to deduct the amount of gaming revenue that you actually received. Don’t count on tax deductions to make up for losses you incurred if your business was in the red for the year.
Also, unless you itemize your deductions, you cannot deduct gambling losses. Many people, however, opt to take the standard deduction instead of itemizing, which reduces your taxable income by a predetermined amount without your involvement.
The standard deduction for married couples filing jointly for the 2022 tax year is $25,900, and those returns are due this year. You might not wish to write off those poor bets if your gambling losses, when added to all your other deductions, fall below this threshold.
Another thing to think about is whether you can deduct your losses more easily if you’re a professional gambler who earns a significant portion of your income from placing wagers.
Yet, this calls for a completely different tax strategy that may not make sense for casual gamblers.
Do you require any other paperwork?
While a casino or sportsbook might offer you a record of your earnings, they’re unlikely to break down what you lost. This is something to keep in mind when deducting gambling losses. The IRS advises that you retain your own records for these purposes.
The government states on its website that in order to claim your losses, you must keep an accurate log of your gambling profits and losses as well as be able to produce receipts, tickets, statements, or other records that detail the sum of both your gains and losses.
Walker argues that maintaining meticulous records is still a good practice. You may make sure your information is consistent with any records you might receive from a casino if you have supporting documentation.
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Mar 2, 2023