Gambling options across the country have been expanding at a rapid rate. This is especially the case for sports betting, which has been increasing in popularity over the past decade. However, those who view sports betting as a favorite past time may not be aware of the tax implications that go along with it. However, in the majority of US states, a portion of gambling winnings will be taxed, as it is considered an income. Here is a look into the tax laws regarding sport betting.
How Winnings are Taxed
No matter how much money you win on your sports bets you must pay taxes on those winnings. The winnings must be reported as an “other income” on your 1040. However, there is some good news, if you lose any money on sports betting then the loss is tax deductible. You can place all of your bad bets under “other miscellaneous deductions” of your Schedule A section.
Betting on the Super Bowl
The Super Bowl is the sporting event that is gambled on the most in the United States. More than $100 million are wagered on the game every year, and that’s only the legal betting that takes place in Nevada, where the law allows for sports gambling. It is estimated that illegal sports wagers are as high as $380 billion every year. The amount of illegal sports betting means that the US treasury is losing a huge amount of revenue from gambling winnings every year, as no matter whether or not they are legal or illegal, gambling winnings should be taxed.
Reporting Your Sports Winnings
Even if you don’t receive an official form and your sports winnings are underground, you are still supposed to report your gambling winnings to the IRS. However, in reality this doesn’t happen all too often, as people will often ignore IRS rules in regards to sports gambling. The IRS doesn’t have an official knowledge of how much tax it isn’t able to collect from underground sports gamblers, but the number is quite high.
Online Sports Betting
One of the most popular sports gambling methods nowadays is using an online method to place bets. There has been a recent effort to take control of Internet gambling in recent months, however bettors often still use an online platform to place sports bets, and many don’t tell the IRS about any of their winnings.
Tax and Sports Gambling Misconceptions
As more and more states, and even the federal government start approving access to online sports gambling, the regulations that would come with it will aid the IRS in getting more sports gambling winners to follow tax laws. When reporting your sports gambling to the IRS make sure that you are reporting it as other income on your tax forms. Also keep in mind that you can lower the amount of your winnings that are taxable by itemizing the expense.
Keep Good Records
Whatever types of sports gambling you are participating in, it is highly recommended that you take very meticulous records of your gambling activities. Keep in mind that as a recreational sport gambler you can’t just net your wins and losses, meaning you can’t combine the two together and only report the total. Instead, you must separate the winnings and the losses. In order to substantiate the amounts in both categories, you must keep great records of every sports gambling session that you participate in. Another requirement described in the IRS Publication 529 on Miscellaneous Deductions is that you keep a log of all of your gambling activities including sports betting.