Sports Betting Taxes
|‣||Are Sports Winnings Taxable|
|‣||Keep A Good Record Of Your Winnings|
|‣||Are You A Professional Gambler|
Sports betting is an exciting activity available across the United States in a retail and online format. By posting sports bets, you have the opportunity to win cash, which makes betting even more fun. But after the win, do you have to pay taxes?
Most sports fans only think about the fun of the wager without considering the need to file taxes. However, winnings from sports betting are considered taxable income.
Learning more about how reporting your earnings will ensure that you follow the Internal Revenue Service (IRS) guidelines and avoid any issues in the future.
The IRS states that it is the bettor’s responsibility to keep track of wins and losses from sports betting. The proper amounts must be added to annual tax returns so that the law is clearly followed.
Whether you are new to sports betting or simply want to stay on track with tax payments, use the guide below to make the right decisions with your winnings.
Are Sports Betting Wins Considered Taxable Income?
All income from gambling is taxable, including sports betting. No matter what game you play—poker, keno, the lottery—you must pay a tax on your wins. The type of gambling you participate in will dictate if a certain payoff amount will trigger a notification to the IRS.
If your win is higher than $600, then you will be given a W-2G form. This form is also issued if the win is 300x or more than that bet.
When you receive this form, so does the IRS. This is how the organization is alerted of big wins. It does not matter if your win was earned online or at a land-based sportsbook or what type of bet you placed.
All income you earn is taxable and needs to be paid for. Even if you win a prize instead of cash, the IRS expects you to report the market value of the prizes you received.
Online sports betting and retail gambling wins are taxable. Operators like FanDuel and DraftKings have a legal obligation to send you the appropriate tax paperwork with a big win. You should receive a Form 1099-MISC for filing.
If you are paid via a service such as PayPal, the form sent may be a 1099-K.
How Much Will I Need To Pay In Taxes?
The federal tax on gambling wins is 24%. You should expect to pay at least this amount when you cash out. Depending on the state in which you live, you may also have to pay a state tax.
In some instances, the federal tax is removed automatically from the prize money. This is helpful to the player as you are already making the required payment.
In general, sportsbooks must take out the 24% payment if a bet pays over $5,000 in net wins at odds of 300-1or higher. Be advised that the percentage is an estimate, and you may have to pay more or less to the IRS based on your tax bracket.
Even if you do not receive the W-2G form or the taxes are not removed on a big win, then you are still responsible for filing. The IRS expects you to pay taxes regardless.
How To Fill Out A 1040 Tax Form Based On Winnings
So how do you file? Where do you input the information of your win within a 1040 tax form? Within this form, you will need to list the other income on Schedule 1, Line 8. Use the information from the W-2G form to fill out the 1040 document.
The amount listed in Box 1 is the reportable gambling winnings you need to claim. In Box 2 and 3, you will add the date the prize was won and the type of wager placed. If a federal tax was already withheld from your prize money, then you need to list that information within Box 4.
When filing, you will save money on the tax payment if you file your net win. You can do this by itemizing deductions within the tax return. More information on itemization can be found within the ‘Writing Off Losses’ section below.
Don’t Skip Out On Record Keeping
As an avid sports bettor, you must keep an accurate account of your betting. Each win and loss must be recorded. It helps to keep a notebook with a list of your wagers.
Include the date, type of bet, where you placed it, the win, and so on. This information can then be used at tax time to deduct losses within your return.
Maintain all W-2G forms that you receive from a sportsbook. Any wagering tickets must also be kept along with receipts from sportsbooks.
Upon filing, the information will then be assessed to help you pay as little as possible in gambling taxes based on your loss and win details.
If you wager at land-based venues, the record-keeping will need to be more detailed. If you wager online, the provider should record your bets so that you can review the information at tax time to make filing easier.
Don’t Forget To Write Off Your Losses
The IRS requires players to report gambling winnings so the proper tax amount is paid. Thankfully, there is a way to cut down on how much you pay. Itemizing your losses within your tax return can result in a lower amount paid.
Back in 2018, the Tax Cuts and Jobs Act almost doubled the standard deduction amount. With the deduction, consumers can itemize gambling losses and deduct the amount lost from their income.
If you itemize, the deductions for losses cannot be higher than the winnings for the year.
Let’s say you won $8,000 in one year but lost $10,000. Your limit for deduction would be $8,000 because the amount cannot be higher than your losses.
You will report the loss on a Schedule A form, and this document is separate from the gambling winnings information.
Do I Need To Pay State Taxes?
Many players wonder if they still need to pay state taxes on gambling winnings after making a federal payment. This is solely dependent on where you live. Each state that has legalized sports betting or gambling, in general, has its own guidelines.
Take Tennessee and New Hampshire, for instance. These two states do not tax gambling winnings. Gambling winnings are not taxed in states like South Dakota, Wyoming, and Washington because there is no state income tax.
In other states, sports bettors need to report winnings on state income tax filings. The rate will vary by state, so you may pay more for living in one area than another. Some states have a flat rate, while others adjust the tax rate based on the individual’s income.
Would I File Differently As A Professional Gambler?
You most certainly would. As a professional gambler, you are considered self-employed in the United States. The country considers an individual a professional gambler if they participate in gambling activity full time to produce income for their livelihood.
So, instead of listing gambling as other income on tax forms, wins and losses would be reported on the Schedule C section. With this type of filing, the gambler can deduct business expenses like internet costs for playing online or expenses paid for travel.
As mentioned earlier, the deduction amount for losses cannot be greater than the amount of winnings. This same detail applies to professional gamblers as well.
What If I Don’t Pay Taxes? Will The IRS Know?
Essentially, yes. If you posted bets with a sportsbook and received a Form W-2G, the operator also sent the form to the IRS. This makes the government agency aware of your gambling winnings.
If you did not receive the form, the IRS might not be alerted, but you are still required to report the income.
If the IRS learns that you earned gambling wins and did not report them, you may be told to do so. This would be the most favorable outcome.
The IRS could also impose penalties against you and add interest. This would create a larger bill that you owe the federal government.
Hire A Tax Professional For Assistance
To avoid major issues with gambling tax filings, hire a professional to assist you. Taxes are tricky in general, and paperwork can be challenging to understand.
Ensure that your winnings are adequately filled by hiring a professional. A tax preparer can assist with filing and ensure that mistakes are avoided.
Save time and money by hiring a professional to do the work for you. This helps you avoid any confusion regarding gambling rules of the IRS and issues with filling out paperwork.
Now that you have a better understanding of tax filings connected to sports betting wins be sure to keep track of your betting and file appropriately.
This will ensure you make the appropriate payments and avoid any significant issues with the government agency.
Thirsty For More Betting Knowledge? Check Our Gambling Education Hub.