Online sports betting is becoming more popular in more states. This means that legalized gambling has become more accessible to people. You will have to pay taxes on any winnings, regardless of whether you are betting on March Madness online or flying to Las Vegas to play at the tables.
The IRS has established clear rules regarding gambling income, which predates the explosion in the sports betting market. The proceeds of a successful wager are taxable income just like your investment profits or paychecks.
You can deduct gambling losses, but not more than your winnings.
The U.S. tax code is extremely broad in its definition of what is taxable. April Walker, the American Institute of CPAs’ lead manager for tax practice ethics and tax, says that everything you earn is taxable unless otherwise stated.
These are some tax considerations that you should keep in mind if your income is in the black.
What’s Form W-2G?
Most gambling establishments, digital or online, provide you with a record showing your taxable winnings.
This statement, also known as the W-2G is a summary of your gambling winnings and any withholding you chose when you provided tax information to the establishment.
According to the IRS, gambling businesses must report any payouts that exceed certain thresholds. If you are:
Won $1.200 or more playing slots or bingo.
Earned $1,500 or More from Keno
More than $5,000 in winnings at a poker tournament.
Won $600 or more through another gambling venture, such as sports betting. The payout was at most 300 times what you staked.
Are gambling winnings taxable at all?
These requirements may not cover all possible situations in which you might win a wager. Even though your winnings may not exceed these thresholds you must pay taxes on any winnings. If you receive a W2-G you can be certain that the IRS has information about the casino or sportsbook.
Similar to the above, it is unlikely that the coworker who organized the March Madness bracket pool for your office will send you or the IRS records about your participation.
Walker, who is located in North Carolina, said that even if you win, it is still income. She adds that it’s up to the priest how they handle it. ”
How can you subtract gambling losses?
Gambling losses can be deducted, but there are significant limitations. First, you cannot deduct more than what you earned in gaming revenue. You can’t deduct more than the amount you earned in gaming revenue for the year.
You can’t write off gambling losses unless your deductions are itemized. Many people choose to not itemize and instead take the standard deduction. This reduces your taxable income by a certain amount without you having to do anything.
The standard deduction for 2022 tax returns is $25,900 for married couples who file jointly. You might not want to write off gambling losses if they aren’t accompanied by all other deductions.
You may also consider that professional gamblers who make a lot of their living by placing bets have greater freedom to deduct losses. However, this requires a different tax approach than what may make sense for casual gamblers.
Do You Need Other Documents?
You should also remember that while the casino or sportsbook may keep a record of your winnings, it is unlikely they will break down what you have lost. According to the IRS, you will need to keep your records.
The agency states on its website that to deduct losses you must keep a detailed record (or similar) of your gambling winnings or losses. You should also be able provide receipts, tickets and statements or any other records that can show the amount of both your wins and losses.
Walker states that it is a good idea to keep records. You can make sure that your records match any casino records you receive by having documentation.
How do state taxes treat gambling?
It’s worth understanding the tax implications in your state if you win gambling winnings.
Walker believes you will most likely have to settle down with your home state. However, tax rates and reporting requirements differ widely across the U.S.
FanDuel is one of the most popular online betting sites for sports and doesn’t make any predictions about how gambling proceeds will be handled by states.
FanDuel states that “it depends on the state,” and adds that tax information might be required to “one or more state taxing authorities” even though you are legally resident in another state. ”