Gambling revenue not as lucrative as states hoped, but Super Bowl betting bump helps
23 tax deductions, no itemizing required, on Schedule 1

Reporting all your income, including gambling winnings, on Form 1040 Schedule 1

Raining money

Happy Monday to Patriots' — I mean Buccaneers' — fans. Your man Tom Brady did it again. Instead of the usual sports league drug tests, can we get a DNA sample to prove that the man is human?

It's an even happier Monday for all y'all who collected on Super Bowl LV bets, both the ones on the on-field match-up and all the goofy prop bets for things only peripherally related to the National Football League championship game.

The Internal Revenue Service is happy for you, too, as long as you report those winning wagers on your tax return. All the cash you collect from your Super Bowl bets and any other gambling proceeds are taxable income.

Yes, even the winning bets placed illegally. Just look at what happened to Al Capone he didn't tell Uncle Sam's tax collector about his nefarious earnings.

Of course, you don't have to worry about this year's Super Sunday's payouts until next filing season. So file away any payout slips and any other gambling records, including your losing wagers, for this time in 2022.

But for now, if you won any bets in last year — or made money from full-time self-employment or part-time gigs you picked up when your regular wage job was cut back by COVID-19 precautions or cashed in some investments, another type of gambling, some would say — then you must tell the IRS about all those earnings.

The details go on Schedule 1 (Form 1040). This schedule was created as part of the 2017 major tax reform bill. It's been tweaked a bit since then, including a slight change for 2020 tax returns; the 2019 version's question about cryptocurrency is now directly on Form 1040.

But the basics are the same.

Part I Additional Income 1: Schedule 1 has two sections. One is for reporting additional income; the other offers ways to reduce your income. I'll review the second section soon.

Today, though, focuses on Part 1 (pictured below).

Form 1040 Schedule 1 Part 1 Additional Income-cropped

It's a short section, especially as far as tax forms go, but it's where you tell Uncle Sam about all your profitable good luck, as well as the other money you made that wasn't reported on a W-2 form. When those additional taxable amounts are totaled, the information is transferred to line 8, other income, on your Form 1040.

Here's how we get there on Schedule 1, Part I.

Taxable refunds, credits, or offsets of state and local income taxes (line 1)
Remember how thrilled you were when you got back a couple thousand as a state income tax refund? You might not be so happy now.

Generally, whenever you use some taxes to reduce other taxes, you could be liable for taxes on the refund of the taxes you claimed. Is that roundabout enough for you? Here's an example:

You itemized your federal tax deductions last year and claimed your state tax income tax payments. Any refund of those income taxes must be included as income on your federal tax return in the year you receive it, i.e., the year after you claimed it.

You also are likely to get a Form 1099-G from the payer reporting the tax refund amount just in case you have to claim it.

The IRS instructions for Form 1040 Schedule 1 provide more details on possible taxation of these state and local refunds and offsets, including a worksheet on page 86. Generally, you must report any state or local income tax refunds if you claimed the amounts paid as a deduction on your prior return.

If you don't want to mess with the paper worksheet, tax software and, of course, your tax adviser also can help you determine what, if any, you might owe.

Also note that your refund is NOT taxed if, in the year you paid the tax, you either (a) didn't claim the income taxes as a federal itemized deduction or (b) chose to deduct state and local sales taxes instead of income taxes.

Alimony received (lines 2a and 2b)
Spousal support was among the tax law changes in the Tax Cuts and Jobs Act (TCJA), the 2017 tax reform law mentioned earlier. The tax treatment of alimony, both paid and received, was revised.

However, the effect on both ex spouses' returns depends on the date of the legal marital split, specifically such a decree on or before Dec. 31, 2018.

That's why here the IRS asks you to enter on line 2a the amount of alimony you received. Then on line 2b, it wants the date of your original divorce or separation agreement.

Alimony isn't taxable if your divorce or separation agreement was entered into on Jan. 1, 2019 or later. If, however, you must count spousal support as in your income, let your ex who's making the payments know your Social Security number. Your former partner needs that for his or her reporting purposes. In pre-2019 divorces, the alimony payer can still deduct the payments.

Business income or (loss) (line 3)
If you worked as a freelancer or contractor, either full-time or various gig jobs, you'll report that income here. The amount will come from what you enter on your Schedule C. (Spoiler alert redux: Look for a future closer look at this form for sole proprietors.)

Other gains or (losses). (line 4)
This is a specific "other" category. It applies to assets used in a trade or business and which you sold or exchanged. Details on this activity can be found in the instructions for Form 4797, which you'll need to file in conjunction with your 1040/Schedule 1.

Rental real estate, royalties, partnerships, S corporations, trusts, etc. (line 5)
If you made (or lost) money in connection with rental real estate, royalties, partnerships, S corporations, estates, trusts and residual interests in real estate mortgage investment conduits (REMICs), you'll put that amount here. The details of this income (or loss) will be entered on Schedule E, which you'll attach with your tax return filing.

Farm income or (loss). (line 6)
Are you a get-your-hands-dirty tiller of the land or gentleman/lady farmer? Either way, the IRS wants to know. Basically, the IRS considers you as being in the farming business if you cultivate, operate or manage a farm for profit, either as owner or tenant. A farm includes livestock, dairy, poultry, fish, fruit and truck farms, as well as plantations — really, IRS? Let me check my century calendar — ranches, ranges and orchards and groves.

You'll have to fill out and file Schedule F if you have farming income. That form's instructions has more details on your filing requirements. You also can get more on applicable taxes in IRS Publication 225, Farmer's Tax Guide. And yes, that's where plantations are mentioned.

Unemployment compensation (line 7)
It was really tough when you lost your job. Now that it's tax filing time, things aren't getting any better. That financial assistance you got to tide you over between jobs is taxable income.

Job-loss-fired-laid-off

You should receive a Form 1099-G (yeah, the same on sent for tax refund amounts) that shows in box 1 the total unemployment compensation you received. That amount goes on this line.

Other income (line 8)
Ah, the wonderful "other" catch-all. Line 8 is where you report any taxable income that's not entered elsewhere on your tax return or other schedules.

This is where your gambling winnings go.

The IRS Schedule 1 instructions go into almost two full pages (87 and 88) discussing other, sometimes esoteric types of income that go on this line. Among the most common types of reportable other income are:

  • Most prizes and awards, unless you're an Olympic or Paralympic medal winner and recipient of U.S. Olympic & Paralympic Committee prize money. Those amounts are now tax-free.
  • Jury duty pay.
  • Alaska Permanent Fund dividends.
  • Reimbursements or other amounts received for items deducted in an earlier year, such as medical expenses, real estate taxes, general sales taxes, or home mortgage interest.
  • Income from the rental of personal property if you engaged in the rental for profit, but were not in the business of renting such property.
  • Income from an activity not engaged in for profit. We're talking money you made on your hobby here.

Also on this line, list the type of other income and amount. If you have several such entries here, put the total of all in the dollar amount block of this line. If necessary, include a statement showing the break out of the various other taxable earnings.

Totaling all your earnings: Line 9 is where you add up all the amounts from the previous 8 lines. This number also goes on line 8 of your Form 1040 or, if you're an older taxpayer, on Form 1040-SR.

Reducing your gambling income: This post started off congratulating Tampa Bay fans and successful and/or lucky bettors. But I can't let you leave without noting that if you put all your money on Kansas City, sorry and here's how you can reduce any taxable gambling winnings you might get later this year.

Again, this year's bets and losses will go on your 2021 return. But the system applies to similar winnings and losses you received or incurred in 2020.

The tax code still allows you to deduct your gambling losses. You can tally your losses on the "Other Miscellaneous Deductions" section of Form 1040 Schedule A.

Note, however, that your bad betting luck only goes so far. You can only use your gambling losses to offset, perhaps zero out, your winnings.

You cannot use them to produce an income loss on your return.

And if you don't itemize, which you might not especially now that the standard deductions are so much larger under the new tax law, then you can't reduce your gambling winnings at all.

But to do that, you also must report all the money you made on winning wagers on Schedule 1.

You also might find these items of interest:

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