Don't Mess With Taxes

Regular readers already know this, but since the college and professional football seasons are underway, and we’re about to head into Major League Baseball’s playoffs, it’s time for a reminder.

Any winning sports bets are taxable income at the federal and most state levels.

Sports betting’s growth: More of us are pocketing a few extra dollars after the games since the U.S. Supreme Court in 2018 ruled that states can decide whether to allow gambling within their borders. That includes online betting.

Currently, 38 states and the District of Columbia allow some form of sports betting. Twenty-seven of those states and Washington, D.C., have authorized online betting, as shown in the Tax Foundation map below.

Various tax treatments of gambling: As you might expect, and the Tax Foundation points out in its recent examination of online gambling state taxes, there is a range of different tax rates, sometimes differentiating between online wagers and brick-and-mortar wagers. And access to legal sports betting can be quite limited.

But it’s a good bet that sports betting will expand.

Eyes right now are on two of the country’s most populous states, Texas and California, that have not yet legalized gambling.

Golden State voters rejected two sports betting initiatives in the 2022 election. An effort to get another gambling measure before California voters this November was stalled by opposition from native tribes. Gaming industry watchers expect another attempt in 2026.

Pro-wagering efforts in the Lone Star State also are moving slowly, despite more organized efforts. On the political side, former Texas Republican Gov. Rick Perry became a pro-sports gambling spokesman. Mark Cuban, co-owner of the NBA’s Dallas Mavericks, also supports the effort. And the Las Vegas Sands Corp. has contributed big bucks to efforts to legalize gambling in Texas. But so far, resistance has not been futile.

Taxes on gambling winnings: Regardless of whether you bet legally in your own state, travel (like lots of Texans) to neighboring states to wager, or are betting illegally, one thing applies in all cases.

You owe the U.S. Treasury tax on your gambling winnings. And it’s gotten easier for the Internal Revenue Service to collect.

Thanks to legalized gambling across most of the United States, the IRS now gets more notifications of taxpayers winnings.

Casinos must file Form W-2G with IRS for each person who wins $1,200 or more in bingo or slots, $1,500 or more in keno, or more than $5,000 from poker tournaments. The tax agency’s automated program then matches data on these third-party information returns against income and deduction amounts shown on taxpayers’ individual returns.

When the IRS finds a mismatch, it will let the winning taxpayer know. So be sure to include all your winnings on your tax return, specifically on line 8b of Schedule 1 of the 1040..

Deducting betting losses: You can reduce the amount of tax you owe by reducing your taxable winnings. You do this by claiming your gambling losses.

The losses don’t have to exactly correspond to winnings. If during your trip to Las Vegas, you hit an $8,000 slot machine jackpot, you can reduce that amount by your poker, blackjack, and roulette wheel losses of $6,000. That would leave you with just $2,000 in winnings on which you owe tax.

You’ll claim those losses as an itemized deduction on Schedule A, line 16. But remember that you can’t create a loss with your losing bets. You can only claim the amount of losses equal to your reported winnings.

Note, too, that you need to keep good records of your wagering and offsetting losses in case the IRS has any questions about the amounts on your tax return.

Also remember that if you’re still betting illegally, those winnings also are taxable. Sure, it’s a bit harder for the IRS to track down these wagers. But do you really want to press your luck when it comes to dealing with the tax collector?

If you’re unsure about your tax obligations when it comes to sports or other wagers, or have questions about reporting gambling income, check out some of the posts listed at the end of this item. Also  are encouraged to consult tax professionals or visit the official IRS website for guidance. Ignorance of the tax law does not exempt individuals from their responsibilities.

Good luck to you, whether your winning wagers are from casino games or your favorite sports team’s success, at a sports book or online. Keep track of your payouts and bad wagers. Then report that amount next year on your Form 1040.

You also might find these items of interest:

• State taxes will take a bite out of most lottery jackpots
• Mega Millions winner will owe more tax than what's withheld
• Record gambling revenue means more money for most states that sanction bets

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