With March Madness coming up soon, right in the heart of tax season, a CPA has shared with us some tax tips and explains how taxes are impacted by sports betting like how winnings are taxed, when and how you can deduct your losses, how the different gambling institutions and sites handle reporting to the IRS, and more.
Last year, the American Gambling Association predicted 47 million Americans would wager $8.5 billion on March Madness.
While not a topic people want to think about, it’s an important one to be aware of because all winnings are taxable in the eyes of the IRS, and, perhaps more importantly, you might be able to deduct your sports betting losses on your tax return.
Lisa Greene-Lewis, CPA and tax expert at TurboTax, shares some sports betting tax tips to give you an idea of what’s most important to know as you get ready to fill out those brackets.
How and when you can deduct your gambling losses: You can’t directly offset your gambling winnings with your gambling losses, but you can deduct the losses up to your winnings as tax deductions on your tax return in 2019 if you itemize your tax deductions. For example, if you had $10,000 in gambling winnings in 2019, and $5,000 in losses, you’d be able to deduct the $5,000 of losses if you itemize your tax deductions. However, if you had $5,000 in gambling winnings and $10,000 in losses, you’d only be able to deduct $5,000 of gambling losses. The remaining $5,000 in losses would be lost forever; you can’t carry losses forward. Also remember, you can only deduct losses directly related to your wagers and not non-wagering expenses like travel-related expenses to gambling sites.
Federal withholdings tax: Under tax reform, the gambling institution is required to withhold 24% of your winnings upfront for federal taxes, down from the previous 25%. At tax time, you’ll receive Form W-2G for reported winnings showing the amount you won and the taxes withheld. But even if you don’t receive a form reporting your winnings, you are still required to report all gambling winnings.
March Madness pool: If you win your March Madness pool, it’s all taxable income in the eyes of the IRS. If you win $600 or above, the gambling facility will ask for your social security number so they can report your winnings to the IRS, but remember even if you don’t receive a form reporting your income you have to claim your winnings on your taxes.
Online sports betting: If you win money from online sports betting sites, it is also taxable income. Those sites should also send both you and the IRS a tax form if your winnings are $600 or more. If you take home a net profit of $600 or more for the year playing on those online sports betting sites, the organizers have a legal obligation to send both you and the IRS a Form 1099-MISC. If you receive your winnings through PayPal, the reporting form may be a 1099-K.
1099 tax forms: The 1099 tax forms report your winnings to the taxing authorities and also lets you know the amount you must report on your taxes. Even if you don’t receive a 1099 form, you still need to report the net profits on your federal and state income tax returns.
Sportsbook/casino: If you’re at a sports book/casino, they are legally obligated to report your winnings to the IRS and to you if you win up to a certain amount, ($600 on sports, $1,200 on slots, and $5,000 on poker).
Keep records of the gambling losses you claim: Whereas your winnings may be reported by the payer on a Form W2-G, Form 1099-Misc, or Form 1099-K you may not always receive a form from the payer. The same goes for your losses, which may not be tracked. So you have to remember to keep a log of your winnings and gambling losses in case you need to validate what you are reporting.
Now get out there and win some money!