What You Need to Know About Taxes on Sports Betting and Gambling
Gambling, like sports betting, can be both exciting and depressing, depending on whether you win or lose. When people gamble for extended periods, the majority of them lose. Even then, quite a few individuals do occasionally emerge as winners.
Do you, though, have to pay gaming taxes on your winnings?
Unfortunately, according to the Internal Revenue Service (IRS), the winnings could be subject to federal taxes. Winnings from gambling are taxable profits. Certain costs, thankfully, can also be deducted. The rules governing what you owe differ depending on whether you are a recreational or professional gambler. They are also affected by the marginal income tax bracket.
Is It Necessary to Report Gambling Winnings?
Simply, yes.
If you earn money when gambling, you must declare it on your federal income tax return. It makes no difference if you spent $20 on a scratch-off ticket and just received $5. You must disclose all gambling winnings. All gambling revenue is registered on IRS Form 1040 Schedule 1 on Line 21 Other Income.
It is important to keep track of your gambling earnings.
Keeping track of all of your gambling earnings can be a nightmare. It is, however, necessary. One simple way to do this is to keep a record of your gambling activity. You may create a spreadsheet on your phone or computer.
Another choice is to keep track of all of your winnings on a simple sheet of paper. In any case, you must keep track of this stuff. This allows you better to report it on your federal income tax return.
Keep track of overall “performance.”
This will also support your finances. You will use this data to determine if you are losing more money than you are winning. If you are losing money and you get no real enjoyment from gambling, you should stop.
This information will help you determine if you are spending more than you can afford. It is also a useful tool for considering alternative ways to spend money, such as a holiday.
What Gambling Expenses Can Be Deducted?
You can also subtract any gambling expenses whether you are a casual gambler or a professional gambler. However, you must first determine which group you belong to. Once you know, you can determine which expenditures are tax-deductible for you.
Casual Gamblers
A casual gambler is someone who does not gamble as a profession or enterprise. Casual gamblers can only subtract wagers up to the size of their winnings. This means that a gambler who wins $500 in a year but spends $2,000 in wagers will only subtract $500.
Casual gamblers can only stomach this deduction if their deductions are itemized. This deduction is not available if you take the normal deduction. This indicates that any gambling winnings would be subject to taxation. If you do not use itemized deductions, you would be unable to subtract any gambling losses. On the 2018 tax forms, you report your gambling losses on Line 16 Other Itemized Deductions on Form 1040, Schedule A Itemized Deductions.
Professional Gamblers
A professional gambler is someone who gambles as part of their job or company.
As a result, the gambling profits and losses are recorded on IRS Schedule C Profit or Loss From Business. Professional gamblers may subtract additional costs from their gambling activities in addition to wagers. They might be entitled to deduct expenditures such as transportation, housing, meals, and entertainment, among other things linked to professional gambling activities. They are classified as non-wagering expenses.
Professional gamblers could previously subtract expenditures above their gambling profits to disclose a loss from gambling activities. Unfortunately, recent tax law reforms have made this impossible. Professional gamblers can only subtract gambling losses up to the sum of their gambling winnings in a year beginning in 2018. This means they are unable to disclose a loss from gambling activities, even though they had one.
Keeping Record of The Gambling Profits and Losses
You must maintain meticulous records of your gambling profits and expenses. It makes no difference whether you are a casual or professional gambler. You must disclose all of your gambling winnings. This is valid whether or not you maintain meticulous records. It is, however, much easier to do if you keep good records.
When it comes to claiming expenses, keeping good records is even more critical. Your gambling losses will be disallowed if you do not maintain correct and precise records. But what exactly are detailed records? The IRS has some instructions to assist you in determining this.
You must keep detailed records of the following details in particular:
- The date and form of your particular wager or wagering operation
- The name and address or place of the gambling establishment
- The names of other people in the gambling establishment
- The amount you won or lost
Furthermore, the IRS has recordkeeping recommendations for such gambling practices.
These are not exhaustive, but they can give you an idea of what documents you should hold and include:
Keno: Copies of casino credit records, copies of validated keno tickets you bought, and casino check cashing records.
Slot machines: Machine number and total winnings by date and time played.
Table games (poker, roulette, blackjack, craps, and so on) – The table number you were playing at, as well as casino credit card details indicating whether the credit was given at the cashier’s cage.
Bingo: The number of games played, the expense of the tickets bought, the sums received on winning tickets, and receipts from the casino, parlor, and so on.
Racing (horses, dogs, etc.) – Race records, sums wagered, amounts earned on winning tickets, amounts lost on losing tickets, unredeemed tickets, and racetrack payment records.
Lotteries: Keep track of your ticket sales, dates, unredeemed tickets, winnings, losses, payment slips, and winnings statements.
Reporting and Withholding of Gambling Income
A gambling establishment can report your winnings in some circumstances. They will also report any taxes withheld to the IRS if they are withheld.
The establishment will issue IRS Form W-2G, Some Gambling Winnings, to accomplish this.
The form’s instructions state that the payer of gambling winnings must provide you with this form if you receive:
- 1500 USD and above in keno winnings (after deducting the wager)
- Winnings of 1200 USD or more from bingo or slot machines
- Above 5000 USD in poker tournament winnings (reduced by the wager or buy-in)
- 600 USD or more in gambling winnings (except slot machine, keno, bingo, and poker tournament winnings) and the payout is at least 300 times the wager
- All other gambling winnings liable to federal income tax withholding
Federal income taxes can be deducted from your gambling winnings under such circumstances. The withholding rules vary depending on the form of gambling.
Your IRS Form W-2G will reveal the amount of federal income tax withheld. When federal income tax must be withheld, the minimum withholding rate is 24%.
Take a closer look:
- The fact that this amount is withheld does not imply that this is the amount you pay in taxes.
- If you owe less in taxes, you will be refunded the difference when you file your tax return.
- If you owe more money in taxes, you must either make an approximate tax payment or pay the full sum when you file your tax return.
Seek the advice of a Tax Professional
It’s never fun to pay gambling taxes.
At the very least, you now have a general understanding of how paying taxes on gambling winnings and losses works. The good news is that most people who itemize deductions pay taxes only when they benefit more than they lose from gambling.
Unfortunately, those who take the standard deduction are usually forced to pay taxes on winnings without subtracting their wagers.
Contact your tax adviser for advice on your particular situation.
