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As online sports betting begins to take off in more states, people are encountering legalized gambling in new ways. But whether you’re betting on March Madness from your couch or flying to Las Vegas for the weekend at the tables, you’ll need to pay taxes on your winnings.
The IRS has clear rules on gambling income that predate the recent explosion of the sports betting industry. In short, the income from a successful bet is taxable income, just like your paycheck or investment gains.
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If you can write off some gambling losses, this deduction cannot exceed the amount of your winnings.
April Walker, lead manager of tax practice and ethics at the American Institute of CPAs, says, “The US tax code is very broad in how it’s taxable.
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If you’re lucky enough to be in the black, here are some tax considerations.
What is Form W-2G?
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Gambling establishments, including digital operations such as online sportsbooks, typically provide records of your taxable winnings to you and the IRS.
The statement is known as a W-2G, and it includes an overview of your gambling winnings, along with any withholdings you chose when you provided your tax information to the establishment.
The IRS requires gambling businesses to report payments made by them that meet certain thresholds. if you:
Win $1,200 or more by playing bingo or slots.
Earned $1,500 or more from keno.
Over $5,000 in winnings from poker tournaments.
Received $600 or more in any other gambling endeavor, such as sports betting, and the payout was at least 300 times the amount you put on the line.
Are all gambling winnings taxable?
It is worth noting that these requirements do not cover every possible situation in which you could win a bet. For example, your winnings may be less than these limits, but keep in mind that you will owe taxes on anything you win. So if you get a W2-G, you can be sure the IRS knows about whatever is listed at the casino or sportsbook.
Likewise, the coworker who organized your office March Madness bracket pool is unlikely to send you and IRS records of your participation.
If you win, though, it’s still technically income, says Walker, who is based in North Carolina. But, she adds, “that’s between you and the priest … how you handle it from there.”
How do you deduct gambling losses?
You can minimize gambling losses, but there are some significant challenges. For starters, you can’t deduct more than the amount you take home in gaming revenue. If you’re in the red for the year, don’t expect to offset those losses with a tax deduction.
Also, you won’t be able to write off gambling losses until you itemize your deductions. However, many people don’t itemize, choosing instead to take the standard deduction, which knocks off a set amount without taking anything from your taxable income.
For 2022 tax returns, which are due this year, the standard deduction for married couples filing jointly is $25,900. If your gambling losses, combined with all your other deductions, don’t reach at least this number, you might not want to write off those bad bets.
Another thought: If you’re a professional gambler who makes a good portion of your living from placing bets, you may have more freedom to minimize your losses. However, this requires another tax approach that may not make sense to the casual gambler.
Do you require any other documents?
Another factor to consider when writing off gambling losses is that a casino or sportsbook may send you a record of your profits, but is unlikely to break down the amounts you lost. The IRS says you must keep your records for these purposes.
The agency says, “To minimize your losses, you must keep an accurate diary or similar record of your gambling winnings and losses and be able to provide receipts, tickets, statements or other records that show both your winnings and losses.” Shows the amount of. on its website.
Walker says it’s a good idea to be vigilant with recordkeeping anyway. If you have documents, you can be sure that your information matches any records you receive from the casino.
How do state taxes treat gambling?
If you have gambling winnings, it’s worthwhile to understand the tax considerations in the state where you live and the state where you gamble.
While Walker says you’re most likely to settle with your home state, tax rates and reporting requirements vary widely across the U.S.
Even FanDuel, one of the country’s leading online sports betting platforms, doesn’t make any guesses about how states will handle gambling income.
“It depends on the state,” FanDuel says on its website, adding that it “may be required to submit tax information to one or more state tax authorities, even if you legally reside in another state.”
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