Hello, welcome to Bottomline Tax! Are you feeling lucky today? Let’s talk about sports betting and taxes. Sports betting is the activity of placing wagers on the outcome of sporting events, such as games, matches, races, or tournaments. This can be done in person at licensed venues, such as casinos or racetracks, or online via websites or mobile apps.

Sports betting has been legal in some form in the U.S. since 2018, when the Supreme Court struck down a federal law that prohibited states from regulating the industry. Since then, 38 states and Washington DC have legalized sports betting in some format, and 26 of them allow online sports betting . The U.S. sports betting market is projected to grow significantly in the next few years, reaching an estimated $40 billion in annual revenue by 2030 .

Not only is sports betting a popular form of entertainment for millions of Americans, but also a potential source of tax revenue for states and a way to support the sports industry. However, sports betting also involves some risks and challenges, such as gambling addiction, fraud, match-fixing, and regulatory compliance. Therefore, it is important for sports bettors to understand the legal and financial implications of their activity, especially when it comes to taxes.

Understanding Taxable Income

If you are a sports bettor in the U.S., you need to understand how your winnings are taxed by the federal and state governments. In this section, we will explain what taxable income is, and how sports betting winnings are considered taxable income.

Explanation of taxable income

Taxable income is the amount of money that you earn from various sources that is subject to income tax. It includes wages, salaries, tips, interest, dividends, alimony, retirement distributions, and gambling winnings. It does not include gifts, inheritances, life insurance proceeds, or certain types of nontaxable income.

To calculate your taxable income, you need to subtract your adjustments to income, such as student loan interest or IRA contributions, from your gross income. Then you need to subtract your standard deduction or itemized deductions from your adjusted gross income. The result is your taxable income.

How sports betting winnings are considered taxable income

Sports betting winnings are considered taxable income because they are a form of gambling income. Gambling income includes any money that you win from lotteries, raffles, casinos, bingo, poker, horse racing, and sports betting.

According to the IRS, you must report all of your gambling winnings as income on your tax return, regardless of whether you receive a W-2G form or not. A W-2G form is a statement that gambling establishments provide to you and the IRS when you win a certain amount of money from gambling activities. You will likely receive a W-2G form if you:

– Won $1,200 or more playing bingo or slots.
– Netted $1,500 or more from keno.
– Exceeded $5,000 in winnings from a poker tournament.
– Obtained $600 or more in another gambling endeavor, such as sports betting, and the payout was at least 300 times the amount you put on the line.

However, even if you do not receive a W-2G form, you are still responsible for reporting your sports betting winnings on your tax return. You should keep track of your wins and losses throughout the year and report them on Schedule 1 (Form 1040), line 8.

The tax rate that applies to your sports betting winnings depends on your income tax bracket. For 2023, the federal income tax brackets range from 10% to 37%, depending on your taxable income and filing status. For example, if you are single and have a taxable income of $50,000 in 2023, your federal income tax rate is 22%. If you win $10,000 from sports betting in 2023, you will owe $2,200 in federal income tax on that amount.

Some states also tax gambling winnings at the state level. The state tax rates vary from state to state, and some states do not tax gambling winnings at all. For example, Nevada does not impose any state income tax on gambling winnings, while New York has a state income tax rate of up to 8.82% on gambling winnings. You should check with your state’s revenue department to find out how much state tax you will owe on your sports betting winnings.

Here is a table that shows the federal and state tax rates for sports betting winnings in 2023 for some selected states:

State	Federal Tax Rate	State Tax Rate	Total Tax Rate
Nevada	10% – 37%	0%	10% – 37%
New Jersey	10% – 37%	5.525% – 10.75%	15.525% – 47.75%
New York	10% – 37%	4% – 8.82%	14% – 45.82%
Pennsylvania	10% – 37%	3.07%	13.07% – 40.07%
Texas	10% – 37%	0%	10% – 37%

As you can see, the total tax rate that applies to your sports betting winnings can vary significantly depending on where you live and how much you win. Therefore, it is important to keep accurate records of your sports betting activities and consult with a tax professional if you have any questions or concerns about your tax liability.

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Reporting Sports Betting Winnings

If you are a sports bettor in the U.S., you need to know how to report your winnings to the IRS. Sports betting winnings are considered taxable income and must be reported on your tax return, regardless of the amount or the source. Failing to do so can result in penalties and interest.

When and how to report sports betting winnings

You must report your sports betting winnings on Form 1040, U.S. Individual Income Tax Return. You can use Schedule 1, Additional Income and Adjustments to Income, to report your winnings as “Other income”.

If you receive a Form W-2G, Certain Gambling Winnings, from a gambling establishment, such as an online sportsbook, you must report the amount shown in box 1 on Schedule 1, line 8. You must also attach a copy of Form W-2G to your tax return.

If you do not receive a Form W-2G, you must still report your winnings on Schedule 1, line 8. You should keep a record of your winnings and losses, such as betting slips, tickets, receipts, statements, or screenshots.

Tax rates for sports betting winnings

The tax rate for sports betting winnings depends on your total income and your filing status. Sports betting winnings are taxed at the same rate as your ordinary income, which can range from 10% to 37% for federal taxes in 2023. You can use the tax tables in the Form 1040 instructions to determine your tax liability.

In addition to federal taxes, you may also owe state and local taxes on your sports betting winnings. The state and local tax rates vary depending on where you live and where you placed the bet. Some states have specific rules for taxing sports betting winnings, while others follow the federal rules. You can check with your state’s department of revenue or taxation for more information.

Importance of keeping records of winnings

Keeping records of your sports betting winnings is important for several reasons. First, it helps you track your income and expenses from gambling activities. Second, it helps you prove your winnings and losses to the IRS in case of an audit. Third, it helps you claim deductions on gambling losses if you are eligible.

You should keep records of the following information for each bet:

– The date and type of the bet
– The name and address of the gambling establishment or website
– The amount of the bet and the outcome
– The amount of the winnings and losses
– Any receipts or statements that show the amount of tax withheld or paid

You should keep your records for at least three years from the date you file your tax return or two years from the date you pay the tax, whichever is later.

If you have any questions about reporting your sports betting winnings, the tax rates of every online platform you placed bets in, or you need help keeping records of your winnings, you can ask a tax professional to help you.

Withholding Taxes on Winnings

If you win a substantial amount of money from sports betting, you may have to pay taxes on your winnings before you receive them. This is because the IRS requires gambling establishments to withhold a percentage of your winnings as federal income tax.

Explanation of withholding taxes

Withholding taxes are taxes that are deducted from your income by the payer and sent directly to the government. The purpose of withholding taxes is to ensure that you pay your fair share of taxes throughout the year, rather than waiting until you file your tax return.

The standard amount withheld by sportsbooks to cover sports betting taxes on wins is 24%. That’s the expected amount that will be owed when it comes tax time each year, but that doesn’t mean it’s the amount that is actually owed. Depending on your overall income, deductions, credits and tax bracket, you may owe more or less than 24% on your gambling winnings.

When you file your tax return, you will report your total gambling income on Schedule 1, line 8 of Form 1040. You will also report the amount of taxes withheld on your winnings on Schedule 3, line 8 of Form 1040. The difference between these two amounts will determine whether you get a refund or owe additional taxes.

Circumstances under which bookmakers withhold taxes

Bookmakers are required to withhold taxes on your winnings only when they meet certain criteria set by the IRS. These criteria are:

– You win more than $5,000 from a wager (excluding the amount of your bet) and
– Your winnings are at least 300 times the amount of your bet.

For example, if you bet $10 on a team to win at odds of +500 and they win, you will receive $60 in total ($10 x 5 + $10). This does not trigger withholding taxes because your winnings are less than $5,000 and less than 300 times your bet.

However, if you bet $10 on a team to win at odds of +50000 and they win, you will receive $5,010 in total ($10 x 500 + $10). This does trigger withholding taxes because your winnings are more than $5,000 and more than 300 times your bet.

In this case, the bookmaker will withhold 24% of your winnings, which is $1,202, and send it to the IRS. You will receive the remaining $3,808. You will also receive a Form W-2G from the bookmaker showing the amount of your winnings and the taxes withheld. If you need help figuring out what to do with your Form W-2G, it is best to contact a tax professional.

Tax Expert Now offers unlimited chats with tax professionales, in which you can get quick on-call assistance in tax filing, estate taxes, IRS questions, business accounting, and of course, sports betting taxes. Their service is available 24/7. The price is $55/month. Cancel anytime.

Claiming Deductions on Gambling Losses

If you are a sports bettor, you may be able to claim deductions on your gambling losses. However, there are some conditions and limitations that you need to be aware of.

Conditions for claiming deductions on gambling losses

According to the IRS, you can deduct your gambling losses only if you itemize your deductions on Schedule A (Form 1040) and kept a record of your winnings and losses. You cannot deduct more than the amount of your gambling winnings for the year.

To claim your gambling losses, you must report the full amount of your gambling winnings for the year on line 21 of Form 1040. Then, on Schedule A, you can deduct your gambling losses on line 28, but only up to the amount of your winnings.

How to itemize deductions on gambling losses

To itemize your deductions, you need to use Form 1040 and attach Schedule A to it. You also need to keep a detailed record of your gambling activities, such as:

– The date and type of your specific wager or wagering activity.
– The name and address or location of the gambling establishment.
– The names of other persons present with you at the gambling establishment.
– The amount(s) you won or lost.

You may also need to provide receipts, tickets, statements, or other records that show the amount of both your winnings and losses.

Limitations on deductions

As mentioned above, you cannot deduct more than your gambling winnings for the year. This means that if you have a net loss from gambling for the year, you cannot use it to reduce your other income or carry it over to another year.

Additionally, if you are subject to the alternative minimum tax (AMT), your gambling losses may be limited or disallowed. The AMT is a separate tax system that applies to certain taxpayers who have high incomes and certain types of deductions. You may need to use Form 6251 to figure out if you owe any AMT.

Numerical examples

Suppose you won $10,000 from sports betting in 2023 and lost $12,000. You would report $10,000 as your gambling income on line 21 of Form 1040. Then, on Schedule A, you would deduct $10,000 as your gambling losses on line 28. Your net gambling income would be zero for the year.

However, if you won $10,000 from sports betting in 2023 and lost $8,000, you would still report $10,000 as your gambling income on line 21 of Form 1040. Then, on Schedule A, you would deduct only $8,000 as your gambling losses on line 28. Your net gambling income would be $2,000 for the year.

The following table summarizes how to report and deduct your gambling winnings and losses for 2023:

Gambling Income	Gambling Losses	Net Gambling Income	Where to Report	Where to Deduct
$10,000	$12,000	$0	Line 21 of Form 1040	Line 28 of Schedule A
$10,000	$8,000	$2,000	Line 21 of Form 1040	Line 28 of Schedule A

Any specific questions about deducting your gambling losses can be answered by a tax professional.

Record Keeping for Sports Betting

Importance of record keeping

If you are a sports bettor, you need to keep accurate records of your winnings and losses. This is important for two reasons: first, you need to report your gambling income and expenses to the IRS and your state tax authorities; second, you need to be able to claim deductions for your gambling losses if you itemize your deductions.

Reporting your gambling income and expenses is required by law, and failing to do so can result in penalties and interest. You must report all your gambling winnings as income on your tax return, regardless of the amount or whether you receive a W-2G form from the payer. You must also report your gambling losses as an itemized deduction on Schedule A, but only up to the amount of your winnings. You cannot deduct more than you win, or use your losses to offset other income.

Claiming deductions for your gambling losses can reduce your taxable income and lower your tax bill. However, you need to have proof of your losses in case the IRS audits you. You cannot simply estimate or guess how much you lost. You need to have documentation that shows the date, type, amount, and outcome of each wager, as well as the name and address of the gambling establishment or website.

What records to keep and how long to keep them

The IRS does not specify what kind of records you need to keep for sports betting, but they should be sufficient to establish your winnings and losses. Some examples of records that can help you prove your gambling activity are:

– Receipts, tickets, statements, or other documents that show the amount and date of your wagers
– Bank statements, credit card statements, canceled checks, or other documents that show the amount and date of your deposits and withdrawals from gambling accounts
– Form W-2G or other forms that report your gambling winnings
– A diary or log that records the date, type, amount, and outcome of each wager, as well as the name and address of the gambling establishment or website

You should keep these records for at least three years from the date you file your tax return or two years from the date you pay your tax, whichever is later. This is the general statute of limitations for IRS audits. However, if you underreport your income by more than 25%, the statute of limitations is extended to six years. Therefore, it is advisable to keep your records for at least six years in case of a major discrepancy.

Numerical examples

To illustrate how record keeping can help you with your taxes, let’s look at some numerical examples.

Example 1: Bob is a casual sports bettor who placed 100 bets online in 2023. He won 40 bets and lost 60 bets. His total winnings were $5,000 and his total losses were $4,000. He received a W-2G form from the online sportsbook that reported his winnings.

Bob must report his $5,000 winnings as income on his tax return. He can also deduct his $4,000 losses as an itemized deduction on Schedule A, but only up to his winnings. His net gambling income is $1,000 ($5,000 – $4,000).

Bob should keep his W-2G form as well as his bank statements that show his deposits and withdrawals from the online sportsbook. He should also keep a diary or log that records the date, type, amount, and outcome of each bet he placed.

Example 2: Alice is a professional sports bettor who placed 1,000 bets at various casinos and online platforms in 2023. She won 600 bets and lost 400 bets. Her total winnings were $50,000 and her total losses were $40,000. She received several W-2G forms from different payers that reported her winnings.

Alice must report her $50,000 winnings as income on her tax return. She can also deduct her $40,000 losses as an itemized deduction on Schedule A, but only up to her winnings. Her net gambling income is $10,000 ($50,000 – $40,000).

Alice should keep all her W-2G forms as well as her receipts, tickets, statements, or other documents that show the amount and date of her wagers at each casino or online platform. She should also keep a diary or log that records the date, type, amount, and outcome of each bet she placed.

Example 3: Charlie is a sports bettor who placed 500 bets at a licensed track in 2023. He won 200 bets and lost 300 bets. His total winnings were $25,000 and his total losses were $20,000. The track withheld 9.75% of his winnings as taxes, or $2,437.50.

Charlie must report his $25,000 winnings as income on his tax return. He can also deduct his $20,000 losses as an itemized deduction on Schedule A, but only up to his winnings. His net gambling income is $5,000 ($25,000 – $20,000).

Charlie should keep his W-2G form from the track as well as his receipts, tickets, statements, or other documents that show the amount and date of his wagers at the track. He should also keep a diary or log that records the date, type, amount, and outcome of each bet he placed.

Charlie can also claim a credit for the taxes withheld by the track on Form 1040. This will reduce his tax liability by the amount of the withholding.

Scenario	Winnings	Losses	Net Income	Tax Rate	Taxes Due	Withholding	Credit
Bob	$5,000	$4,000	$1,000	10%	$100	$0	$0
Alice	$50,000	$40,000	$10,000	22%	$2,200	$0	$0
Charlie	$25,000	$20,000	$5,000	12%	$600	$2,437.50	$2,437.50

Consulting with a Tax Professional

If you are a sports bettor, you may have to deal with complex tax issues that vary depending on your state, your winnings, and your losses. While this article provides some general information, it is not a substitute for professional tax advice. Therefore, it is highly recommended that you consult with a tax professional who can help you with your specific situation.

Why it’s important to consult with a tax professional

A tax professional can help you with many aspects of sports betting taxes, such as:

– Determining your taxable income from sports betting and how to report it on your federal and state tax returns
– Calculating your tax rates and withholding taxes based on your filing status, income level, and state of residence
– Claiming deductions for your gambling losses and itemizing them on Schedule A
– Keeping records of your winnings and losses and providing documentation to the IRS if needed
– Avoiding penalties and interest for underpayment, late payment, or inaccurate reporting of your sports betting income
– Planning ahead for future tax years and optimizing your tax strategy

How a tax professional can help with sports betting tax issues

A tax professional can provide you with valuable guidance and assistance in various scenarios related to sports betting taxes, such as:

– You won more than $5000 or more than 300 times your stake from a single bet or a series of bets
– You received one or more W-2G forms from gambling establishments or online sportsbooks
– You live in a state that taxes sports betting winnings differently than the federal government
– You placed bets in multiple states or online platforms that have different tax rules
– You have other sources of income or deductions that affect your taxable income and tax rates
– You want to estimate your tax liability or refund for the current or upcoming tax year
– You have questions or concerns about how the IRS treats sports betting income

As you can see, a tax professional can help you navigate the complex and varied tax rules that apply to sports betting income. By consulting with a tax professional, you can ensure that you pay the correct amount of taxes and avoid any potential problems with the IRS.