For the first $9,700, she will need to pay 10% tax ($970). For the $29,775 (the difference between $9,700 and the next step, $39,475), she will need to pay 12% tax ($3,573). For the remaining $8,975, she will need to pay 22% tax ($1,974.50). This means she will pay a grand total of $6,518.50 in Federal taxes. An Accountant or TurboTax Can Help. Many people seek to avoid paying taxes on as many things as possible, including gambling winnings. However, gambling winnings are considered a taxable income and must be reported when filing your taxes. All cash prizes, in addition to the value of other winnings, are taxable by the federal, and sometimes.
Currently, the tax for online winnings in the US is at 25%. Keep in mind that taxes on online gambling incomes vary from country to country and many of them may even not have a tax for this kind of income at all. Long story short: if you live in the US, you do need to pay taxes on your online winnings.
Tax Day is right around the corner, and sports wagering winnings should be part of a bettor’s annual filing.
Nathan Rigley, a lead tax research analyst at H&R Block, spoke with TheLines.com to offer advice for bettors making preparations for 2018 and beyond.
The first thing to realize is that any winnings are taxable and bettors should include it on a tax return.
“Just because a taxpayer doesn’t receive a tax form, (it) does not make the winnings tax-free,” he said. “Taxpayers still have a responsibility to report their prize on their tax return as ‘other income.’”
Don’t neglect to report it
Don’t be caught unaware. No matter the amount, gambling winnings are taxable. Those winning a substantial amount are likely to receive a tax form, and the IRS will also receive that form.
Those winnings will usually be reported via form W-2G or 1099-Misc. The IRS will then compare the information to the taxpayer’s return. Not reporting can be costly, triggering penalties and interest.
“Failing to report the prize as income is the surest way to get audited,” Rigley said.
That could certainly be uncomfortable and cause the type of scrutiny most bettors would like to avoid.
Record keeping 101
Serious bettors must not only be savvy with betting lines, but also with record keeping. The IRS advises gamblers to keep an accurate diary or record to substantiate wins and losses on a tax return.
Plan to keep track. A little extra work can pay big dividends in the long run. Rigley recommends bettors include the following in their records:
- The date and type of each wager.
- The name and location of the bet.
- The names of other people with the bettor at the betting establishment.
- The amount won or lost.
Bettors should also keep verifiable documentation of losses, which include:
- Wagering tickets
- Canceled checks
- Credit card records
Mobile wagering makes keeping track of wagers much easier. Players should have easy access to bets made throughout the year. That helps in reporting overall wagering income.
Track those wins and losses
Bettors should keep track of their winnings, but also their losses. If they won big and show a profit for the year, they can offset winnings with losses to help lower a tax burden.
Only winners can deduct losses, and the full amount of winnings and losses must be reported when filing. However, Rigley notes that gamblers may deduct losses, but only by as much as they report in winnings.
For example, suppose a taxpayer entered two betting pools: One at the office and one among friends. Both had a $10 entry fee, and the player won $100 from the office pool. The bettor should report $90 in winnings, deducting the $10 fee.
For itemizing, the entry fee from the losing pool and other gambling losses could be taken as an itemized deduction. That would be capped, however, at a maximum of the amount won being reported, in this case, $90.
Do the new tax laws have any impact?
Taxpayers will notice some changes when filing this year. The Tax Cuts and Jobs Act changed many aspects regarding itemized deductions. That includes the elimination of some deductions that were subject to a 2% floor of adjusted gross income.
“This has been impactful for many taxpayers,” Rigley said. “Luckily, the deduction for gambling losses, though a miscellaneous deduction, was not subject to this floor.”
This is advantageous to gamblers. They can continue to claim gambling losses as an itemized deduction to the extent of their gambling income.
Sports betting as a full-time job
The majority of bettors may fall into the recreational or hobby group. But those who bet professionally as their sole means of earning a living have different benefits and requirements.
These bettors would need to file as a business with a Schedule C form.
Filing as a business allows deducting expenses, but also subjects them to self-employment tax and possibly quarterly estimated payments. It’s as if that bettor runs his or her business and files accordingly.
The new tax laws have had some changes on this aspect, however. Bettors can no longer deduct non-wagering business expenses in excess of net wagering income. Thus, reporting a loss as a gambler isn’t possible.
Planning for next year
The new sports betting landscape has brought many more into the wagering ecosystem. Players new to betting may want to start planning for filing their 2019 taxes.
Rigley strongly advises maintaining detailed gambling records.
“The foundation of any tax return is one’s records,” he said. “In order to ensure the best outcome on the tax return, you have to make sure you can back up anything reported on your return, including the reporting of inherently personal activities like gambling.”
And if you do make a nice score, Rigley suggests making that first check to the tax man.
Set aside an estimated payment on taxes you’ll owe on those winnings.
“This is essentially a deposit toward your tax liability,” he said. “The reason we suggest this is that it helps to avoid any underpayment penalties for failing to deposit enough taxes throughout the year. And, psychologically, it seems easier to write that check when the income is new rather than be hit with the balance due down the road when the return is filed.”
Here’s hoping that big win comes, though bettors should plan on paying Uncle Sam.
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Do Casinos Pay Taxes
This article was fact-checked by our editors and Jennifer Samuel, senior product specialist for Credit Karma Tax®.
Gambling may just be a hobby to you, but there’s nothing casual about it when it comes to filing your federal income taxes.
Nearly two-thirds of Americans gamble, according to a 2016 Gallup poll. And while you might think that winning a few bucks from a scratch ticket or a weekend trip to Vegas isn’t a big deal, the government considers every dollar you win from gambling as taxable income.
As a result, it’s important to understand how to report your gambling winnings, what to include and how you can use your losses in your favor. Here are some things you should know about how gambling winnings are taxed.
1. You must report all your winnings
Depending on how much you won during the year, you may receive a Form W-2G listing your gambling winnings. But even if you don’t receive the form, you’re still required to report all your winnings as “other income” on your tax return.
“All cash and non-cash gambling winnings are taxable and should be reported as ‘other income,’ ” says Patrick Leddy, partner at Farmand, Farmand & Farmand LLP. This includes any winnings you received from casinos, lotteries, raffles or horse races. Non-cash winnings, such as prizes like cars or trips, are also considered taxable income and are taxed based on their fair market value.
To make sure you keep track of both your winnings and losses, record the following details every time you gamble:
- The date and type of your gamble or gambling activity
- The name and location of the gambling establishment
- Names of other people who were with you, if applicable
- How much you won or lost
- Related receipts, bank statements and payment slips
2. You can deduct some losses
No one likes to talk about how much money they lost gambling. But when it comes to your tax return, being honest can save you money. That’s because the IRS allows you to deduct gambling losses.
Though you may not be able to deduct all your losses.
“Taxpayers can deduct gambling losses only up to the amount of their gambling winnings,” says Leddy, “and only if they itemize their deductions.”
For example, if your gambling winnings totaled $5,000 in the tax year, but you lost $6,000, you can only deduct $5,000 of those losses. Keep in mind, itemizing your deductions may not afford you the maximum tax benefit. If your total itemized deductions — which can also include charitable donations, home mortgage interest and medical expenses — don’t exceed your standard deduction, itemizing might not be the optimum choice for you.
Can I deduct the cost of a gambling addiction recovery program?
IRS Publication 502 lists alcohol and drug-related addiction-recovery programs as eligible for the medical expense deduction. However, gambling addiction isn’t included. If you need help dealing with a gambling addiction, you can call the Substance Abuse and Mental Health Service Administration’s 24/7, 365-days-a-year hotline at 1-800-662-4357.
3. Even illegal gambling winnings are taxable
According to the American Gaming Association, it’s estimated that Americans spend more than $150 billion per year on illegal U.S. sports betting — and yes, that can include your office March Madness pool.
A May 2018 U.S. Supreme Court ruling opened the door for states to legalize sports betting, but not all have done so. That said, any winnings you receive from betting on sports legally or illegally (or from any illegal activity, for that matter) are still taxable.
Learn more about sports betting and taxesBottom line
So how are gambling winnings taxed? Every dollar you win from gambling, whether legally or not, is considered taxable income. As a result, it’s critical that you keep a record of your winnings so that you can report them accurately. You’ll also want to keep track of your losses so that you can use them to qualify for a tax break.
Once you’re ready to file your taxes, Credit Karma Tax® can help show you where to include both your winnings and your losses so that you can maximize your tax refund if you’re owed one.
Jennifer Samuel, senior tax product specialist for Credit Karma Tax®, has more than a decade of experience in the tax preparation industry, including work as a tax analyst and tax preparation professional. She holds a bachelor’s degree in accounting from Saint Leo University. You can find her on LinkedIn.