Almost every gambler looks forward to winning when they bet on a sport. Unknown to most gamblers; however, the taxman also wants his cut.
Uncle Sam considers sports betting winning as taxable income, mandating its report. The IRS specifies that you must keep track of your winnings and losses and fix the right amount in your tax return.
This article will explore various areas of sports bet winning about tax. It is in your best interest to consult a tax professional to avoid errors with filing your taxes.
Will you pay taxes on Sports Betting?
All income from sports gambling is taxable. In other words, you will pay taxes on poker, casino, lottery, and others.
Depending on the gambling form, when the amount you get reaches a particular threshold, Uncle Sam will be notified. As a result, you will likely get a W2G form for winnings of $600 and above, and Uncle Sam also gets a copy.
No matter where you won – online or physical location, there is no difference. Also, if you won prizes and not cash, Uncle Sam expects that you report the market value of such awards.
Amount to Pay in Taxes
Someone who bets should be prepared to pay up to 24% of their earnings. There will also be a state income tax on such amounts, depending on the state, though.
The federal tax deduction is automatic in many cases, provided your payout meets some threshold. Note that you do not have to cash out at a big sporting event or receive a W2G form to report your earnings.
Completing Form 1040 for Tax Winning
Form 1040 has no specific form for gambling winnings. Such sports betting income will be reported as other income. Paying taxes on the net winning is advised, and not the entire winning for people who itemize their deduction.
Why record Keeping is Important
To save yourself from tax problems, keeping a record is pretty essential. Uncle Sam advises a daily diary of sports betting wages, which might require minor details on such winning and losses, especially for people who want to deduct their losses.
Try and include all the W2G forms you got in a year, including the wagering tickets, detailing the dates, location and the funds you won or lost. For online betting, ensure you give details that anyone can crosscheck online.
Writing off Your Losses
As per the IRS guidance, bettors can report gambling winnings. However, one might also wonder if it is possible to deduct gambling losses.
This is possible provided you itemize on your federal tax return.
The TCJA almost doubled the standard deduction amount in 2018. As a result, nearly all taxpayers went with the standard deduction route. This disqualified them from itemizing and deducting losses from gambling.
Whatever you deduct for losses cannot be more than your winnings in a particular tax year for taxpayers that itemize. As a result, you might have $7000 in winning and $12,000 in losses; you cannot deduct more than $7000. Also, you cannot carry the outstanding $5000 forward.
Is tax payment to the State Compulsory?
This is a matter of your state of residence. States without an income tax like Alaska, Nevada, South Dakota, Florida, Texas, Wyoming, and Washington will not pay taxes on their winnings. Tennessee and New Hampshire resident-only tax investment interest and income, so no tax on your gambling winning as well.
For other states, however, it is important to report such winnings in the tax form. Rates vary by state, and there is a flat rate for some states, while others have their rate based on the income level.
Work with a tax professional to avoid issues.
For people confused about any area of tax reporting for gambling winnings or losses, ensure to work with a tax professional. This will help avoid errors, especially for bettors declaring their winning for the first time.
A tax professional will guide you, help avoid confusion, save your time, and in the long run, save you money.
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THANKS FOR VISITING.
Karen Munoz, EA