global Tax Football Season Tax Tips: Understanding the Tax Implications of Winning Money or Prizes from Bets September 16, 2024 Another football season is here! If you’re gearing up to place some bets, make sure you’re playing by the tax rules when it comes to your winnings. Read on. With another football season underway, the IRS is reminding sports betters to understand their tax obligations when it comes to reporting gambling income. We have the details here. What does the IRS consider gambling income? In the eyes of the IRS, gambling income includes winnings from sports betting, lotteries, raffles, horse races, and casinos. It also includes cash winnings and the fair market value (FMV) of prizes (trips, cars, etc.) How are winnings taxed? 100% of your winnings count as taxable income and must be reported on your 1040 (under “other income”). The payor, when reporting gambling winnings on a Form W-2G, may have reduced the winnings by your wager. Your obligation is to report the amount reported as winnings on the Form W-2G and, if the wager has not been deducted from the winnings reported, you can add the wager amount to your losses (see “What about losses?” below). Did you win big? If your winnings amount to more than $5,000, 24% will be withheld for federal taxes. You will receive a Form W-2G from the payer detailing the amount you were paid and the federal tax withheld. The form is also sent to the IRS, and bear in mind that if state taxes were deducted, those amounts could be included on the form. If your federal tax rate is in the 37% bracket, this withholding might not cover your total tax liability—in which case you would need to make estimated tax payments. What about losses? Losses are tracked separately and are deductible only up to the amount of winnings. Also keep in mind that losses are only deductible if you itemize deductions. You cannot deduct gambling losses if you take the standard deduction instead of itemizing. Recordkeeping is key! For tax purposes, keep detailed records of your gambling wins and losses. Be sure to keep: Receipts: You must be able to provide receipts, tickets, statements and any other documentation showing the amount won/lost. W-2G Forms: Forms received from the payer casinos or lotteries showing winnings and taxes withheld. Bank Statements: Transactions related to your gambling activities. What’s at stake if you do not report your winnings and losses? There are strict penalties for noncompliance, ranging from fines to criminal charges. There is a 20% penalty on the amount of underpaid taxes if you don’t report all your winnings. The IRS is warning taxpayers to beware of illegal sports betting. Keep in mind that sports betting is not legal in certain states. Are you a Patriots fan? Good news! As we reported last year, Massachusetts Legalized Sports Betting in 2023 Happy betting!
