Sports bettors need to know that gambling taxes are nothing new. It has become more and more popular over the years to bet on sports. Participating in sports betting can be exciting, satisfying, and financially rewarding, especially in certain states where they now offer online sports betting. While paying taxes on your winnings isn't any of those things, it is necessary.
Starting in 2018, the IRS considers any sports betting as income; therefore, you will be required to report any winnings you receive.
How much are you taxed on sports betting?
Betting on your favorite sports teams used to be illegal. Fast forward to today, more and more states have legalized gambling in sports. It is important that you understand how taxes will be applied to your winnings. Nobody wants the Internal Revenue Service coming after them.
Let's take a look at the different tax rates in each state and how to file taxes on your sports betting this year.
A W2-G will be issued, in the event, where you won more than $600 in gambling and you received at least 300 times the amount you wagered. Wherever you placed your bets will send you a W2-G form. Simply, fill it out and make sure you record it on your personal taxes which is form 1040.
How to Fill Out Form W2-G
To properly file your taxes on your sports betting wins, it is crucial to have accurate records of all of your wins throughout the year. You’re a winner! Now let’s fill out form W2-G correctly. The form will ask you to provide more information about you and your winnings such as...
Keeping Records of Gambling Gains and Losses
You will thank yourself later if you keep an accurate record of your gambling winnings and losses. You must be able to provide the IRS receipts, tickets, statements, or other records that physically state whether you won or lost. Having all your transactions recorded will make filing your sports betting more simple.
Casual Gambling vs Professional Gambling
There are casual gamblers and professional gamblers. Yes, professional gamblers do exist. However, the majority of gamblers are casual gamblers. Casual gamblers are individuals who only gamble occasionally and for fun. In order to avoid owing the IRS money when you lose a bet as a casual gambler, itemizing your deductions on Schedule A is recommended. Forgetting to itemize your deductions, will put you at a disadvantage.
Did you know?
The IRS classifies professional gambling as a trade or business
Meanwhile, professional gamblers are considered a trade/business, meaning they are eligible for deductions for gambling expenses. These are considered non-wagering expenses. When filing for taxes, you would file on Schedule C as a business income. A disadvantage of professional gambling is that you can only deduct gambling losses up to the amount of your gambling winnings each year. So, even if they really had a loss from gambling activities, they cannot report it.
How to Itemize Gambling Losses
Lost your bet? Don’t worry, you can still file your losses. However, this will only be possible if you itemize your deductions. There are a few things you should remember when itemizing losses. You can never deduct more gambling losses than you earn. Taxes owed on your other winnings can be reduced by itemizing losses, which will save you money.
What happens if you do not claim income from sports bets?
The IRS wants you to file all your taxable earnings, and if you don’t you may face consequences and interest on any tax you owed but didn’t pay. Failing to report taxable income on your tax return (via Form 1040) can result in severe penalties. In addition to hefty fines, you'll get jail time. Do yourself a favor and claim your income from your sports bettings.
A tax professional can help you avoid problems
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