Sports Betting Taxes 2021
Have you ever wondered about online sports betting taxes? Gamblers are usually unaware that sports betting winnings can be calculated as a taxable income. No matter if you are a casual or a professional bettor, the Internal Revenue Service (IRS), will tax your winnings. To help you meet all the requirements prescribed by the law, we are going to provide you with valuable information about the tax implications.
What are sports betting taxes?
The money that you gain by gambling, which includes sports betting as well is subject to income tax. Sports betting taxes apply even if you are wagering just for fun and not only to the professional bettors. Many punters were wondering whether they need to pay liabilities on their profits from sports betting. So, to be straightforward, yes. As a bettor, you must pay taxes on your wagering profits made during the year.
The number of bettors is getting increased each year thanks to the US Supreme Court’s permission for legislation of sports wagering in different states. If your winning is large enough, the entity paying you will issue you a Form W2-G, Certain Gambling Winnings. Online sportsbooks, as well as the land-based ones, should send both you and the IRS a tax form if your profit is taxable. This form is also known as a Form 1099-MISC. As the organizers, bookies have a legal obligation to send Form 1099-MISC to you and the IRS. Now that we got more familiar with the basics of sports betting taxes, let’s dip into more detail.
How are gambling winnings taxed in the US?
We need to look at different situations to answer the question of how gambling winnings are taxed. The tax structures vary from state to state, so you need to inquire about the ones relevant for you. However, we will go through the guidelines for both the federal and state income tax process.
If you win $600 or more and the gain is 300 times more than your stake, then your sports betting profits fall under the taxable income. In this case, the sportsbook you have placed a bet with automatically withholds liabilities. However, what happens when your winner wager does not hit the odds at +30,000, which, you must admit, is mostly the case? You won’t be handed a form every time you clear $600 from a sports bet. It’s because you may already be down that day, and the sportsbooks don’t track record about that. Therefore, you cannot count on a bookie to hand you a form every time. It leads us to a crucial fact that it is your responsibility to pay taxes.
An IRS Form W2-G is being used for reporting the winnings from gambling. You can quickly determine what you should report on your tax return when you receive a W2-G. Even when you gain less than the above-stated amount, your legal obligation is to disclose these proceeds as income on your federal liabilities. But, what happens if you don’t receive a W2-G? In that case, it is your responsibility to disclose the correct amount of gains. Therefore, you need to log your winnings, most likely in the form of a wagering diary, to have a clear insight into your earnings.
You should also consider the tax liability of your betting earnings. There is an option of withholding taxes at the time of payment, in case W2-G states out your wagering winnings. It is a general recommendation when the profits are substantial. If you apply this advice, you may avoid owing money when you file a personal tax return for the year.
However, questions keep emerging. What if your W2-G does not represent wagering winnings, and you haven’t kept track of them? If you predict that your net gains will have an impact on your tax return, you need to make an estimated tax payment. For this action, you should use a 1040-ES form, and by creating an estimated tax payment, you can avoid a potential penalty.
Besides this, the states where gambling is legal, or in the process of legislation, also will require you to disclose winnings. The only exception is Nevada, which does not tax wagering income. We always recommend you check whether you need to disclose your sports betting revenue with your state.
No matter which sports you are betting on, always report your winnings. Non-taxable income very often doesn’t include the returns from wagering, whether it’s an online or land-based sportsbook.
Deductible gambling expenses
The good news about sports betting taxes is that you can deduct losses up to the amount of wagering winnings. If you itemize your tax deductions, you will be able to deduct forfeitures made from betting. A W2-G states out your gains, but that cannot be said for the losses as well. But don’t worry, you can use a 1040 form to report those amounts. However, what you need to provide is evidence of your forfeitures. You need to have any kind of an accurate record, such as a betting diary, wagering receipts, canceled checks, or tickets. These documents can be filed to the IRS as a valid ground for your deductible expenses.
The most important fact about a loss deduction is that you can deduct it up to the sum of wagering winnings. How does it work on a practical example? Let’s say that you made $5,000 in wagering winnings in the last year, along with $2,000 losses. If you itemize your tax deductions, in this case, you would be able to deduct the $2,000 of forfeitures.
It may happen that you made more losses than gains in gambling. In that case, they cannot exceed the sum of your benefits. Let’s just switch numbers from the example above to bring it closer to you. So, you made $2,000 in betting profits, but also $5,000 of losses. You cannot deduct more than $2,000 in this case. In other words, you cannot carry forward excess losses to the next year. Therefore, the remaining $3,000 in forfeitures are gone forever. Keep in mind that you may deduct losses that are directly related to sports betting. So, any non-wagering expense cannot be deducted.
Being a professional bettor might bring you certain benefits from a tax point of view. Besides deducting your betting forfeitures, but you can make a deduction of business expenses. Those expenses can be a purchase of the computer, office supplies, or internet fees. In any case, they need to be ordinary and necessary for your wagering activities. Of course, you need to have valid documentation and receipts which can support the claimed expenses.
However, not everyone can consider themselves a pro sports bettor. There are straight differences between these two categories. No matter how long you are in sports betting, if it is just your hobby, then you are still an amateur. For being a pro bettor, you need to pursue full-time wagering activities, and the income from this business serves you for a livelihood. It is on the bettor to prove his/her professional status. You may claim the professional status by complying with the below-listed criteria:
- Sports betting activities should serve to a for-profit endeavor
- The effort and time expended in carrying betting activities are considered
- Accounting and record-keeping activities should be performed
- The years of experience and sports betting expertise are considered
- The overall success and the history of losses of betting activities are considered
Please, always remember to itemize your losses. Otherwise, you won’t be able to deduct them. Keep in mind that if you claim to be a professional bettor, the IRS takes a sharp look at that category of taxpayers.
Tips for reporting sports betting income
The IRS requires you to keep track of sessions. What this means is still debatable and dependable on the form of gambling. Since you need to log both forfeitures and proceeds, and this is the information that those logs should contain:
- Name and the address of the sportsbook
- The date and time of the specific wager
- The amount of your win or loss
Besides these logs or diaries, the recommendation of the IRS is to keep other supporting documentation. You can use voided betting slips, banking statements, or credit card statements.
Remember, the most important thing is to keep the record of your winning and losing wagers. You can deduct your losses only by tracking your winnings and forfeitures separately. Both numbers are going in different spots on the tax form. Therefore, you cannot disclose a net amount on your tax return. Even if you made a net profit from your betting activities, you don’t report a net amount to the IRS.
It might seem there is not much difference between putting down the net amount and recording your wins and losses. However, this is where you can make a significant mistake. By just disclosing a net amount and not itemizing your deductions, you cannot count on your sports betting losses. Since betting gains or forfeitures increases your Adjusted Gross Income, this can limit your other itemized deductions.
In short, yes. It is specified by the law that all income from any gambling type, including land-based sports betting, has to be disclosed. The law says that you must report all proceeds, including any money won in a land-based sportsbook. Remember to organize and track your records, as you can disclose losses as well.
The answer to this question is also yes. The federal government and some state governments as well, consider these winnings as income that you generated by actively trying to earn money. They don’t find this prize money as just a good fortune. Simply, if you produced some profits from online gambling, the IRS wants its part too.
The law says that all gambling income is taxable. Although there is a portion of the money that never gets taxed due to unregulated gambling activities, if you are a bettor, you should always disclose your winnings. Your sports betting transactions can easily be audited. The IRS will eventually have a track of your proceeds if you have funds in sports betting account. Not to mention that any bank wire or check payment can be viewed as well.
Having that said, you may face penalties or being charged interest for any underpayment of income tax. For a professional bettor, this can be a severe problem.
Non-residents who gain money in an online or land-based sportsbook must pay a percentage to the federal government. They need to complete and submit a 1040NR form to the IRS. Therefore, the answer to this question is yes.
To write off sports betting losses on your tax return, you need to report some amount of winnings first. For this reason, keeping logs of your Profits and losses is very important. Therefore, you can itemize deduction for your forfeitures once you disclose your gains.
The fact that you won does not change even if you did not make any withdrawals during a tax year. So, if you earned money from gambling during a tax year, you should disclose them according to the guidelines mentioned. Don’t forget to record those winnings.
If you think that you are free from paying liabilities on the sports betting winnings since you are retired, then you are wrong. It is even more important to report your wagering proceeds. The number of retired people in the gamblers’ community is very high, so this is a crucial question.
You may fall into big trouble by not disclosing your sports wagering winnings. Unreported profits from a sportsbook may change your medical coverage or premiums. Don’t let this negligence harm enjoying your retirement years.
Sports betting taxes: Try it now at one of the top 5 betting sites
Now that you have learned all about paying liabilities on sports betting winnings, you can enhance your wagering experience. Register an account at an online sportsbook, and pick your favorite bet for free by signing up to Billy’s List. Place a wager, collect profits, but do not forget to make logs of all winnings and losses!
Always have the supporting documentation in hand so that it can support your sports betting activities. Be responsible, disclose your sports betting income, and enjoy your wagering experience!