2018 marked an important turn for sports bettors – as of May 14, 2018, the US Supreme Court has legalized commercial sports betting in almost all states across the US, repealing the 1992 federal law that banned it. So, now you can happily and ‘legally’ wager on sports with the hopes of winning big numbers!
But wait, do you think that’s all to it? Sorry folks, while the Supreme Court has decided to legalize sports betting, you cannot expect that the IRS will just sit quietly and miss all the action, can you?
The income gained from sports betting is now taxable income!
Bill Smith, MD at CBIZ MHM National Tax Office, Washington maintains:
“The amount of gambling winnings, less any losses, gets tacked on to all other income you have … and is taxed as ordinary income.”
So, here’s what you need to know about sports betting taxes as of 2018-
According to the American Gambling Association, every year Americans spend nearly 150 billion USD on illegal sports betting! Now, every sports bettor who wins has to disclose all of his/her winnings to the IRS on their income tax returns. This includes cash and any other item won such as a raffle ticket (reporting the fair market value of that item).
Under the new sports betting tax reform, casinos can now withhold federal taxes on winnings above the $5000 ceiling, with the withholding rate standing at 24% (1% down from 25% in 2017). If you win at a wager, you will receive one or more W-2G forms from the casino itself, depending on the total amount of your winnings. While the new tax law allows gamblers to deduct their losses to the extent of their gambling income provided they itemize their deductions. However, all of this information must be reported on Form 1040.
In case you wish to itemize your losses as deductions, you have to always maintain a detailed and accurate record of all your wins and losses, including your sports betting tickets and any other receipts that display your total winnings and losses.
Under the new sports betting tax reform, professional gamblers will now be considered as self-employed. They can no longer deduct non-wagering expenses, for instance, travel expenses, magazine subscriptions, monthly internet bills, provided those expenses are more than their gambling income. Professional gamblers need to file a file a Schedule C to report self-employment income.
Thus, while the new tax reform is welcome news for sports bettors, it mandates that gambling income is taxable income. So, it is important that you understand the norms of the new tax law and plan your tax strategies accordingly.
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