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Americans legally bet $57.71 billion in 2021, a nearly threefold increase from the $21.6 billion wagered in 2020. Tons of new revenue is pouring into the coffers of gambling operators and state governments alike.
With states legalizing sports betting and more people than ever wagering on sports, a massive wave of new sports bettors needs to understand the tax implications of winning.
CaptainPicks wants to prevent you from being surprised at tax time by the requirements for reporting your gambling winnings and losses. So without boring you with too much tax lingo, here’s what sports bettors need to know about the tax implications of betting on sports.
Sports Betting Winnings Are Taxable Income
Any winnings from sports betting are considered taxable income that individuals are required to report on their income taxes. According to the IRS, gambling income includes but isn’t limited to “winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and the fair market value of prizes, such as cars and trips.”
When your gambling winnings exceed $600, the gambling operator (the payor), such as a casino, a racetrack, or a sports betting site, will issue you a Form W2-G for Certain Gambling Winnings or a 1099-MISC. Gambling operators are legally required to send you and the IRS this tax form of your winnings, which will tell you how much you must report on your taxes. Though the payor is legally required to report gambling winnings above $600, you still need to report those winnings yourself.
Report All Your Winnings
Even if you didn’t receive a W-2G from the payor, you’re still required to report the winnings on your income taxes. The IRS won’t be hunting you down if you win $37 on DraftKings and don’t report it, but you should still report all your winnings regardless of the amount. For example, even if you placed one $50 bet all year and won $150 total, you should report your net win of $100 as income.
As we mentioned, if you’ve received W-2G forms from the payor, your winnings exceeded $600. In this case, you definitely don’t want to underreport your winnings because the payor will have already reported your gambling income to the IRS. Failing to report sports betting winnings on your taxes could result in penalties.
When completing your taxes, report your gambling winnings as “Other Income” (Form 1040, Schedule 1, Line 8).
Itemize To Deduct Gambling Losses
You can deduct your sports betting losses if you itemize your deductions with a Schedule A Form. The total amount of losses you deduct cannot exceed the amount of gambling winnings you report as income. For example, if you won $750 in 2022 and lost $1000, you can deduct $750 of losses but can’t claim the losses above $750 as a tax write-off.
To deduct your gambling losses, you’ll need to keep documentation (more on this next) to back up your claims and “be able to provide receipts, tickets, statements, or other records that show the amount of both your winnings and losses.”
As you complete your income taxes, use the “Other Itemized Deductions” section to itemize your gambling losses. If you claim the standard deduction you can’t itemize your gambling losses.
One important note for clarity: for the purposes of your tax return, your gambling winnings and losses must be handled separately – you can’t just report the net amount. For example, if you had $1,200 in winnings and $900 in losses in the taxable year, you can’t just report the $300 in net winnings and call it a day.
Keep Records
If you plan to itemize your sports betting (or any gambling) losses, you need to maintain a detailed log or spreadsheet to track your betting record so you can provide proof of your losses. The IRS requires that your records include dates, the name of the establishment you wagered with, the type of wager, the amount you won or lost, and anyone with you at the time.
Keeping a sports betting record is actually a great practice in general, not just to track profits and losses, but to analyze your betting performance, identify your strengths and weaknesses, learn from mistakes, and refine your betting strategies.
Tax Rates
Sports betting winnings above $600 are subject to a 24% federal income tax rate. If your winnings are more than 300 times the original stake or over $600, the payor may withhold the 24% when the winnings are paid out. For example, if you bet $2 and won $750, taxes may be withheld because you won 375 times your original stake.
When you file your taxes next year, include any winnings that were withheld as federal income tax withheld, so it is subtracted from the tax you owe.
You can also expect to be asked to report any winnings on your state taxes, and you may even be subject to a state gambling tax on your sports betting winnings; however, each state has unique laws. The state tax rate you are subject to is the state in which the bets were executed, so if you won money in another state, you’ll need to report those winnings to that state.
Tax Wrap Up
Sports gambling winnings are taxable income like wages from your job. If you have become a regular sports bettor and want to deduct your gambling losses come tax time, you’ll need to itemize your deductions. To do so, you’ll need to start documenting all your winnings and losses so you can be prepared to report them accurately.
Here at CaptainPicks, our mission is to help you be as successful as possible in betting on sports, but we’re obviously not tax experts. If you are winning consistently, we suggest you consult a tax advisor before completing your taxes so you can take advantage of any strategies that may reduce your tax burden.