When it comes to sports betting, individuals in the United States face a mountain of tax questions. Since the passage of the Sports Wagering Law in 2016, state and federal tax liability has been a gray area for sports bettors. The law was designed to facilitate the ability of college sports teams to generate revenue from NCAA sports wagering activities, but it has opened up a brand new world of tax issues for individuals who choose to partake in this intriguing wagering activity.
Are State Taxes Applied to Legal Sports Betting?
The most frequently asked question regarding the application of state taxes in relation to sports betting is, “Does legal sports betting register for state income tax in any state?” Unfortunately, the answer to this question is complex and depends on a number of factors, including the jurisdiction you are in, the type of bet you make, and what sport you are betting on. In most cases, yes, state taxes are applied to legal sports betting, but the answer can vary from state to state.
How Are Federal Taxes Applied To Legal Sports Betting?
The operator of an online sports book would not only have to pay state taxes on winnings from legal bets, but also on what’s known as “staked volume.” Simply put, staked volume is the total amount of money that’s been placed on a legal wager. In the United States, the Internal Revenue Service (IRS) specifically lists wagering activity as one of the sports betting-related activities that are taxable. You will have to pay taxes on winnings, and you will have to pay taxes based on the total amount of money you’ve “staked” on your legal bets. This is generally 15–20% of your gross income, depending on whether or not you’re a professional gambler. Keep in mind that the IRS considers virtually all gambling to be illegal, regardless of whether it’s done online or in a conventional brick-and-mortar betting shop.
Are There Any Breaks Or Exclusions For Sports Betting?
Many individuals looking to invest in legal sports betting might be relieved to know that there are a number of breaks and exclusions that can reduce their taxable income. One of the things that the IRS allows is to treat your wagering activity as a hobby rather than a business. As long as you meet the guidelines for a hobby, you can exclude up to $2,500 (in 2018) in winnings from taxation if you meet the requirements. You can find complete details regarding the rules for a hobby at www.investorhelp.net/tax-hobby-rules.
How Are Social Security Taxes Addressed In Relation To Legal Sports Betting?
Anyone who’s earned more than $138,600 in 2018 will have to pay social security taxes on their winnings from legal sports betting. This could vary from 2% to 6.2%, so it is important to understand that legal sports betting is not completely tax-free. If your taxable income is in excess of this amount, you will have to pay social security taxes on your winnings. It is also a good idea to consult with a professional tax adviser who is familiar with the rules and regulations regarding social security taxes on wagering activities.
As mentioned above, the IRS considers virtually all forms of gambling to be illegal. However, this agency also provides special tax rules for sports betting. In most cases, the IRS requires you to report your winnings on form 8854 and pay taxes on these earnings. However, there are exceptions to this general rule. If you meet the requirements for any of the following categories, you will not have to report your winnings on form 8854 and will not have to pay federal income taxes on these earnings:
- An amateur sport;
- An animal exhibition or competition;
- A horse race or other race or sports event that is not for profit;
- An Olympic sport; or
- A professional or college sport.
What About State Income Taxes?
It is important to keep in mind that regardless of whether you’re subject to federal or state income taxes, you will still be liable to pay income tax on your winnings from legal sports betting. However, the amount of tax varies from state to state. Some states might not apply any income tax to legal sports betting, while others might apply a flat rate of 10% on all winnings. It is also possible that a state might apply a variable rate based on your filing status. These are just some of the various ways that state income taxes are applied to sports bettors. You can find the complete list of state taxes and their rates at the Internal Revenue Service website. This article will not cover this topic in detail, but it is important to know that there are a wide variety of taxes that you might have to pay, depending on where you live.
Is There A Safe Haven For Legal Sports Betting?
Many people will flock to the security of putting their money on the winning team. In most cases, this is a losing proposition, but it can be a secure way to wager. If you’re looking for a place to park your money in a secure manner, you might want to consider placing bets on the University of Michigan football team, the New England Patriots, the Chicago Cubs, or the Dallas Cowboys. These are just a few of the teams that you might consider backing, especially if you’re a fan of one of these popular and winning sports franchises. Keep in mind that you will have to verify your identification and ensure that you are not a professional gambler before placing your first bet. Even then, you might be risking your money as the odds are usually against you.
If you’re looking for a place to park your money in a secure manner, you might want to consider placing bets on the University of Michigan football team, the New England Patriots, the Chicago Cubs, or the Dallas Cowboys. These are just a few of the teams that you might consider backing, especially if you’re a fan of one of these popular and winning sports franchises. Keep in mind that you will have to verify your identification and ensure that you are not a professional gambler before placing your first bet. Even then, you might be risking your money as the odds are usually against you.