In the US, the vast majority of people will be impacted by the new tax law, the new tax reforms, the new tax season, and the new way of life that it brings. Amongst the people who will be most affected are:
- High-Net-Worth Individuals (HNWIs)
- Sole-Proprietors
- Self-Employed Professionals
- Small Businesses
- Newly Wed couples
- Families
- Part-Time Students
- Retired Persons
These are the people who will be responsible for creating most of the new jobs in the next few years. Although there will be some positive changes with the implementation of the new tax law, it will come with some heavy burdens. This article will discuss how taxes work with sports betting, and how you can take advantage of the new tax law to your financial and legal benefit.
How Do Taxes Work With Sports Betting?
To start, let’s discuss the general rules and regulations that pertain to taxes and sports betting. There are five basic principles that you need to keep in mind when entering into this type of wagering activity:
- Taxes apply to wagering activities
- You must have a gambling license
- You must register with the IRS (or the jurisdiction that you reside in)
- You must identify the taxpayer
- You must keep track of your winnings and losses
- The IRS has jurisdiction over whether you’re required to pay tax or not
These five principles should be followed strictly if you’re going to be playing, betting, or doing anything else related to sports wagering in the US. However, if you are a non-resident or a person not authorized to conduct business in the US, then you should not follow these principles and you should consult a professional tax attorney or accountant to determine whether or not you are required to pay US income tax on any of your earnings related to sports betting.
What does this mean in practice? Let’s say you are a professional baseball player. You make $1 million per year and you spend $500,000 on rent, food, fuel, and other necessary costs associated with playing baseball. The remaining $500,000 you spent on betting on games. You will need to pay taxes on the entire $1 million. However, if you are a high-net-worth individual (HNWI), then you may be able to choose to treat the $500,000 you bet on sports as a business expense rather than a personal one.
In addition to the five basic principles listed above, there are also some rules and regulations that are specific to taxes and sports betting. These rules and regulations are fairly complex and can vary state-to-state, so it is important to be aware of them. Some of the most important ones are:
- You must file a return if you make over $20,000 per year in wagering activities
- You must report your wagering activities
- If you are a professional gambler, then you must register with the IRS
- You must pay an income tax on your winnings
- You are allowed to exclude certain amounts that you win in “Sports wagering” from your income
- There is a specific form that you must use if you are claiming an expense for betting
- You may be able to deduct up to $100,000 per year in wagering losses against your income
What Are The Major Benefits Of The New Tax Law?
The biggest and most beneficial change for the 2018 tax year is that the tax rate has been reduced from 35% to 20%. This is a major savings for most people.
Another major change is that the standard deduction is doubled to $12,000 for an individual and $24,000 for a married couple filing jointly. The effect of this is that most taxpayers will no longer have to itemize deductions on their tax returns.
Itemizing deductions is an important part of taking advantage of tax savings, especially since so many people are claiming that they cannot itemize deductions anymore due to the limit being reached. Although there are still some limits that may apply, this is definitely a positive change for many, many taxpayers.
There are also rules and regulations that affect who can itemize and who cannot. If you are in the middle of a tax audit, then it is not yet certain whether or not you will be able to itemize deductions. However, if you are not in the middle of an audit, then you are free to chose to itemize deductions regardless of your income level. When itemizing deductions, you can only claim what is on the list of allowable deductions. Certainty is not yet available, but it is definitely a positive change for taxpayers who are not in the middle of an audit.
The last significant change in the new tax law is the increase in the state and local tax deduction. This means that if you live in a state or local tax jurisdiction, then you can claim all of the taxes paid on income earned in other states. This is also referred to as a ‘backup’ deduction.
Why Do I Need To File A Federal Tax Return?
If you are not filing a federal tax return, then you are missing out on a significant portion of the tax savings that the new tax law provides. Most people who are not required to pay federal income tax file a state return, but they do not file a federal return because they believe that they do not have to. However, this is not altogether true. You need to file a federal tax return every year, even if you do not have to.
The reason that you need to file a federal tax return is that without one, you are missing out on the full benefit of the new tax law. Federal tax returns and the forms that you need to file them on are fairly complex and can vary from state to federal, so it is best to get professional help if you are not familiar with how taxes work.
Even those who are not required to pay income tax, but are filing their own return anyway, should file a federal return each year. Filing a return means that you are taking the time to ensure that your tax information is up-to-date and that you are not leaving any loopholes or deductions untapped. It also provides you with the opportunity to itemize deductions and possibly benefit from the new tax law.
What Forms Do I Need To File?
The four basic forms that you need to file are:
- 1040
- 1040-EZ
- 1040A
- 1040EZ
There are also some forms that you only need to complete if you are claiming itemized deductions. These are:
- Form 8949
- Schedule A
- Schedule C
- Schedule D
- Form 1040-ES
- Form 1040-NR
It is also important to remember that you must file all of these forms by April 17th of the following year. Not doing so will result in a late penalty and interest charges. The best time to file your taxes is as soon as possible.
What Are The Major Penalties For Filing A Late Return?
One of the major penalties for failing to file a federal income tax return in a timely manner is that you will receive a late penalty and interest charges. The amount of the penalty and interest will be determined by the IRS and will vary according to how much you had to delay. The best time for you to file your taxes is as soon as possible, so be sure to file your 1040 form as soon as possible. Filing a 1040 form for a tax year that has already started is acceptable, as long as the return is filed by April 17th of the following year. You should also ensure that all other necessary forms are filed, as soon as possible.