How is Betting Taxes?

Sports betting is a billion-dollar industry, and it is growing each year. The World Cup, the Super Bowl, and the Kentucky Derby are some of the biggest sporting events each year, and the odds are always in favor of the home team. There is also an entire subculture surrounding sports betting that developed from amateur gamblers giving it a try, to high-stakes professionals risking large quantities of money on every game. In the case of professional sports leagues, such as the NFL, this is mostly legal, since sportsbooks are required to take out certain kinds of insurance policies to cover the odds, and also have to register with the government as agents of the government.

A Quick Primer On Taxes

In general, any winnings from wagering on sports are considered taxable income, and you will have to pay appropriate taxes on them. However, there are a few exemptions and deductions that you can take, if you meet the conditions. For example, if you are an amateur sports club, your members can qualify for the HOPE credit, which stands for Health Opportunity Plan. This credit allows you to reimburse 100% of the premiums for quality healthcare plans, approved by the IRS. It also provides a tax break for individuals, who are 49 years of age or older, and have a Medicare card.

If you win more than $600 in one year, you can also request a tax form from the IRS, and you will have to pay taxes on the whole amount. However, you can claim the IRS code, “Winnings from legal gambling,” which means your winnings are completely tax-free. Keep in mind that this winnings exemption only applies to sportsbooks and lottery terminals, not to online gambling, or casinos. Also, this one-time exemption does not apply if you win a championship in a state-run lottery.

IRS Form W-7

The IRS also issues a form to any wagering business, which requires that you verify that you are a legal entity. This form, called W-7, is used to collect information about the tax liability of the individuals, who own the business. The form asks for your name, social security number, and birth date, as well as that of your employees. If you win more than $600 in one year, you have to file this form with the IRS. In the case of a gaming establishment, you will have to file form W-9, which is an extension of W-7.

New Gaming Establishments

If you plan on running a sportsbook or other kind of gambling establishment in New Jersey, you need to obtain a license from the New Jersey Division of Gaming Enforcement. In order to do this, you will have to pay a $5,000 application fee, as well as a $25,000 license fee. You will also need to meet the following requirements:

  • A Certified Gaming Officer
  • Be at least 21 years of age
  • Own a proper establishment license
  • Have at least 1,500 square feet of space, aside from the room in which you play
  • Have at least six active gaming machines or table games
  • Have at least two off-track betting devices
  • Agree to abide by the rules and regulations set by the Division
  • Not be a prior offender
  • Pay a 10% tax on all winnings
  • Have $20,000,000 in insurance coverage (at least)
  • (For New Jersey residents only)
  • (For casinos)

Why Are All These Requirements?

The regulations imposed on legal gambling establishments keep changing, as the laws and communities that allow them to exist evolve. One significant change, which has recently occurred, is that all wagering businesses must now pay taxes on their winnings. In the past, these businesses were completely tax-free, since they were viewed as extensions of the sports teams that they represented. However, the IRS and New Jersey consider these businesses separate entities, which are legally required to pay taxes on their earnings. Inevitably, this resulted in a never-ending legal loop-hole that allowed the gaming industry to operate with very few restrictions.

This changing legal climate makes it very difficult for an individual or a company that operates a sportsbook, or any other legal gambling establishment, to find a competitive edge against the others. Many sportsbooks and lotteries have moved to states, where sports betting and the legality of gambling in general is still not as tightly regulated, and they can take advantage of this by paying less in taxes and having more money left over to reinvest in the business. For example, in Nevada, which used to be a legal no-go zone for sportsbooks and other kinds of gambling establishments, there are now over 1,200 of them, and this is because the state offers many tax advantages to these businesses.

Many Benefits From Legal Gambling

Beyond the ability to capitalize on winnings and pay lower taxes, there are many other benefits that come with the legalization of gambling in various states. The following are a few of them:

  • Raising Revenue
  • Reducing Crime
  • Giving Back To The Community
  • Positive Social Impact
  • Job Creation
  • Easing Traffic Congestion

In every state that allows legal gambling, there are also licensing and regulatory requirements, as well as fees for applying for licenses and renewing them. However, the economic advantages and benefits that come with legal gaming far outweigh these minor inconveniences. Therefore, if you are an entrepreneur who sees the potential in an already-legalized market, you can take advantage of this, and open a business, without worrying about conflicting laws or the possibility of getting your hands on a weapon and shooting somebody.

Some Pitfalls To Watch Out For

There are also some pitfalls that you need to watch out for, if you decide to venture into the world of legal gambling. The most significant one is to make sure that you are following the rules and regulations, which are imposed by the government and the jurisdiction in which you operate. Fines and even imprisonment may result, if you break these rules and regulations. Another pitfall is to assume, that, because your state or jurisdiction allows certain kinds of gambling, it also supports online gaming. While this may be true in some instances, there are many others, where the rules and regulations do not apply to online gaming.

More Resources

In addition to the information presented here, you can find more detailed and helpful information in the Internal Revenue Service’s publication, “Tax Guide To Illegal Gambling Activities,” as well as in the New Jersey Division of Gaming Enforcement’s online guide, “Legal and Regulatory requirements for New Jersey casinos, resort casinos, race tracks, and parimutuel wagering establishments.” These publications and websites are a great source of information for anyone wishing to enter or already in the world of sports betting or other forms of legal gambling.