There is a misconception that sports betting is tax-free, which is not true. The U.S. Treasury Department lists wagering on sporting events as one of the common sources of taxable income, along with salaries, rents, and capital gains. But how much are taxes actually taken out of sports betting? Let’s consult the authoritative source: the IRS. Here are the answers, courtesy of the Internal Revenue Service (IRS):
How Much Does The Internal Revenue Service (IRS) Tax On-Line Gambling?
The IRS taxes wagering on sports events, including fantasy sports leagues, just like any other form of gambling. Here are some typical income tax rates for on-line wagering:
- Fully taxed rate: 30 percent (single)
- Fully taxed rate: 35 percent (married, filing jointly)
- Fully taxed rate: 39.6 percent (head of family)
- Half taxed rate: 20 percent (single)
- Half taxed rate: 24 percent (married, filing jointly)
- Half taxed rate: 29.6 percent (head of family)
- 10 percent rate: 10 percent (single)
- 10 percent rate: 12 percent (married, filing jointly)
- 10 percent rate: 14.28 percent (head of family)
- 5 percent rate: 5 percent (single)
- 5 percent rate: 6 percent (married, filing jointly)
- 5 percent rate: 7.62 percent (head of family)
What Are The Legal Aspects Of Sports Gambling?
The federal government does not regulate sports wagering. Therefore, state laws apply. As a general rule, the majority of states sanction some form of sports gambling. The laws are quite varied, and they are often convoluted (especially when compared to other types of gambling). This is mainly because there are so many different types of sports, and the states want to ensure that tax revenue is generated from legal gambling activities.
How Are Taxes Treated On Wagers?
The way the IRS handles wagers is very logical and efficient. Once you have registered with the IRS as an individual or business (if you are a sole owner of a business), you receive a W-8BEN form from them. The W-8BEN lets you verify that you have gambling income and lets the IRS know that you are willing to pay taxes on that income.
The IRS forms are supposed to be used for “verifying the identification of individuals and ensuring that only registered individuals or businesses pay taxes on income derived from gambling,” according to the IRS. The W-8BEN is used to “identify persons having gambling income for tax purposes,” the IRS explains on its website.
As for the treatment of wagers under the corporate umbrella, most large corporations (S Corporations, C Corporations, and Limited Liability Companies) ignore the source of their earnings when computing their taxable income. The corporation will include the wagers as income on its financial reports, but it will not report it as income on its tax returns. The reason is that the IRS treats wagers as business expenses rather than income. Furthermore, most large corporations are members of a tax-exempt organization, which receives a large social benefit from the engagement in gambling activities. The organization’s members (including the corporation itself) typically do not need to pay income taxes on the winnings from gambling.
What Are The Risks Of Sports Betting?
As with any other type of gambling, there are a number of risks associated with betting on sports. Some of these risks are:
- Losing money
- Getting sick
- Getting addicted
- Getting in trouble with the law
- Breaking the bank.
- Losing friends.
- Getting divorced.
- Getting ridiculed.
- Losing interest in your personal life.
- Getting depressed.
- Getting cheated.
- Getting hurt.
- Getting burned.
- Being broke.
- Getting ill from the strain of constant gambling.
- Becoming unsteady on your feet.
- Getting older.
Fortunately, these risks do not come with sports betting. The key is to take proper precautions before, during, and after the wagering activity. For example, you should develop a system for tracking your wins and losses and analyzing them regularly. This will help you identify problem areas and make necessary adjustments. If you are new to betting or experiencing problems, you should consult a gambling counselor or coach.