Many people consider wagering on sports to be a form of entertainment, but not all states treat it as such. To ensure you comply with the law, you must follow the proper procedures to pay taxes on your wagers. Below, we outline some of the basics about taxes and sports betting. While not all states may impose taxes on sports gambling, you must still file a federal income tax return (even if it’s just you and your spouse), so it’s best to be aware of the responsibilities that come with gaming.
All states that handle sports betting heavily regulate the industry, so finding legal ways to bet can be difficult. Most states do not allow betting on certain sports, such as football or basketball, and some also prohibit certain types of betting, such as against the spread or with a certain amount of vigorish (bookmaker’s percent commission).
On the other hand, many states that permit sports betting offer a variety of tax-free sportsbook coupons, gratis passes, and other perks to stimulate interest in the game and grow the industry. These programs, however, are usually community-based and have a limited number of available coupons or free plays. And although the industry is growing, many states do not actively promote tax-free betting as an incentive to play.
If you’re a betting person, you’re familiar with the concept of filing yearly tax returns. You must file a federal income tax return even if you don’t have any money (other than what you’ve earned from betting) to pay taxes on. However, not all the taxes you incur are created equal. You must file a return for the amount you’ve incurred in wagers, and each state imposes its own tax as well. In the U.S., all states require you to register, so it’s best to know the tax rules before you enter that fray. Below, we outline some of the federal income tax implications of betting:
Gambling income, or winnings, is treated differently than non-gambling income for income tax purposes. Generally, you can’t deduct your gambling losses from your overall income, and you must file a return for your gambling activity even if you don’t have earnings (see below for more information).
On the other hand, you can claim your gambling winnings as a deduction against your other income. To be able to take this deduction, you must follow a strict set of rules, which can be found in the IRS’s Private I.R.S. Handbook. These rules specify how to determine whether or not you’re eligible for the deduction, as well as what types of betting activities you can and cannot deduct. For example, you can claim the cost of traveling to and from a casino or betting establishment up to $25 per day as a deduction. You cannot, however, claim the cost of eating meals at a casino or betting establishment or the cost of tickets to sports events as a deduction. You also cannot deduct any amounts owed to the state if you live in one of its jurisdiction. The handbook also provides information about how to report your gambling income and activity, as well as offer some helpful tips on how to lower your tax bill.
Each state imposes its own tax on gambling, generally ranging from 10% to 40% of all wagers. To determine how much state tax you owe, simply add up the amount wagered in each state and multiply it by the applicable tax rate. It is best to consult a tax expert to help you calculate what you owe and how to minimize that amount.
As a general rule, you must file a return for whatever amount you wager on sports in any given state, even if it’s just $5 or $10. You must also file a return for any amounts wagered on horseracing, as this is considered gambling. If you’re unable to calculate your exact tax liability, you can use an online tax calculator to get an approximate figure.
Where Do I File?
In most cases, you can file your federal income tax return online with the help of a professional tax preparer, who can help you claim all your wagering-related deductions and minimize your taxes. Alternatively, you can use an online federal tax return calculator to simply enter your income and deductions and see what kind of tax you owe. In either case, you must indicate on your return that you have wagered income and must file a separate return if you meet the requirements of a small-business owner.
Treat The Activity As A Business
If you meet the requirements of being an independent contractor (i.e., you provide your own employees with insurance, pension, and other benefits programs), you can treat your betting activity as a business and claim all your wagering-related expenses as deductions. You must keep accurate records of your wagering, including the amount you’ve won and lost and all the various deductions you’ve made. You can also deduct any money you’ve bet to win. For example, if you bet $10,000 and won, you can subtract $10,000 from your total income and then add back the remaining amount as a deduction. It’s important to note that if you meet the requirements of being a small business owner, you must file a separate income tax return even if you don’t have any wages or earnings. This is because your business’s profits are included in your total income.
Although only a minority of states impose a state income tax on sports bet winnings, it’s still a taxable event. In most cases, you must file a state return even if you don’t have any income from wagering. This is because most states tax all income, even if it’s from an unincorporated business. While this is true in most cases, there is an exception: If you’re a non-resident or a non-domestic partner, you don’t have to file a state return. If you meet the requirements of being a small business owner, you can also file a separate state return for your business.
Report To The IRS
You must report all your wagering activities to the IRS, whether you incur any tax or not. Even if you don’t owe any taxes, it’s considered good practice to report any income you don’t want to keep secret. You can use a variety of methods to report your winnings and losses from sports betting, including but not limited to:
- Wagering slips
- Cash register tapes
- Credit card statements
- Tax returns (both federal and state)
- Bank and credit card statements
- ATM records
- Records of game wagers
- Other records
Each of these documents and records must list the date and amount of the wager, the name of the sports team or player, the sportsbook or casino, and any relevant information about the wager. If you’re using a cash register to record your bets, be sure to log all your wagers. Not only will this ensure you produce adequate documentation if you were to file a return at some point in the future, but it will also help you keep track of your betting activities. If you find that the forms demanded to report wagering are too much work, you can always use a simple online report to send in your information. The IRS accepts these online reports, but you must still complete and submit the required forms in person or by mail.
Protect Your Identity
It’s extremely important to protect your identity when engaging in any type of wagering activity, especially if you’re using an online sportsbook. If a hacker or someone using your email account finds out that you’ve been wagering online, you could open yourself up to identity theft or other forms of financial fraud. Always use a different email account for your wagering activities and use strong, complex passwords that you cannot easily guess. And, above all, never disclose your identity or give your email account information to anyone you don’t trust, no matter how seemingly harmless the interaction may be.