If you placed a sports bet or won on a sports game then you should report your winnings. Betting on sports is a fun and exciting way to make a bit of extra cash but there are stringent regulations that you must follow. Doing so can help you avoid a hefty fine or even criminal charges. Let’s have a quick look at how to report your sports betting earnings.
Make Sure To Claim Your Winnings
It is important to note that you must claim your winnings promptly. There are numerous cases where people have failed to do so and it has always ended up biting them in the back. It is also essential to know that the IRS treats gambling as a hobby and not a serious business so you may have different tax obligations depending on whether you are an amateur or professional gambler. For instance, if you make more than $2,600 in a year from gaming then you are likely an amateur and won’t have to pay federal income tax on your winnings. Professional gamblers, however, are required to register as a federal contractor with the IRS and file their annual returns which may include up to $10,400 in winnings.
Winnings Must Be Written Off As Losses
When you report your winnings to the IRS then you must treat them as losses. This is a crucial step and you cannot simply mark them as income. Doing so will likely get you into legal trouble. Once you have reported your winnings then you can calculate your gain/loss on gambling activities by comparing your starting and ending inventory. When you report your losses then they will be deductible against other income. In most cases, people have used betting losses as a deduction against their other income and this has turned out to be a profitable strategy.
File Your Annual Taxes As Soon As Possible
As we mentioned above, the IRS treats gambling as a hobby and not a business so you have to file your annual taxes as soon as possible. Filing your taxes more than six months after the end of the year will result in an automatic 40% penalty plus interest. Individuals who fail to file taxes within a reasonable amount of time will have to pay a large penalty. For instance, if you fail to file your taxes within two months of the end of the year then you will have to pay the maximum $100 penalty plus interest for the late filing. Similarly, if you are two months late then you will have to pay a $50 penalty plus interest. In these situations, it is always best to contact the IRS and seek an extension to file your taxes. They will then give you a deadline to meet and you must meet that deadline in order to avoid severe financial consequences.
Keep Your Records In Order
You must maintain complete and accurate records of your gambling activities including, but not limited to, written records such as scorecards, software records, or electronic records. You are also required to keep these records for at least three years after the end of the year in which the gambling activity took place. These records will then be available for inspection by both the IRS and state tax officials. Having accurate records is crucial in order to prevent tax evasion and reduce your risk of being audited. If you do not have written records of your gambling activities then you can make an appointment with the IRS and have them come to your home to inspect your records or you can take them to your local library where they can look through your email correspondence. In either case, you must make sure that the records are kept for at least three years after the end of the year in which the activity took place.
Report All Activities
If you are an amateur gambler then you have the option of either filing a separate tax return for your gambling activities, claiming your winnings on line 25 of your 2010 income tax return or using one of the many free online tax filing services. If you use one of these services then you must report all of your winnings and losses from gaming activities. If you use Microsoft Excel to file your taxes then you can click here to get the instructions on how to complete your income tax return without any help. In order to claim your winnings on line 25 of your income tax return then you must have a W-2 or 1099 form for each of your employers for the year. Since you will be reporting your earnings from the activity of gambling, you must ensure that these documents are accurate. Forms W-2 and 1099 are issued by most employers to their employees so you know that you will have these documents in the near future. If you do not work then you do not have to worry about getting these forms but you must still report all of your gambling earnings.
You then simply follow the instructions provided on the income tax form to indicate the amount of money that you won and the amount that you lost on each activity. Since this is a hobby for you, you may simply enter “0.00” for any winnings or losses that you have. Most people who play for fun report their activities on a monthly basis so that they can keep their records for easier inspection by the IRS. Individuals who play for money must report their activities on a yearly basis. If you are looking for a way to enjoy your weekends while making money then you can access some of the best bookmakers online and place your bets. You must remember that there are always exceptions to the rule so if you ever have a doubt as to whether or not you have to report your winnings then consult a tax attorney or accountant for advice. Above all, have fun! If you want to be able to enjoy your hobby without any financial worries then be sure to follow the above guidelines. Doing so will ensure that you are reporting your activity accurately. Taxpayers that fail to report their activities will have to pay a hefty price in the long run. It is always best to be aware of the rules and regulations so that you do not get penalized for assuming that you do not have to follow them. It is also important to be aware of the rules and regulations so that you can follow them even when you are playing for fun.