Did You Legally Bet on Sports Last Year? Here’s What To Know for Tax Filing
Betting on sports has become almost as popular as the sports themselves for some Americans. In August 2020 alone, people in the U.S. bet as much as $2.1 billion on sporting events. At the same time, more states are legalizing sports betting, and that brings into focus the necessity of reporting it on your tax return.
If you bet legally on sports last year, you may be expected to report it on your tax return. In fact, you may be required to report your bets on your tax return even if gambling is illegal in your state.
Let’s cover some of the common questions you may have about reporting any wins and losses you had as a result of betting legally on sports in 2021.
How Are Winnings Treated for Tax Purposes?
Betting on sports can be exciting, but the IRS considers it just another form of income. You’ll generally receive tax form W2-G along with any winnings in excess of $600 and where the amount is 300 times the original bet. In that case, they must be added to your income tax return and will be taxed at a flat rate of 24%.
In some cases, you may receive a different form. Fantasy sports participants who win more than $600 receive form 1099-MISC instead of the W2-G.
Keep in mind that $600 is just the threshold for which the one paying your winnings sends you a tax form, but you are expected to report all winnings, even if the total amount is less than $600. That doesn’t mean the IRS is likely to audit you on, let’s say $24 that is missing on your $100 of winnings, but nevertheless — individuals are expected to report all winnings from sports betting, no matter how big or small.
It’s worth noting that sports betting was previously illegal at the federal level, but in 2018 the Supreme Court overturned that law. That means you no longer have to travel to Las Vegas to bet legally on sports, but can do so from the comfort of your own home — if your state law permits it. As of this writing, 30 states and Washington D.C. legally allow sports betting, with more in the process of getting it approved.
Can You Write Off Losses?
It is possible to write off losses, which offset taxes owed on your winnings from sports betting. However, you can only do so if you choose to itemize your deductions. And, you can only deduct losses up to the amount you’ve won.
For the typical sports bettor, though, it’s better to take the standard deduction rather than itemizing. Not only is taking the standard deduction simpler, but the Tax Cuts and Jobs Act of 2017 (TCJA) increased the standard deduction to $12,000 for single filers and to $24,000 for those married filing jointly. Thus, unless you have significant losses to write off, it is most likely better to take the standard deduction.
The one exception is for professional sports bettors, who can write off losses without having to itemize. Professionals can write off their losses on the Schedule C form.
What if Gambling’s Illegal in Your State?
You might be hesitant to report sports betting activity on your tax return, especially if you live in a state where sports betting is not currently legal. However, the IRS still expects you to report your winnings as income — even if you live in a state where sports betting is not permitted.
After all, you’re also expected to report bribes, stolen property and other more illicit activity on your return. Sports betting is no longer illegal from the perspective of the IRS, though; it simply wants its slice of the pie.
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The Bottom Line
Winnings on sports betting is considered taxable income from the perspective of the IRS. You are expected to report those winnings on your income tax return, no matter how big or small they may be. Even if you live in a state where sports betting is currently illegal, you’re still expected to report your winnings.
If you do have winnings, be sure to file them with the relevant tax form — usually a W2-G or 1099-MISC. You can also deduct losses, but only if you itemize. In most cases however, it’s usually better to take the standard deduction, which now is $12,000 for single filers and $24,000 for joint filers.
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