Sports Betting And Taxes – Paying Taxes On Your Sports Betting Winnings

When it comes to sports betting and taxes, many people are left in the dark. Because the industry was underground and operating through offshore markets for an extensive part of the 21st century, there is the belief that you don’t have to start paying taxes on your sports betting winnings. This couldn’t be further from the truth, as all income no matter how big or small is to be reported to the IRS. Doing so can seem like an unnecessary obstacle and you will likely see the state or federal government collect a percentage as their cut but it is still a requirement, nonetheless.

Filing your taxes isn’t that difficult but there are still some procedures that first-time claimers might not be aware of. Use this page as a guide for sports betting and taxes. The proper channels are more widely utilized since the repeal of PASPA in 2018, but there was never a mandated report offering help for those looking to claim their legal winnings. Remember, it doesn’t matter if you made your money with an offshore legal sports betting site or with a local, state-licensed operator, winnings are winnings and the government will want a piece of the action.

Claiming Your Winnings On Sports Betting

According to the IRS, it is required by law to claim your gambling winnings on your taxes. All income is taxable, this includes gambling winnings from international sports betting sites as well. You must claim any cash winnings, prizes, winnings from lotteries, raffles, as well as any casino winnings you earned throughout the year. The IRS is not concerned with where you got your winnings from, whether that be state-sanctioned gambling or offshore gambling sites, the government wants you to claim it. Even if you are betting on sports through international sports betting sites in a state that has yet to regulate sports betting, you must still claim those winnings on your taxes.

The percentage that the government takes from your sports betting winnings are dependent on a slew of circumstances. These include how much money you make, how much income you took in through sports betting, which state you live in, how your family dynamic is, and many more. There is no set percentage that is taken from your sports betting winnings so you will not know how much you owe the government until after you file your taxes. It is important to claim your winnings on your taxes as if you do not you can be subject to fines and retroactive back taxes being demanded by the IRS.

Filling Out Tax Form 1040 For Sports Betting

Because the establishment you won your winnings from may have sent a Form W-2G to the IRS on your behalf, it is important to be responsible and claim your sports betting winnings. When this form is submitted, they explain how much you won, on what kind of wager, and how much (if any) tax they withheld (which is usually 0). This situation only happens in a few situations such as large wins but it is still best to have your own information on hand.

On Tax Form 1040, you will total your winnings from sports betting on line 21. This line is listed as “other income” and simply write in your total money won. If you live in a state with state income tax, the process will slightly differ but be of similar circumstances on your state income tax filing. States such as Alaska, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming are all exempt from state income tax.

What About My Gambling Losses?

Even if you made money overall for the year, you should still claim your losses as well. This goes on your Schedule A form under line 28 titled “other miscellaneous deductions.” You only pay taxes on your net winnings, so proving that you lost a decent amount will greatly negate a majority of the taxes if this is the case. Keep in mind you must be able to provide a detailed record of your winnings and losses but this information can help in the long run.

If you are claiming a yearly loss, your deductions cannot exceed your reported winnings. Stated in an example, if you won a $500 bet but lost $2,500 on the year, you can only claim $500 in losing wagers. In short, you cannot claim a loss for more than you won in gambling. Similarly, if you won nothing and lost $250, nothing can be deducted from your gambling efforts.

Penalties For Not Abiding By Sports Betting Tax Laws

Penalties for not abiding by sports betting tax laws are just as bad as anything else. The government will stop at nothing to receive the money they’re owed. Do not ever believe it is a good idea to try and fly under the radar when it comes to declaring your sports wager winnings. Unpaid taxes will gain in interest and if you cannot afford the price you will end up owing in the end, they have the right to garnish your wages in order to collect. It’s always best to declare this income and pay what you owe, if anything at all, right then and there. It could really come back to bite you later if you don’t and with a much steeper price tag.

Avoidance of paying these taxes is seen as a form of tax evasion. That is a felony charge. The fine for this can be as high as $100,000 depending on how many counts (times you’ve forgotten to pay taxes on your payouts), it could make that number even higher. Five years in prison is also on the table as a form of punishment. If it comes to this point, people that are found guilty will not only have to pay any back taxes owed but court costs and legal fees on top of that. And after all is said and done, they could still face considerable prison time. The takeaway? Pay your taxes because this is one gamble not worth taking.

Can I Keep My Winnings In An Offshore Account To Avoid Paying Taxes?

This is a question that many go back and forth regarding the correct way to claim your offshore sports betting winnings. While some believe that the moment you win a wager, you are required to claim it, others have the full belief that claiming winnings on your taxes from sports betting is not required until you bring the money back into the country. In reality, there is no exact answer. Different sportsbooks will have different terms and conditions that bettors must follow. Likewise, each state regulates tax law in a different manner, so what is true in one location may be the opposite in another.

Do Casinos Have To Report A Customer’s Winnings?

Casinos can withhold the taxes on your winnings should that be part of their policy. If a bettor has won more than $5,000 it is common practice for the establishment to take out the necessary taxes. After that point, they will also send their customers a W-2G form to fill out during tax season. Any sports betting earnings that go beyond $600 are expected by the IRS to be reported by the gambler when they file their taxes. While overseas gambling technically happened offshore, the IRS still wants that income reported and taxed accordingly. Should bettors fail to report their gambling earnings on their taxes, they run the risk of a future audit as well as all costs and fees to recover what was owed originally.

Reporting Offshore Sportsbook Earnings

Even if you’ve won all of your money gambling with offshore sportsbooks, the U.S. government, more specifically, the IRS wants to know about it so that you get taxed accordingly. Failure to report these funds on your tax returns could lead to future audits or inevitable payments that you thought you were free from. Most sports betting operators will send a statement to their members but it’s not their sole responsibility to do so. It’s up to the gambler to be truthful about what they’ve won through placing bets.

However, not every sports bettor needs to claim their winnings on their taxes. If you’ve won less than $600, you’re in the clear as far as reporting them is concerned. You can choose to report them but you also will not be in any trouble for not reporting them if that’s the route you take. Anything over the sum of $600 needs to be accounted for so that it can be taxed. Be sure to set aside a bit of money by the time tax season comes around, just in case at the end of filing you need to pay on your winnings. When combined with other deductions, sometimes you’re all clear as far as owing any money is concerned as it sorted itself out through other areas within your overall tax return. 

Tips For Reporting Sports Betting On Tax Returns

Winnings from gambling on sporting events are considered income by the IRS therefore making it taxable. If the yearly earnings from one platform is a sizeable amount, the operator will send the gambler Form W3-G, Certain Gambling Winnings. Using this form is completely fine if the bettor has received one. However, if they did not, their earnings should still be reported on Form 1099. From Daily Fantasy Sports (DFS), Leagues and Contests, or general sporting event wagers, anything that surpasses the $600 mark needs to be reported by the taxpayer.

Sportsbooks, where the business is done, will typically send both the player and the IRS Form 1099-MISC with all of the proper information as they are obligated to do so. Should this not happen, the taxpayer still needs to fill out Form 1099 on their own. And as always, losses can be part of an itemized list of deductions should they not exceed the amount of money earned through gambling. If it does, only deductions of the same amount in winnings can be claimed.