How Are Gambling and Sports Betting Winnings Taxed?
With the rise of legalized sports betting apps and the ever-present allure of the casino floor, more taxpayers than ever are finding themselves with gambling winnings. But a big win can quickly become a headache if you don’t understand how the IRS views that income.
In a special March Madness edition of “5 on Fridays,” Managing Attorney Mark Milton outlines the five essential rules you need to know about gambling and your taxes.
1. All Gambling Income is Taxable
The golden rule of gambling taxes is simple: if you win, the IRS expects you to report it. Whether you hit a jackpot at a physical casino and receive a W-2G, or you win a large daily fantasy payout on DraftKings and receive a 1099, that income must be reported on your tax return.
2. Losses Are Deductible (If You Itemize)
The good news is that you can deduct your gambling losses to offset your winnings. However, there is a significant catch: you can only deduct these losses if you choose to itemize your deductions. Since the standard deduction was significantly increased a few years ago, many taxpayers no longer itemize. If you take the standard deduction, you cannot write off your gambling losses, meaning you could be taxed on your gross winnings.
3. Keep Detailed Win-Loss Records
If you plan to deduct your losses, the IRS requires proof. It is critical to maintain detailed records. If you gamble online, your platform will provide a win-loss statement. If you gamble at a casino, always use a player’s card so you can request a formal win-loss record from the establishment to substantiate your deductions.
4. Professional Gambler Status
For a select few who gamble as their primary source of income and treat it as a legitimate business, the IRS may classify you as a “professional gambler.” This allows you to report income and losses on a Schedule C, which is treated differently than a casual gambler’s return. This is determined on a case-by-case basis and requires consultation with a tax professional.
5. Verify Your Tax Withholdings
When you hit a substantial payout, the casino or betting platform will often withhold state and federal taxes before handing you the cash. It is vital to review your W-2G or 1099 to ensure you are receiving credit for the taxes that have already been paid when you file your return.
Don’t Gamble with Your Taxes
Gambling and sports betting can create complex tax scenarios, especially if you have high volume or large payouts. If you are unsure how to properly report your winnings and losses, the team at Milton Law Group is here to help.
Schedule a consultation with our tax attorneys today to ensure your return is accurate and compliant.