Am I required to pay taxes on my sports betting winnings?
Sports betting winnings are taxable income, which means they are taxed like other ordinary income on your tax return. The tax rate that applies to your sports betting winnings depends on your total income, filing status, and other factors on your return. Essentially, the winnings are taxed at the same rate that additional wages would have been taxed. Whether you are playing in a fantasy sports league or placing bets on sports games, winnings are taxed the same way.
It is best practice to keep records of all your sports betting activity. It is especially important to keep records if you are deducting sports betting losses on your tax return. You may need to provide documentation of your losses if your tax return is audited.
People sometimes ask if they are required to report their sports betting winnings if gambling on sports is illegal in their state. The answer is yes — even if the activity is illegal, you are still required to report the income from that activity. If you need to report income from illegal gambling activities, consider contacting a Legal Pro first to determine the best way to report that income.
How do I report my sports betting winnings and losses on my tax return?
Most taxpayers report their sports betting winnings and losses on their Form 1040 individual income tax return, which is generally due each year in mid-April. The sports betting winnings are taxed like other ordinary income, so it’s important to include both your winnings and losses on your return.
You can only deduct sports betting losses up to the amount of your sports betting and gambling winnings. For example, if you have $10,000 in winnings and $5,000 in losses, you can deduct $5,000 of losses. However, if you have $5,000 in winnings and $10,000 in losses, you can still only deduct $5,000.
In addition, you can only deduct your sports betting losses if you itemize deductions. Taxpayers who take the standard deduction are generally unable to deduct their sports betting losses. If you are a professional gambler, special rules may apply to you. A tax professional can assist you with determining if you qualify as a professional gambler and can explain how taxes work for your winnings and losses.
What happens if I forget to report my sports betting winnings on my taxes?
Failing to report your sports betting winnings could result in an audit, assessment of penalties and interest, and in severe cases, criminal charges. When a sportsbook or gambling company sends you a tax form, it also sends a copy to the IRS. If you do not include that form on your return, the IRS is likely to take notice.
Even if you do not receive a tax form from the sportsbook or gambling company, you are still required to report your winnings on your tax return.
If I bet on sports in multiple states, how do I handle taxes on my winnings?
Generally, most states tax income that is earned within their borders, even if you are not a resident of that state. You are usually also required to report your sports betting winnings on the tax return for your state of residency.
Your home state may offer a credit or deduction for taxes paid to another state where you earned the income, which helps prevent double taxation. The rules vary from state to state, so it is advisable to check with your tax professional to ensure that you are reporting your out-of-state winnings correctly. Also, some states may not allow a taxpayer to deduct gambling losses to offset gambling winnings.
What do I do if I receive a tax form from a sportsbook or gambling company?
If you receive a tax form from a sportsbook or gambling company, first verify that the amount of winnings listed is correct. Occasionally, a form may report an incorrect amount. If that happens, contact the sportsbook or gambling company and request a corrected tax form with the appropriate winnings.
After confirming the accuracy, include the form with your records when you prepare your tax return.
If you need help, reach out to a Legal Pro for affordable legal information.
Please note: This page offers general legal information, not but not legal advice tailored for your specific legal situation. Rocket Lawyer Incorporated isn't a law firm or a substitute for one. For further information on this topic, you can Ask a Legal Pro.
