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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 you pay on your sports betting winnings may vary from 0% to 37% depending on the amount of other income that you have, your filing status, and several other factors on your tax 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 to that 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 Rocket Lawyer network attorney 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 due on or around April 15 each year. The sports betting winnings are taxed like other ordinary income, so it is important to tell your tax professional about both your winnings and losses.

Most taxpayers can only deduct their sports betting losses to the extent of their sports betting and gambling winnings. For example, if you have $10,000 of winnings and $5,000 of losses, you can deduct $5,000 of losses. However, if you have $5,000 of winnings and $10,000 of losses, you can only deduct $5,000 of losses. 

In addition to the limitation on how much you can deduct, you can only deduct your sports betting losses if you itemize your 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 of your tax return, assessment of penalties and interest, and even criminal charges in the most severe cases. When a sportsbook or gambling company sends you a tax form, it also sends a tax form to the IRS. If you do not include that tax 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 all income that is earned in their state, 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 state of residency is likely to offer a credit or deduction for the taxes that you paid to the state where you are a nonresident, which allows you to avoid paying taxes on the winnings to two states. 

The rules vary from state to state though 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, the first thing to do is to verify that the amount of winnings is correct. Occasionally, the tax form that you receive may report an incorrect amount of winnings. If that happens, contact the sportsbook or gambling company and request a corrected tax form with the appropriate amount of winnings. After confirming that the winnings are correct, be sure to give the tax form to your tax professional.

If you need tax help, get matched with a tax pro via Rocket Tax™ to save time and money filling your tax returns.

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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