Tax Considerations for Sports Bettors & Gamblers

As the digital landscape of gambling continues to expand with the legalization of online sports betting in more states, both seasoned bettors and novices are navigating the complex world, whether they owe taxes on their gambling winnings. With the recent exciting finish of the 2024 Super Bowl, many are turning their attention to how they can manage any taxes that might be owed on their gambling winnings, whether they were placing bets from the comfort of their home or experiencing the thrill of Las Vegas casinos firsthand.

The Internal Revenue Service (IRS) has established clear guidelines on gambling income. Essentially, any proceeds from successful bets are considered taxable income, mirroring the treatment of paychecks or investment gains. This means that whether your winnings come from a dramatic Super Bowl wager or a lucky streak at the slot machines, they might be reported to the IRS.

Is Every Gambling Win Subject to Taxes?
It’s important to understand that not every gambling win scenario is covered by these requirements. However, even if your winnings fall below certain thresholds, all gambling income must be reported for tax purposes. Receiving a W-2G form only means that the IRS has already been informed about the winnings reported by the casino or sportsbook.

Understanding Form W-2G
Both brick-and-mortar and online gambling establishments, such as FanDuel, DraftKings, Caesars Sportsbook issue a document to both you and the IRS detailing your taxable winnings, known as Form W-2G. This form provides a summary of your gambling earnings and any taxes withheld based on the tax information you provided to the venue.

The IRS mandates that gambling entities report certain winnings that surpass specific amounts. You’re likely to receive Form W-2G if your earnings include:

• $1,200 or more from bingo or slot machines,
• At least $1,500 from keno,
• More than $5,000 from a poker tournament, or
• $600 or more from other betting activities, like sports betting.
• These organizations are required to dispatch Form W-2G to you by January 31st following the year of your win.

Considerations for Deducting Gambling Losses
Deducting gambling losses from your tax return is possible, though it comes with certain limitations. Firstly, the total amount of losses you can claim is capped at the total amount of gambling winnings you report. This means if your losses exceed your winnings, you cannot claim the excess.

Moreover, claiming these losses is contingent on itemizing your deductions, a choice not all taxpayers make. Many opt for the standard deduction, which simplifies the tax filing process but excludes the possibility of deducting gambling losses. For the tax year 2023 (filed in 2024), the standard deduction amounts are $13,850 for single filers and those married filing separately, $27,700 for married couples filing jointly, and $20,800 for heads of household. Your total itemized deductions, including gambling losses, need to surpass these amounts to make itemizing beneficial.

Professional gamblers, whose primary income comes from gambling, face different considerations. They have greater leeway in deducting losses but must adopt a tax strategy distinct from that of recreational gamblers. This approach allows for a broader range of deductions but may not be applicable to those who gamble casually.

Reporting Gambling Losses on Your Tax Return
When it comes to reporting gambling losses on your taxes, a critical aspect is the maintenance of detailed records. Although gambling establishments may provide documentation of your wins, they typically do not furnish details regarding your losses. You also won’t be able to deduct more than the amount you won in gaming revenue.

The IRS stipulates that individuals should maintain a detailed log or similar record of their gambling activities, capturing both wins and losses. This record should be supported by receipts, tickets, statements, or any other documents that accurately reflect the financial outcomes of your gambling endeavors.

Maintaining rigorous records is beneficial not only for tax purposes but also as a general practice. With comprehensive documentation, you can reconcile your records with any statements received from gambling venues, ensuring accuracy in your tax filings.

State Taxes & Gambling
With sports betting legalized in 38 states plus the District of Columbia, it is important to note that the tax treatment of your gambling winnings can differ significantly depending on both your residence state and the location where the betting activity occurred. Generally, your primary state of residence is where you’ll report and potentially pay taxes on gambling earnings. However, the tax rates, as well as the reporting obligations, are not uniform across the country; they can vary greatly from one state to another, and local taxes may also apply in certain areas.

One last thing to note – if you have a dependent child, such as a college student, who is gambling, you need to consider the possible tax consequences. According to the IRS, the child typically must file a tax return, since the winnings can’t be reported on the parent’s return. In addition, the child’s standard deduction may be limited, and there’s no IRS guidelines on whether “Kiddie Tax’ applies to gambling winnings. For more information or questions you may have, please reach out to your LMC professional.