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Welcome to a new day — a day that sports betting fans will remember for the rest of their lives.
On May 14, 2018, the Supreme Court struck down a federal law that effectively banned commercial sports betting in most all states. As a result of overturning PASPA, each state is allowed to authorize wagering on sports. One day soon you may be able to bet that the fifth pitch in the fifth inning of a baseball game will be a strike.
You can also bet that the money you win by betting sports is considered taxable income according to the IRS.
Here’s what you need to know about sports betting taxes in 2018.
An overview of taxable sports betting income
First off, gambling income is almost always taxable income. According to the IRS, gambling winners must report all of their winnings – including cash and the fair market value of any item won, such as a raffle item — on their federal income tax returns.
Casinos, as the payer of winnings, are required to withhold federal taxes from winnings above $5,000. New as part of the 2018 tax reform, that withholding rate is 24 percent, down from 25 percent in 2017. Depending on the total of your winnings, you may receive one or more Forms W-2G which reports the amount you won, including any tax withheld. All winnings reported on Form W-2G should be reported as other income on Form 1040, unless gambling is your trade or business.
Click here to get more details on Forms W-2G and 5754 for 2018.
Double down on deductions
The good news here is that you may deduct gambling losses if you plan on itemizing your deductions. But it’s also worthy to note that as part of tax reform, the standard deduction nearly doubled for all taxpayers. That means it’s likely that fewer taxpayers will have enough deductions to make itemizing an attractive option. According to tax law, you can only deduct your losses up to the amount of your total winnings. For example, if you won $2,000 on sports betting over the last year, you may only deduct $2,000 in losses if applicable. The same goes for any form of gambling.
If you plan on itemizing and deducting your losses, you must keep an accurate, detailed record of your wins and losses. You also need to provide sports betting tickets, receipts, or other statements that show the total of your winnings and losses. Your “sports betting diary,” so to speak, needs to include items such as dates, the type of gambling activity, the establishment at which the bet was placed, and dollar amounts.
For any avid sports bettor, it’s crucial to plan accordingly.
Professional gamblers: tax reform is here
If you pursue gambling regularly with the intention of making a profit, you are considered self-employed for tax purposes.
Under the new Tax Cuts and Jobs Act, those in the trade or business of gambling may no longer deduct non-wagering expenses, such as travel expenses or fees, to the extent those expenses exceed gambling income. Gambling losses include the actual wager and associated costs. Rather than claiming your winnings on sports betting as “other income,” you need to file a Schedule C to report self-employment income. You can also deduct any costs of doing business on Schedule C as long as it’s not more than your income. This new rule went into effect on Jan. 1, 2018.
Examples of deductions for a professional sports gambler include online or magazine subscriptions to insider content, a portion of your monthly internet costs (if you wager online), and travel expenses if you wager in-person at a casino. If you are a pro, then your gambling income is considered regular earned income and is taxed at your marginal income tax rate.
Keep in mind that TaxAct makes it simple for you to itemize and fill out the right tax forms to help ensure you maximize your deductions for the year.
Disclaimer: As a reminder, gambling addictions are a serious problem that need to be addressed as soon as possible. If you or someone you know has issues with gambling, please call 1-800-BETS OFF or seek help immediately.