Sports Betting Taxes – Guide To Online Gambling Taxes
Taxes And Online Sports Betting In The United States
This article will cover taxes on gambling in the United States for U.S. citizens. We touch on this subject a bit here, but for the most part, this article is about the legality of betting sports online (spoiler alert: in most states, it’s perfectly legal).
Paying taxes on any gambling winnings is completely normal, and the IRS will view it as such. Our guide below will help you learn about the different ways that your winnings can get taxed and other information that will help as you gamble. For information on sports betting taxes in other countries, head over to our page on international sports betting.
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Taxes On Gambling Winnings – You Have To Pay
Let’s get right to the chase, if you’re doing any kind of sports gambling, online or offline the IRS wants to know about it. You’re not always going to have to fill out a form like you do when you hit a jackpot in a casino, but they do want to report your gambling activity on your taxes.
Whether you’re a professional gambler or just an amateur, anytime you win money, the IRS considers those sports gambling earnings as taxable income. Unlucky for those living in the States with an appetite for betting, both Canada and the United Kingdom don’t tax gambling winnings at all. Whether you win big on NFL Sundays on the point spread, play poker, or simply gamble it up at the craps table, you’re expected to report the amount won on your tax return. Losses also factor into how much in taxes you will pay, but these are reported on a separate form.
Unless you’re filing as a professional gambler. Professional gamblers can net their net their wins and losses for the year. However, the vast majority of gamblers and will be filing as recreational gamblers. Most will be putting their gambling wins on the “Other Income” spot, which is line 21 on their taxes. Their losses must be reported as an itemized deduction on Schedule A.
All Online Gambling Is Taxable
It’s worth hammering this point home, even with the explanation that given above. Even if you gamble online, and the site is located in another country, you still have to pay taxes on it. Internet gambling is unregulated in most parts of the country, but taxes are still due on what the government deems as illegal income. Just because you didn’t receive a W-2G form, doesn’t mean your winnings aren’t taxable.
One particular tax myth that is important when it comes to online sports betting is that winnings aren’t taxable if you haven’t withdrawn from an online sportsbook. According to IRS tax law, it doesn’t matter where the money is won, and for it to be taxable, it doesn’t need to be repatriated. In other words, if you win your wager at an online sportsbook, with a local bookie, or in another country, you have gambling income. That income is required to be reported. When the wager is won, it counts as income. It’s still income even if it doesn’t hit your bank account or you haven’t received it.
Holding Funds In An Offshore Account
Many CPAs have advised that if you’re holding funds in an offshore account in an online gambling site, that the money is not yet taxable. The IRS has stated in other cases that citizens “…are taxed on income that is available to you, regardless of whether or not it is in your possession.”
It’s hard to argue that the funds in a sports betting account aren’t “available to you.” You can continue to make bets with the money and earn more profits. The IRS won’t likely be on your side on this issue. The agency’s view of offshore gambling and financials isn’t exactly in a positive light, and they may view it as tax avoidance. There hasn’t been a landmark case when it comes to this subject and online sports betting. A case like this would likely end up in tax court, where it’s highly doubtful you will come out victorious.
It’s unlikely they would seek jail time and the fines might not be too bad, but it’s simply going to be an uphill battle trying to convince the Tax Court that the funds were not available to you. Most likely, it’s going to cost you extra time and money, and you’re probably not going to win.
Online Sports Betting Taxes – Record Keeping
Few gamblers know this, but the Tax Code requires filers to record their wins and losses by session. It’s debatable what this truly means, depending on the form of gambling, but the IRS requires you to keep track of “sessions.”
A night at the blackjack table is a session. Same with a night at the poker table, if you get up and leave for a few hours that might constituent a new session as well. With sports betting, it’s a bit different. Since you’re not sitting down for a particular time at a casino and playing poker or casino games, you’re not participating in what would be called a gambling session.
That doesn’t mean you don’t have to keep records, however. When it comes to sports betting you’re going to have to document your results, including the amount you won or lost, when you placed the bet and the amount you wagered. The biggest thing to remember here is that you must account for both your winning and losing wagers, but you can’t report a net amount on your tax return. The net amount being the amount you profited or lost from your gambling wagers or activity. You will need to calculate your winnings and losses separate, with both numbers going in different spots on your tax form.
Online Sportsbook Winnings Record Keeping
Let’s say that you won $15,000 betting sports in a particular year. The amount you won would be reported on the “Other Income” line on your tax forms. However, you also can report $10,000 in losses. The losses are reported as an itemized deduction, which is reported under Schedule A. Even though you had a net profit of $5,000, this isn’t how you report recreational gambling winnings to the IRS. It’s important to record your wins and losses in the appropriate sections and not to record your net profits in the “Other Income” line.
You may not think that there is much of a difference between this and putting down the net result, but that is a major mistake. If you don’t itemize your deductions, you won’t be able to count your gambling losses. Many items on your return are also tied Adjusted Gross Income (AGI). Gambling income or losses increase your AGI. This can limit your deductions in other areas, like when it comes to medical expenses or other itemized deductions.
Betting Tax – Filing As A Professional Sports Bettor?
To do that, you’re going to need to prove that your gambling is pursued full time and with regularity and that your income from gambling is your livelihood and is not a mere hobby. Basically, you’re going to have to prove that your gambling is a legitimate business. That means, just like any other business owner, you can have a losing year.
When you file as a professional gambling on the Schedule C form, you are able to net your wins and losses. As a professional, you may also deduct expenses. This can include traveling to poker tournaments, a computer if it’s mostly used for gambling, and training, such as books and coaching. Bear in mind, however, that if you file a professional, you will be subject to self-employment tax. Your employer would normally cover that tax (Social Security and Medicare). It’s fairly significant. It is 15.13% on the first $118,500 of income and 2.9% after that threshold.
In some cases, it is cheaper for those paying taxes on gambling to file as an amateur, rather than a professional. We highly advise that anyone debating filing as a professional gambler seeks out advice from a tax professional. When you’re self-employed, you’re also required to make quarterly tax payments, or you will face a penalty from the IRS. These can be made under Form 1040-ES, Estimated Tax for Individuals. There are four payment due dates for every three months of the year. Those who are self-employed are still required to file out a yearly tax form, in addition to making quarterly payments.
State Taxes For Online Sportsbook Winnings
If you live in Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming, you won’t pay any state incomes taxes. If you live in New Hampshire and Tennessee, you’re also in luck, because you only have to pay taxes on dividends and income from investments. Unfortunately, every state that has a state income tax taxes any income earned from gambling. You’re going to need to report your gambling income your state tax return each year as well as your IRS return.
Will The IRS Know If I Don’t Pay Tax On Online Winnings?
Chances are, they won’t. The IRS is well aware that there is unregulated gambling going in the United States, to the tune of billions of dollars every year. A large portion of this money isn’t being reported and therefore isn’t taxed. IRS regulations state that all gambling is taxable, but they’re not really expecting a recreational gambler who has one big night at the blackjack table or poker room to report that income.
However, when you become a +EV bettor and start making serious money, you can bet that they want their cut. If you’re being paid by a bank wire or check, all of that will easily be viewed if you’re ever audited. Even if you hold the funds in sports betting account or a bitcoin wallet, you’re going to have to cash them out eventually. If you become a truly successful sports bettor, the consequences of not reporting your income can be pretty disastrous. Ultimately, it’s your decision, but the penalties may be far worse than trying to save some money on your return.
Fraudulent Tax Return – Warning
Filing a fraudulent return can result in heavy fines, up to $250,00 for an individual or $500,000 for a corporation. There’s also the threat of criminal prosecution and prison up to 3 years. Even for lower dollar amounts, fines can be as much as $5,000 and 100% of the amount of unpaid tax owed.
If you become a highly successful sports bettor, it’s simply not worth throwing away your profits and potentially your freedom over not paying taxes. It’s sad that the government has done so much to attack both sports betting and online gambling over the years that we’re forced to subsidize their actions, (which make it harder for us to bet) but we still have to pay taxes on our winnings. The consequences of not paying and getting caught is one gamble that we suggest bettors don’t make.
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