The NFL season is upon us again, and a record high of 45.2 million Americans plan to place bets on this season’s results. If you are among them, it’s important to know what it means if you win — in other words, how much you’ll owe the IRS.
All income is taxable, and sports bet winnings are deemed as generating income. Yes, even winning your friend group’s fantasy football league is considered taxable income, so we want to make sure you have a game plan.
How much will I be taxed?
If you win $600 or more through a regulated channel (such as DraftKings) and the amount is 300 times the original bet, the payor is required to withhold 24% of your winnings for the IRS. If you go through an unregulated channel, you are still expected to report winnings on your federal and state tax returns — even if they amount to less than $600.
Any winnings valued under $600 will not be subject to federal taxes, but still must be reported to the IRS.
Gambling loss deductions
You are able to deduct losses on your federal tax return up to the extent of your winnings. If you win $10,000 but lose $5,000, you are able to deduct that $5,000 in losses. However, if your losses are greater than your gains, you can only deduct losses up to the amount you won. For example, if you lose $5,000 but you win $1,000, you can only deduct $1,000 in losses.
In order to deduct your losses, you must itemize your income tax deductions on Schedule A. But unless you struck gold on your bets, you might be better off taking the standard deduction as it is oftentimes a larger amount (dependent on your specific situation).
If you do win a substantial amount of money and plan to itemize, you should consult a tax advisor to ensure you don’t overlook any key details or strategies that might help lessen your tax liability. Keep in mind, losing money on sports betting does not simply reduce your tax bill. Only after you report your winnings do loss deductions become available as an opportunity to lessen the tax on your winnings.
Sports betting can be exciting and has many people jazzed up about the 2021 NFL season. So, if you’re a big fantasy footballer or you bet in the casinos, just remember that you must report all winnings on your income tax returns. At Wych Tax, we can help you with reporting, itemizing, or simply answer any questions you may have. Visit our website or call us at 970-223-0792 to get in touch.
