11.8 C
London
Wednesday, February 21, 2024
More
    HomeSuccessStartupsBetting on the Super Bowl? 'You gotta pay the piper' in your...

    Betting on the Super Bowl? ‘You gotta pay the piper’ in your winnings, says tax expert

    Should you’re betting on the Super Bowl on Sunday, think twice about your plans for the winnings.

    Nearly half of it could possibly be owed as taxes, which could put you in a troublesome spot should you spend all of it ahead of filing your 2024 tax return.

    All gambling winnings are considered taxable income by the Internal Revenue Service, even should you aren’t knowledgeable gambler.

    “Win big? You gotta pay the piper,” Romeo Razi, a licensed public accountant based in Las Vegas, tells CNBC Make It.

    You will probably owe state taxes, too, as most U.S. states levy taxes on money made through gambling. Take a look at your state’s department of revenue website for more information.

    To aid you navigate the tax implications of gambling, here’s take a look at how your winnings are reported to the IRS, in addition to how gambling losses are deducted. Knowing the facts ahead of time could aid you avoid a nasty surprise while you file your 2024 tax return.

    You’re liable for tracking your winnings and losses

    Should you win $600 or more using gambling web sites or apps, the seller will likely send you a W-2G tax form, which is a record of your earnings. Importantly, they send the shape to the IRS, too, which suggests they will not miss it, either.  

    If the winnings are $5,000 or greater, the business that processed your bet might withhold as much as 31% of the proceeds for federal income tax, in line with the IRS. This might be indicated in Box 4 of your W-2G.

    That said, firms don’t at all times send those forms. And it doesn’t really matter, in a way, because you’re liable for tracking all your gambling income, whether you receive a form or not.

    The IRS recommends keeping “an accurate diary or similar record of your gambling winnings and losses,” in addition to receipts, tickets, statements or other records to support your claims. Fortunately, many popular gambling web sites and apps have a downloadable record of your transactions.

    The best way to report your winnings and losses

    Your gambling winnings and losses are reported individually in your tax return. Although the IRS is vague on this, the winnings you claim as income include the price of gambling, or the unique wager or bet, says Razi, a former revenue agent on the IRS.

    After all, you didn’t “win” your wager, however it’s included as gross winnings because that is the way it’s reported on the W-2G forms, he says. 

    The quantity is added as “gambling income” on line 8 of your Form 1040, Schedule 1, which is used to report forms of income not listed on the first 1040 tax form. That total is then added to Form 1040 line 8. Should you use tax software, these forms might be filled out routinely based in your answers to a questionnaire.

    As for gambling losses, you possibly can deduct them as an itemized deduction, although they can not exceed the winnings you report as income. The explanation for that “is to forestall tax filers from offsetting other income with gambling losses,” says Razi.

    You too can include the initial wager of a bet. “Your wager is like your cost of service, or your loss. And that goes on the itemized deductions,” he says.

    To provide an example of how this is able to work, “for instance you bet $1,000 and also you get $3,000 back,” says Razi. You’ll report the $3,000 and have a bet lack of $1,000 as an itemized deduction, he says.

    Why you most likely won’t actually claim gambling losses as a deduction

    The one technique to claim your gambling losses is to itemize your deductions, which most taxpayers don’t do. 

    That is because the usual deduction for 2024 is a hefty $14,600 for single filers and $29,200 for those married filing jointly. This typically exceeds the quantity that the majority people can deduct as itemized expenses, so it doesn’t make plenty of sense for many filers.

    In any case, the goal with deductions is to reduce your overall tax liability, or the quantity that you just owe in taxes.

    What happens should you don’t report your gambling winnings

    By not reporting all of your gambling winnings, you are violating the law. The IRS can uncover discrepancies by comparing your income with the W-2G forms they receive or by examining your bank deposit activity.

    A 20% penalty could be applied if the whole underreported amount is greater than $5,000 or 10% of your actual tax liability — whichever is larger. For larger sums, you risk jail time.

    More casual gambling that does not involve W-2G forms, like fantasy football pools between friends, are less noticed by the IRS. But large money deposits between friends can still trigger an audit from the IRS. For that reason, it is best to report the whole lot.

    RELATED ARTICLES

    LEAVE A REPLY

    Please enter your comment!
    Please enter your name here

    Most Popular

    Recent Comments