Taxes on Sports Betting Winnings

*We are not tax experts and this article should not be construed as tax advice. Always seek the help of a professional for tax-related questions.

Many people participate in sports betting in one way or another each year, even if they only place a wager on a single event like the Super Bowl. Casual bettors who might only visit a sportsbook once or twice a year are often unaware that sports betting winnings can be sent in as taxable income. Of the ones who do know, many of them do not meet the requirements or simply choose to ignore the law.

What Gets Tracked and Reported?

You can walk into just about any of the sportsbooks in Nevada, place a wager of $50 or $5,000 on a game, win and cash in your ticket – all without providing the sportsbook with any of your personal information. On top of this, all wagers and winnings are transacted using cash, so nobody would know that you even placed a bet (never mind won it).

For those reasons, most live sports betting winnings go unnoticed and some people don’t report their winnings to the government. A lot of sports bettors feel that the IRS simply doesn’t have time to try and hunt down every last penny that ends up in somebody’s pocket.

What is Considered Taxable Income?

Winnings from sports wagers are considered to be taxable income if you win $600 or more and the win was 300 times more than the amount wagered. If this happens, then taxes should be automatically withheld by whoever you placed the bet with. Since the odds must be 300-1 or better this is primarily applied only to winning lotteries, sweepstakes, and other places that allow small wagers like the racetrack.

The sportsbooks do not automatically hand you a form every time you clear yourself $600 on a game because very few bets pay at least 300-1 and they have no idea know how much you may already be down that day. The same goes for table games like blackjack, craps, all games that involve spinning a wheel, etc. The results are not tracked, which means paying the taxes is your responsibility.

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If you are cashing in a huge sports betting ticket, some prefer to be paid in chips instead of cash. If you are not a local to the casino you won at and have to fly with a ton of cash, the casino can fill out a form for you called a CTR explaining how you got the money but you are not required to pay taxes right then and there.

Most of the time, people lose on sports betting anyway, so hardly anybody has to think about this. Of the few that do win, a lot of them probably aren’t winning very much which makes it very easy for them to keep going without reporting. The question is: if you are pulling in big figures from sports betting, what should you do with the money?

You can put it in the bank, but if you have a job that you pay taxes on, you may have some difficulty explaining to the IRS where you came up with, say an extra $50,000 that you gradually put away that year. Some bettors keep the cash somewhere off the books so there is no paper trail, but there are obvious inherent risks with that as well.

Where is Sports Betting Legal?

In 1992 the Professional and Amateur Sports Protection Act (PASPA) was passed. It pertained to betting on sports in the United States, and banned it in all states except Nevada, Delaware, Montana, and Oregon. Oregon and Montana are not currently active in handling sports wagering.

Nevada, far and away the most flexible state to bet sports on allows you to bet on all kinds of things on all kinds of sports. Delaware is looking to expand its sports betting privileges but for the time being only allows parlay bets on NFL games.

Online sports betting is considered illegal. Since the sites are based offshore this ends up being the loophole. If you earn winnings from an online site you are still required to report it as income, even if they are obtained illegally and/or from another country. If you aren’t a professional gambler, you will want to claim these winnings as “other income”.

Writing off Losses

People are allowed to gamble with the purpose of making a living off their profits and claim that on their taxes. If you claim to be a poker player and won $50,000 that year but lost $10,000 along the way on betting sports, the wise thing to do would be to keep all your losing tickets. This will prove you made the bets and lost the money, enabling you to deduct it from your taxable income.

If someone mistakenly loses a winning ticket and you find it before they have a chance to explore any possible recovery options, it’s the same as finding money on the floor. You can cash it in. The only exception to this is if the bet was tracked on the bettor’s player’s card which is something anyone can get with an ID. The player’s card is scanned once you make the bet assigning an identity to what bet you made and when. This is the only way you can have casino sportsbooks track your action and have a record of your winnings.

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Deducting losses for non-professional gamblers are not very satisfying for a couple of reasons. First, your losses are only deductible as “other miscellaneous itemized deductions”. In other words, if your deductions are not greater than the standard deduction, you will not receive any tax breaks for it.

In addition, you can only deduct as many losses as you have won. If you have $25,000 in winnings and $100,000 in losses, you can only deduct $25,000 giving you a net sports betting income of $0, not -$75,000. This is why it’s important to diligently track everything you won and lost including details of time and place. Losses are easy to prove since you can keep the ticket but if you win the sportsbook keeps it. The best thing to do is write everything down in a journal. Wins or losses.

*We are not tax experts and this article should not be construed as tax advice. Always seek the help of a professional for tax-related questions.