[ad_1]
Alert to sports bettors: Beware of the taxman.
If you placed bets through betting operators like DraftKings
DKNG,
Penn National Gaming
PENN,
and Caesars
CZR,
in 2021, you may have to pay taxes.
Here’s what you need to know about legalized sports betting and taxes:
Do you have to pay taxes on sports bets?
Sports betting winnings are considered income. You must report your sports betting income just as you must also report yearly wages. These winnings may be subject to federal and state taxes.
Reporting betting income is the sole responsibility of the taxpayer, and only winnings of $600 or more will trigger the sports betting company you bet with to send you a 1099-MIS form.
“Gambling winnings are fully taxable and you must report the income on your tax return,” according to the IRS. “Gambling income includes but isn’t limited to winnings from lotteries, raffles, horse races, and casinos.”
Whether you’re a professional bettor who makes all of his income betting on the NFL, or somebody who bets once a month on NBA games, all winnings must be reported. But as we spell out below, the federal government will only tax your winnings above $600.
How does it work?
Taxpayers can only deduct losses up to the amount of their winnings under the “gambling-loss deduction” of the federal tax code. Therefore, after your loss deductions are made, the remaining winnings will be taxed.
For example, if a bettor had $10,000 in sports betting winnings in 2021, and $8,000 in losses, he could deduct the $8,000 of losses if he itemized his tax deductions, leaving $2,000 in taxable net income from sports betting. A more detailed look at itemized deductions vs standard deductions can be found here.
You’re not being taxed based on each bet, but on the aggregate for the tax year.
Additionally, bettors may not use gambling losses to lower their overall taxable income as it relates to non-gambling activities.
See also: Who is the richest person in the world? Jeff Bezos no longer has the top spot
How much do I have to pay the IRS?
Sports betting winnings of over $600 (or if the amount is 300 times the original bet) are subject to a 24% withholding rate tax. Those taxes can come either at the time the winnings are paid out in the form of withholding from the casinos or sportsbooks, or when you file your taxes.
According to the IRS, this includes non-cash winnings and prizes based on their value.
“Fair market value of prizes, such as cars and trips” must be reported as income, and then the amount of taxes can be determined, according to the IRS website.
The 24% rate applies to both cash and non-cash winnings.
What if my winnings are lower than $600 — do I still have to report it?
Yes, all income must be reported to the IRS — even if it falls beneath that threshold.
“You must report all gambling winnings as Other Income,” according to the IRS. There is an “other income” section of the 1040 form.
While you still have to report sports betting winnings that $600 threshold, you will not be subject to federal taxes on that money, several tax experts confirmed to MarketWatch. While that money may not be taxed by the federal government, you may be subject to some state taxes.
What about state taxes?
In addition to paying federal taxes, some state governments tax sports betting income as well. Each state has its own distinct tax formulas for gambling and sports betting income.
For example, New Jersey has a 3% withholding tax on gambling winnings as the state considers it taxable income, while Nevada has no tax on winnings because there is no income tax in Nevada.
The state tax rate is determined by which state the bet was executed in, not the state where the bettor lives. Some states have alternative taxes for residents and non-residents for sports betting income.
What happens if I don’t report my sports betting winnings?
Failing to report taxable income like sports betting winnings may lead to penalties.
“The late payment penalty is 0.5% of the tax owed after the due date, for each month or part of a month the tax remains unpaid, up to 25%,” according to this IRS website.
Moreover, “any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.”
When is this year’s tax deadline?
The deadline to submit 2021 tax returns is Monday, April 18, 2022. According to the IRS, taxpayers in Maine and Massachusetts have until April 19 to file their returns due to the Patriots’ Day holiday.
[ad_2]
Source link
