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Betting on sports is part of the fun for many sports fans — even if their wagering hasn’t always been technically legal.

Until a May 2018 U.S. Supreme Court decision opened the door for every state to legalize sports betting, just four states allowed wagering on sports — Nevada, Delaware, Montana and Oregon. Legality, however, hasn’t stopped Americans from betting on sports. In fact, the American Gaming Association estimates that Americans spend more than $150 billion a year on illegal sports betting.

Since the Supreme Court’s ruling, New Jersey, Pennsylvania, West Virginia, Mississippi and Rhode Island have legalized sports betting. And other states are considering laws to permit wagering on sports.

But when you gamble on sports, it won’t matter to the IRS if your winnings came from a legal bet or from one that’s off the books. Your winnings are taxable income either way.

If you plan to do some wagering in a state that’s legalized sports betting, it’s important to understand how tax on your winnings will work. Let’s take a look at how the IRS treats gambling winnings of any kind.

Sports-betting winnings are taxable income

The big question for sports gamblers: Are your winnings taxable income? As we said above, the answer is yes.

“Gambling winnings are fully taxable and you must report the income on your tax return,” the IRS says. “Gambling income includes but isn’t limited to winnings from lotteries, raffles, horse races and casinos. It includes cash winnings and the fair market value of prizes, such as cars and trips.”

Although sports betting isn’t one of the examples, it’s still covered by “gambling winnings.”

Whether sports betting is legal in the state where you place your bet doesn’t matter to the IRS. If you win, you have taxable income, which should be reported when you file your tax return.

These rules apply only to casual sports bettors. If you’re a pro — “in the trade or business of gambling,” as the IRS puts it — different rules apply.

How much tax you’ll owe depends on your personal tax situation and tax bracket.

You might also owe state income tax on any money you win from betting on sports, depending on which state you live in. For example, Nevada doesn’t have a state income tax. But Maryland does, and it considers winnings from gambling taxable income. If you win money betting on sports, check with your state to see if it taxes gambling winnings.

Form W-2G: Evidence of your sports-betting win

So you win a couple thousand bucks betting on your favorite sports team. How will the IRS know if you don’t tell it? Well, whomever you won the money from — a casino, racetrack, etc. — is supposed to report your winnings to the IRS on Form W-2G. The form tells the IRS some important information, including …

• Contact information for the payer who awarded you the winnings, including phone number, address and federal tax identification number
• Your name, address and taxpayer identification number
• How much you won
• When you won it
• What kind of wager you made
• And how much, if any, federal and state income tax the payer withheld from your winnings

Generally, the payer has to report your winnings if …

• You won $1,200 or more from a bingo game or slot machine
• You raked in $1,500 or more at keno
• Your poker victory tops $5,000
• You won $600 or more and your winnings are at least 300 times the amount of your bet (bingo, slots, keno and poker are exceptions to this rule)
• The payor withheld federal income tax on the winnings

Penalties for not reporting sports-betting income

Of course, the IRS wants you to report all your taxable income, and if you don’t you could face penalties and interest on any tax you owed but didn’t pay.

Generally, the penalty for not paying income tax that you owe is 0.5% of the unpaid tax. That rate is assessed monthly until you pay the tax you owe. Unpaid tax and penalties typically accrue interest, too — 5% compounded daily from the due date of your tax return to the date when you actually pay in full the balance of any tax, penalties and interest you owe.

However, if you’re caught intentionally omitting income — like gambling winnings — from your tax return in order to avoid paying tax on that income, it could mean additional penalties. According to the tax code, trying to “evade or defeat” tax you owe on income you’re required to report could be a felony with fines of up to $100,000 for individuals or five years in prison. Plus, people convicted of tax evasion can be held responsible for the costs of prosecution.

Lose a sports bet? It might be deductible!

Just as sports-betting winnings are considered taxable income, losses may be tax-deductible if …

• You itemize your deductions
• You keep detailed records of your winnings and losses

“To deduct your losses, you must keep an accurate diary or similar record of your gambling winnings and losses and be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses,” the IRS says.

Any losses you deduct cannot exceed winnings that you report when you file your return. For example, if you reported winnings of $5,000, you could deduct losses only up to that amount. Additional losses would not be deductible. And if you lost $5,000 but didn’t win anything, you wouldn’t be able to deduct those losses at all.

If you’re eligible to deduct your sports-betting losses — or any other gambling losses — you’ll do so on Schedule A.

Bottom line

More than a quarter of Americans like to bet on football, 21% are interested in betting on baseball or basketball, and 20% would put some money down on a hockey game, according to Nielsen Sports. If you’re a fan of sports wagering, it’s important to understand that tax on sports betting is nothing new.

The IRS has always considered gambling winnings taxable income, and it expects you to report all your taxable income — even the money you win betting on sports.

If you’ll be reporting gambling winnings on your federal income tax return, or hoping to write off some gambling losses, be sure to keep detailed records of your wagers and losses.

Christina Taylor is senior manager of tax operations for Credit Karma Tax®. She has more than a dozen years of experience in tax, accounting and business operations. Christina founded her own accounting consultancy and managed it for more than six years. She co-developed an online DIY tax-preparation product, serving as chief operating officer for seven years. She is the current treasurer of the National Association of Computerized Tax Processors and holds a bachelor’s in business administration/accounting from Baker College and an MBA from Meredith College. You can find her on LinkedIn.

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Tax Day is right around the corner, and sports wagering winnings should be part of a bettor’s annual filing.

Nathan Rigley, a lead tax research analyst at H&R Block, spoke with TheLines.com to offer advice for bettors making preparations for 2018 and beyond.

The first thing to realize is that any winnings are taxable and bettors should include it on a tax return.

“Just because a taxpayer doesn’t receive a tax form, (it) does not make the winnings tax-free,” he said. “Taxpayers still have a responsibility to report their prize on their tax return as ‘other income.’”

Don’t neglect to report it

Don’t be caught unaware. No matter the amount, gambling winnings are taxable. Those winning a substantial amount are likely to receive a tax form, and the IRS will also receive that form.

Those winnings will usually be reported via form W-2G or 1099-Misc. The IRS will then compare the information to the taxpayer’s return. Not reporting can be costly, triggering penalties and interest.

“Failing to report the prize as income is the surest way to get audited,” Rigley said.

That could certainly be uncomfortable and cause the type of scrutiny most bettors would like to avoid.

Record keeping 101

Serious bettors must not only be savvy with betting lines, but also with record keeping. The IRS advises gamblers to keep an accurate diary or record to substantiate wins and losses on a tax return.

Plan to keep track. A little extra work can pay big dividends in the long run. Rigley recommends bettors include the following in their records:

• The date and type of each wager.
• The name and location of the bet.
• The names of other people with the bettor at the betting establishment.
• The amount won or lost.

Bettors should also keep verifiable documentation of losses, which include:

• Wagering tickets
• Canceled checks
• Credit card records

Mobile wagering makes keeping track of wagers much easier. Players should have easy access to bets made throughout the year. That helps in reporting overall wagering income.

Track those wins and losses

Bettors should keep track of their winnings, but also their losses. If they won big and show a profit for the year, they can offset winnings with losses to help lower a tax burden.

Only winners can deduct losses, and the full amount of winnings and losses must be reported when filing. However, Rigley notes that gamblers may deduct losses, but only by as much as they report in winnings.

For example, suppose a taxpayer entered two betting pools: One at the office and one among friends. Both had a $10 entry fee, and the player won $100 from the office pool. The bettor should report $90 in winnings, deducting the $10 fee.

For itemizing, the entry fee from the losing pool and other gambling losses could be taken as an itemized deduction. That would be capped, however, at a maximum of the amount won being reported, in this case, $90.

Do the new tax laws have any impact?

Taxpayers will notice some changes when filing this year. The Tax Cuts and Jobs Act changed many aspects regarding itemized deductions. That includes the elimination of some deductions that were subject to a 2% floor of adjusted gross income.

“This has been impactful for many taxpayers,” Rigley said. “Luckily, the deduction for gambling losses, though a miscellaneous deduction, was not subject to this floor.”

Sports Gambling Sites Reddit

This is advantageous to gamblers. They can continue to claim gambling losses as an itemized deduction to the extent of their gambling income.

Sports betting as a full-time job

Sports Gambling Reddit

The majority of bettors may fall into the recreational or hobby group. But those who bet professionally as their sole means of earning a living have different benefits and requirements.

These bettors would need to file as a business with a Schedule C form.

Filing as a business allows deducting expenses, but also subjects them to self-employment tax and possibly quarterly estimated payments. It’s as if that bettor runs his or her business and files accordingly.

The new tax laws have had some changes on this aspect, however. Bettors can no longer deduct non-wagering business expenses in excess of net wagering income. Thus, reporting a loss as a gambler isn’t possible.

Planning for next year

The new sports betting landscape has brought many more into the wagering ecosystem. Players new to betting may want to start planning for filing their 2019 taxes.

Rigley strongly advises maintaining detailed gambling records.

“The foundation of any tax return is one’s records,” he said. “In order to ensure the best outcome on the tax return, you have to make sure you can back up anything reported on your return, including the reporting of inherently personal activities like gambling.”

Sports Gambling Addiction Reddit

And if you do make a nice score, Rigley suggests making that first check to the tax man.

Set aside an estimated payment on taxes you’ll owe on those winnings.

Sports Betting Reddit Hockey

“This is essentially a deposit toward your tax liability,” he said. “The reason we suggest this is that it helps to avoid any underpayment penalties for failing to deposit enough taxes throughout the year. And, psychologically, it seems easier to write that check when the income is new rather than be hit with the balance due down the road when the return is filed.”

Reddit Sports Betting

Here’s hoping that big win comes, though bettors should plan on paying Uncle Sam.