What to Know About Sports Betting and Taxes

October 21, 2021

Sports Betting and Taxes

Did you know that, according to Nielsen, 62% of NHL fans, 59% of NCAA Basketball fans, 57% of NBA fans, and 55% of NCAA fans are interested in sports betting? Additionally, there are over 70 million fantasy bettors daily in the US.

If you’re one of the many Americans who are interested in sports betting, and so much so that you enjoy it often or are a bookie, there are many sports betting financials you have to take into consideration.

Sports betting taxes are one of the elements you have to consider when you’re someone who bets on sports.

However, if you aren’t sure how to get started, you might be stressed about which winnings to pay and how to report your winnings.

Fortunately, this is exactly what we’ll cover in this article. Read on to learn more about taxes for sports betting.

Sports Betting Taxes for Bettors

When you make money on sports bets, there are certain types of taxes you have to file for and pay. Gambling winnings, however you win them, are considered income. Because you’re taxed on income, this means that you’ll have to file these winnings and pay for them if your income is high enough.

Even if you aren’t a professional gambler, this will apply. When you win a sports bet, and the win is a large amount, the entity giving it to you will issue you the Form W2-G, or the Form Certain Gambling Winnings.

Now that we’ve reviewed how this works generally, we’ll review the specific types of sports betting winnings that are taxable.

Online Sports Site Winnings

Do you win money from sports betting websites like Bovada, FanDuel, or DraftKings? In this case, you should consider the money you make on these sports betting platform types to be taxable income. Here’s how it works.

If you win $600 or more through an online sports site, they should send both the IRS and you the tax form Form 1099-MISC.

It’s their legal obligation to do this. Note, however, that if you receive the payments through PayPal, the form might end up being 1099-K.

When you receive this form, you’ll know how much you have to report when filing your taxes. The IRS will also have the notification they need regarding your obligation to pay taxes on your online sports site winnings.

However, note this. Even if you don’t receive the 1099-MISC or 1099-MISC, you’re legally obligated to report the winnings on both your state and federal income tax returns.

Fantasy League Winnings

If you enjoy betting through the Fantasy League, the IRS also considers these winnings to be taxable income. If your winnings are $600 or higher, the gambling facility should ask you for your social security number so they can report the winnings to the IRS.

However, just like with online sports site winnings, even if you don’t receive a form from the gambling facility regarding your winnings being income, you need to report it on your income tax returns.

These include income tax returns for both the federal government and your state government.

Sports Book/ Casino Winnings

Finally, if you make any winnings at a sportsbook/ casino when betting on sports, they’re also required to report these winnings both to you and the IRS if they are high enough. The minimum amount for them to report varies depending on the type of gambling you’ve engaged in.

For sports betting, this amount is $600 or more. Keep in mind that, even if you don’t get a form from them, you still have to report these winnings on your state and federal income tax returns.

How to File Your Winnings as Income

If you gamble for the fun of it, then you’ll include your winnings on Form 1040, reporting them as income. You’ll put them on Line 8, where you would put “other income.” However, if you’re a professional gambler, you’ll do things a little differently.

In this case, you would report the winnings you made on Schedule C. This is because it’s considered business income.

It’s Possible to Deduct Losses

Here’s some good news: you can deduct losses from the gambling you’re doing. However, this is only possible if you itemize your deductions. In terms of how much you can deduct, the maximum amount of losses you can deduct is the same as the sum of your winnings.

Here’s an example. If you had $5,000 in gambling winnings in the year 2019 and $2,500 in gambling losses, it would be possible for you to deduct $2,500 of losses as long as you itemize your tax deductions.

Now, let’s look at an example in which your losses add up to a greater amount than your losses. We’ll do this by reversing the above example.

Let’s say you had $2,500 in gambling winnings in the years 2019 and $5,000 in gambling losses. In this case, it would be possible for you to deduct $2,500 of losses as long as you itemize your tax deductions.

You may be wondering: What about the other $2,500 of losses? Unfortunately, you’d lose them, as it isn’t possible to carry them forward.

The Logistics of Reporting Your Losses

While you might get a report of your winnings through Form W2-G, which you can also use for reporting your winnings when reporting them on your income tax returns, your losses might not appear on this form. So how do you validate your deduction for your losses?

You’ll have to provide another type (or types) of documentation. This might include canceled checks, wagering tickets, wagering receipts, or other receipts.

You could also keep a detailed log of your losses and use this to establish the losses for tax deduction purposes.

In this log, you should include information such as your winnings amount, losses amount, who you gambled with, the type of gambling activity, and the date.

Note that it’s only possible to deduct losses that are directly related to the wagers you’re making.

You can’t deduct non-wagering expenses, such as travel to gambling sites or other similar types of expenses. This is because of tax reform.

Taxes for Sports Betting Operators

Since the year 2018, the District of Columbia and 30 states have legalized sports betting and imposed taxes on it. The type of taxes that states impose on sports betting is ad valorem, or value-based, taxes on the gross gaming revenue.

On the federal level, there’s an excise tax the federal government levies at a 0.25% rate of the total amount wagered. Operators will usually pay 5% of bettors’ winnings.

The majority of states in which wagering is legal don’t allow betting operators to take deductions with their taxable revenue. This means that their effective rates are equal to their statutory rates.

However, there are four states that allow betting operators to deduct specific expenses from their gaming revenue that’s adjusted. These states are Virginia, Pennsylvania, Michigan, and Colorado.

In Colorado and Pennsylvania, deductions can be made on promotions and federal excise tax. In Michigan, this is only the case for promotions. In Virginia, they can be made on promotions, federal excise tax, and losses.

An Example of How Deductions Make an Impact on the Sports Betting Tax Base

Here’s an example. The total amount wagered, also known as the handle, is $100. The winnings are $95 and the gross gaming revenue is $5. Then, instead of paying a state tax of $0.50, the betting operator will:

  • Pay a federal tax of $0.25
  • Have other deductions of $2.25
  • Have an adjusted revenue of $2.50

Then, out of this adjusted revenue, they will pay $0.25 in state tax. This goes to show that deductions can make quite a difference in how sports betting operators pay their taxes. As a result, the tax states collect varies significantly from state to state.

Need More Information?

Now that you’ve learned about sports betting taxes, you might need more information. Maybe you want to learn exactly how to fill out each tax form or you’re looking for a model for a losses log so you can itemize your tax deductions.

Whatever information you need, we can help. At Ace Per Head, we’re experts when it comes to sports betting.

We also offer a Pay-Per-Head service. With this service, we can help you grow your business as a bookie or sportsbook agent. To learn more about this service, check out information about it now.