Every year, I join a fantasy football league with my friends and every year, I lose. So for me, unfortunately, my limited sports gambling has no impact on my taxes. But if you frequently place bets on sporting events, and find yourself winning, it will have an impact on yours.
With the recent US Supreme Court ruling opening the door for legalized sports gambling, it’s an issue that will likely come up again and again.
The increase in legal sports betting will increase gambling activity in general. And as is the case with all activities that generate income of any sort, it will have an effect on your taxes.
New State Ruling on Sports Gambling
In May of 2018, the US Supreme Court struck down a 1992 law that prohibited sports betting. This has opened the door for individual states to legalize sports gambling.
According to ESPN, full-scale sports betting has been legalized in eight states. Two states, New York and Arkansas, recently passed bills and seventeen other states have introduced bills for sports gambling. In total, that’s 27 states moving towards legalization.
As it does, it’s reasonable to expect most or all the remaining states to join the party. And if you start taking part, here’s what you need to know about the tax implications.
Your Gambling Winnings are Considered Income
All income is taxable and gambling winnings are considered income. They apply even if you aren’t a professional gambler. If you win money from lotteries, raffles, horse races, or casinos – that money is subject to income tax.
When you win, the entity paying you will issue you a Form W2-G, Certain Gambling Winnings, if the win is large enough.
You Can Deduct Losses if You Itemize
Fortunately, you can deduct losses from your gambling only if you itemize your deductions.
Gambling losses can be deducted up to the amount of gambling winnings. For example, if you had $10,000 in gambling winnings in 2018 and $5,000 in gambling losses, you would be able to deduct the $5,000 of losses if you itemize your tax deductions.
If you had losses greater than your gains, you wouldn’t be able to claim the excess. Reversing the example above, if you had $5,000 in gambling winnings and $10,000 in gambling losses, you would only be able to deduct only $5,000 of gambling losses. The remaining $5,000 in losses would be lost forever; you can’t carry the losses forward.
Whereas your winnings are reported by the payer on a Form W2-G, your losses may not be. You will have to produce other documentation to validate the deduction. This can include wagering receipts or tickets, canceled checks, or other receipts.
It may also be possible to establish your losses by keeping some type of detailed log. This log should include information such as the date and type of gambling activity, people you gambled with and the amount of your winnings and losses.
Under tax reform, you can only deduct losses directly related to your wagers and not non-wagering expenses like travel related expenses to gambling sites.
College Seating Rights for 2018 and Beyond
In a related matter, there’s bad news on the college seating rights front starting with the 2018 tax year under the new tax law.
Under the old tax law, donors were allowed to make contributions in exchange for the right to purchase tickets or seating at college sporting events with a big tax advantage. They could treat 80% of the contribution as a charitable deduction. The remaining 20% represented the actual cost of the tickets or seating.
In this way, the IRS recognized that the majority of money paid for college seating rights represented a charitable contribution, rather than a ticket purchase. Unfortunately, that tax break has been eliminated, starting in the 2018 tax year.
Don’t worry about knowing these tax rules. TurboTax will ask you simple questions about you and give you the tax deductions and credits you’re eligible for. If you have tax questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent with an average of 15 years experience and get your tax questions answered. A TurboTax Live CPA or Enrolled Agent can even review, sign, and file your tax return.