Last year, ESPN estimated that March Madness bets would total to the whopping amount of $10.4 billion. That’s real money! And real money comes with real tax implications. How much your March Madness bracket will cost you at tax time depends on how much you win – or lose!
So if you’re planning to win big this March, don’t forget about taxes.
Gambling Winnings Are Taxable
All income is taxable income, including gambling winnings. Many taxpayers are surprised to learn that gambling winnings are taxable. They are similar to any other type of income — the professionals know this but it isn’t obvious to the casual gambler.
Technically speaking, any gambling income must be reported on your tax return. This includes winnings from lotteries, raffles, horse races and gambling casinos. This also includes gambling income from far more casual sources, like March Madness brackets. Just because it takes place among friends doesn’t make it any less taxable. There’s no minimum either – if you win even one dollar, you’re expected to report it.
If you have gambling winnings from racetracks or casinos, your winnings may be formally be reported on IRS Form W-2G, Certain Gambling Winnings. If you receive one, reporting that income is easy and necessary. After all, if you receive a W-2G, the IRS also received a matching copy.
Report Winnings from Informal Sources
It’s a bit more complicated if you have gambling winnings from a private source, like a March Madness bracket. Most likely, your winnings will be paid in cash, and never formally reported to the IRS, but you are still required to report all income.
Deduct Gambling Expenses
Fortunately, just as you must report gambling winnings, you can also deduct gambling losses up to your winnings if you itemize your deductions. If you have $2,000 in winnings and $1,000 in losses, your net gambling earnings will be $1,000. However, if you have $2,000 in winnings and $3,000 in losses, your deductible losses will be limited to $2,000.
Keep an accurate record of both your winnings and your losses. It will help considerably if you have support with receipts, tickets or statements that provide third-party verification of expenses.
Moral of the story: If you’re participating in March Madness brackets and you’re lucky enough to win, make sure you report your winnings and losses too if you are eligible!
Don’t worry about knowing these tax rules. TurboTax will ask you simple tax questions and give you the tax deductions and credits you deserve based on your answers. If you have questions, you can connect live via one way video to a TurboTax Live CPA or Enrolled Agent to get your tax questions answered. A TurboTax Live CPA or Enrolled Agent can also review, sign, and file your tax return.