Last year, ESPN estimated that March Madness bets would total to the whopping amount of about $10 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 the taxes involved.
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. It 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 – even if you win only 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.
Reporting Winnings From Online Fantasy Sports Sites
If you win money betting on sports from sites like DraftKings, FanDuel or Bovada, it is also taxable income. Those sites should also send both you and the IRS a tax form if your winnings are $600 or more. If you take home a net profit of $600 or more for the year playing on websites such as DraftKings and FanDuel, the organizers have a legal obligation to send both you and the IRS a Form 1099-MISC. If you receive your winnings through PayPal, the reporting form may be a 1099-K depending on the amount and how many transactions. Even if you don’t receive forms reporting your winnings, you should still keep track of your winnings and claim the income on your taxes.
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!
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