Spring is always an exciting time for sports fans (unless you’re a die-hard for baseball), with the Superbowl wrapped up this week, the NBA Finals and NHL Cup Playoffs upcoming, and the Olympics to look forward to this year, you may find yourself tempted to put a little action on that “can’t miss” pick. The IRS has very specific rules about reporting gambling winnings or losses, so here are a few things to know the next time you watch Mario Manningham catch a pass that ruins your day at the casino.
If you lose a bet, you’re going to have to provide proof of your losses in order to claim them on your income tax returns. Gambling losses must be itemized and are counted as miscellaneous, so not subject to the 2% limit. Keep track of the amount of the loss, date of the loss, name and location of the gambling establishment and you will be able to deduct your losses when you file Schedule A.
Be aware, the “catch” (ah-thank-you) for deductions is that you can only deduct as much in losses as you report in winnings. This means that if you placed one bet all year and lost, you will not have to worry about calculating that loss into your IRS tax refund. Make sure your tax preparation service or tax professional is aware of these losses or gains as well.
Winnings are fully taxable as well and must be reported on your tax return. The IRS has defined gambling income as any winnings from lotteries, raffles, horse and dog races and casinos as well as the fair market value of non-cash prizes. Winning over $1,200 at bingo or slot machines, $1,500 in keno, $5,000 at poker tournaments, $600 in other forms of gambling will require IRS FORM W2-G, where you will be required to enter in accurate information about your wins. You will also need to report your gambling winnings on IRS Form 1040, not IRS Form 1040A or IRS Form 1040EZ, regardless of whether you use IRS Form W2-G or not.
The best policy if you’re a gambling enthusiast or if you play the numbers and like the extra cash, is to keep a diary of your wins and losses throughout the year. It’s sometimes painful to write down that lost cash after your team loses, but it could make a big difference when tax season rolls around.