Tax Rules for Sports Betting
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What is the main topic discussed in this episode?
Here's your Money Briefing for Tuesday, June 13th. I'm J.R. Whelan for The Wall Street Journal. You see the commercials on TV all the time. Sports betting sites like DraftKings and FanDuel giving bettors the opportunity to cash in. But many people aren't aware of the tax risks.
How does the IRS learn about online sports betting activity?
If you're gambling online, doing sports betting, you could be in a position where all of your winnings are taxable, but your losses are not deductible.
We'll talk to Wall Street Journal tax reporter Laura Saunders about how the IRS can track your wins and losses after the break.
Millions of people place bets on online sports gambling sites every year, and the IRS wants to know about those bets. Wall Street Journal tax reporter Laura Saunders joins us with what sports gamblers should know about paying taxes on their winnings. So, Laura, first of all, how does the IRS find out about someone's wins and losses from sports betting sites?
Well, when you're gambling online, you're making those force bets. There's a record of every one of them at the companies. This is the great thing about online and digital activities. The companies are keeping records. When you go onto your phone and you make a parlay or a prop bet or something like that, that's all in the company's computer's memory.
And then that gets reported to the IRS?
Well, it doesn't always get reported to the IRS.
When are sportsbook wins reported to the IRS and what are the thresholds?
There are different thresholds for different kinds of gambling activity. Now, with a lot of those sports bets, the threshold is really high. The win will be reported if the odds were 300 to 1 or greater, and the winning is more than $600. So that's a pretty high threshold.
So how are the winnings taxed, and how would somebody report them on their tax return?
Let's talk about how it works for casual gamblers. It means people who are not professional gamblers. If you're a normal, ordinary gambler, your winnings are taxed as ordinary income at ordinary income rates like wages. However, when it goes on your tax return, it goes on line 8B of Schedule 1 as gambling income, gambling winnings.
But not everybody wins on every bet.
How are casual gamblers supposed to report winnings and where do they go on the tax return?
How do their losses fit into this equation?
Well, this is really important because gambling winnings are ordinary income on one part of the return, but gambling losses can only be deducted as an itemized deduction on Schedule A. This is where you deduct mortgage interest and medical expenses and state and local taxes. There's also a place to put in gambling losses. Let's say you have $7,000 of winnings. and $7,200 of losses, then $7,000 of your losses would be deductible against your winnings, assuming that you itemize and can do this. But there's a real catch here, J.R., and it is that since the tax overhaul of 2017, very few people have itemized their deductions. The people who itemize have gone from about a third of taxpayers to probably less than 10%.
So what that means is that if you're gambling online, doing sports betting, you could be in a position where all of your winnings are taxable, but your losses are not deductible.
And does that have to do with a standard deduction being raised?
Yes, it does. In 2017, the tax overhaul about doubled the standard deduction so that for this year, it's over $13,000. Now, you take a young gambler, a male in his 20s or something like that. He probably doesn't have a mortgage. He doesn't have anything much but his gambling losses.
Why can't most bettors deduct losses against winnings under the standard deduction?
And so he'll take the standard deduction, but he won't get a specific break for his losses in that case while his winnings are still taxable.
You know, we talk about tax returns in the IRS and things get really complicated. Why wouldn't somebody just subtract their losses from their winnings and then just report that number?
Well, they'd like to be able to, but that's not what the law says, we think. The IRS says that's not what the law says. There are some professionals that think you could do that if you have sessions. This is like, say, if you walked into Las Vegas and you played slots for five hours and you could look at the amount at the beginning and the amount at the end and take the losses away from the winnings.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:02–0:21
2
How does the IRS learn about online sports betting activity?
0:21–1:34
3
When are sportsbook wins reported to the IRS and what are the thresholds?
1:34–2:24
4
How are casual gamblers supposed to report winnings and where do they go on the tax return?
2:24–3:50
5
Why can't most bettors deduct losses against winnings under the standard deduction?
3:50–5:10
6
Could claiming netted betting results trigger an IRS audit or dispute?
5:10–5:57
7
How does casino wagering reporting differ from online sports betting rules?
5:57–7:12
8
What recordkeeping and filing steps should parents and bettors take to avoid problems?
7:12–7:57
Speakers
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