In recent years, the popularity of sports betting has steadily increased in the US. As more states legalize casinos and bookmaker sites, it’s important for people to understand the tax obligations that come with their winnings. We will help you understand sports betting taxes in the US and how to deal with them.
Legality of Sports Betting in the US
Sports betting was once illegal in most parts of the United States. However, the 2018 Supreme Court decision allowed individual states to regulate it within their borders. As of 2023, over 30 states have legalized online gambling, and more are expected to follow suit soon.
While the legality of sports betting has brought much excitement to bettors across the nation, it also comes with certain responsibilities, including taxes. Each state has its own rules regarding sports betting taxes, with some imposing higher rates than others. Also, certain states may not tax your winnings at all. It’s important to read about the legal landscape in your specific jurisdiction. However, we will focus on the general picture of sports betting taxes in the US in our online betting guides for beginners.
Types of Sports Betting Taxes in the US
When it comes to sports betting taxes, there are two primary types to consider: taxes on your winnings and taxes on the revenue generated by sportsbooks.
- Taxes on winnings. As a sports bettor, you are required to report your gambling winnings to the Internal Revenue Service (IRS). The federal government treats gambling winnings as taxable income, and you must report them on your annual tax return. The tax rate on gambling winnings can vary depending on your total income and tax bracket. It’s important to keep accurate records of your winnings and losses to facilitate the reporting process.
- Taxes on sportsbook revenue. Bookmakers, whether they operate online or offline, are subject to taxes on their revenue. These taxes are typically imposed by the state. Some can apply a flat tax rate on sportsbook revenue, while others use a tiered system based on its earnings. The revenue generated by sportsbooks is an important source of income for each state’s economy.
US State and Federal Gambling Taxes
When it comes to taxes on winnings, you need to consider both state and federal obligations. Whether you bet on soccer or register for legal poker sites in the US, the federal government treats your winnings as taxable income, meaning you are required to report them.
Federal taxes range from 10% to 37%. The IRS requires you to report all gambling winnings on your federal tax return. Whether you win money from sports betting, casino games, or lotteries, it falls under the same category of income. The higher your winnings, the higher tax rates.
In addition to federal sports betting taxes in the US, many states also impose taxes on sports betting. As we have already mentioned, each state has its own rules, so you need to check the requirements in your area.
Reporting Betting Income and Expenses
Reporting your income and expenses associated with betting on sports is crucial to comply with tax laws and avoid any potential penalties. In particular, you must keep records of your sports betting activities, including your winnings, losses, etc., to correctly determine how much to pay.
Also, you are required to report your gambling winnings on your federal tax return. This includes all sports betting winnings, regardless of the amount. You will need to fill out Form W-2G if your winnings exceed a certain threshold, which varies depending on the type of bet and payout. For smaller winnings, you should still report them as “Other Income” on your tax return.
While you are required to report your winnings, you may also be eligible to deduct certain expenses related to your betting activities. They can include the cost of placing bets, subscription fees, and any other expenses directly related to your activity. However, it’s important to note that these deductions are subject to certain limitations.
How to Minimize Sports Betting Taxes in the US?
While paying taxes on your sports betting winnings is an obligation, there are certain strategies you can employ to minimize your tax liability. Here are some tips to consider:
- Keep accurate records. We cannot emphasize this enough, but keeping records of your sports betting activities will not only help you report your income and expenses accurately but also enable you to claim any eligible deductions.
- Consider tax planning. If you play or bet on a permanent basis, you can consider tax planning strategies. A professional can help you navigate tax laws, identify potential deductions, and ensure that you are taking advantage of any available tax benefits.
- Seek professional advice. Still unsure about any aspect of sports betting taxes in the US? A tax professional who specializes in gambling taxes can provide valuable guidance and ensure that you are fully compliant with the law.