March Madness in wrapping up. Baseball season is just getting started. That means tax season is here. When it comes to gambling and taxes there are some wide spread misconceptions. According to the American Gaming Association, March Madness is causing a nationwide betting frenzy, with nearly 70 million adults expected to wager up to $15.5 billion this year. However, a survey conducted found that 62% of taxpayers are uncertain about how to report money won from sports bets and gambling.
According to that study, conducted by Jackson Hewitt Tax Services, 48% also falsely believe that cash winnings from sports bets are only taxable if sports betting is legal in their state, when in fact, all income must be reported. When it comes to gambling and taxes, that’s the law… but perhaps not the reality. It seems a bit counterintuitive to report your profits from an illegal activity to the government, yet that is how the law reads. But we’re not here to tell you how to do your taxes. We’re simply making sure you’re informed.
According to IRS reporting rules, earnings from sports bets or gambling are fully taxable and must be reported on both federal and state income tax returns as “other income” on Form 1040. Other income” encompasses a variety of sources, including money won from casinos, game shows, raffles, and state lotteries. Winnings from international gambling and foreign countries are also subject to federal tax reporting.
Mark Steber, Chief Tax Information Officer for Jackson Hewitt, stressed the importance of consulting a professional when it comes to reporting gambling and taxes. To correctly report additional sources of income, like cash winnings from gambling and sports bets, may require the help of a tax pro. And with sports betting becoming more accessible to more people, it’s crucial for taxpayers to be aware of federal and state tax law intricacies. Incorrect reporting or failure to report earnings can result in penalties, state fines, or even an audit by the IRS. Now you know. What you do with the information is up to you.