CCH is warning office betting pools that any winnings they get from their picks in NCAA college basketball March Madness brackets count as taxable income.
Here are some of the tax issues to consider for those looking to test their luck during March Madness, or after.
Gambling winnings for the tax reporting year should be listed on line 21 of IRS Form 1040. You may also deduct your gambling losses for the year if you itemize your taxes. Losses should be reported on Schedule A (Form 1040), line 28. However, you cannot report gambling losses that are more than your winnings. Forms of gambling income that should be reported include, but are not limited to:
• Winnings from lotteries;
• Horse racing wagers;
• Raffle prizes;
• Casino winnings;
• Casual/seasonal gambling earnings (office pools, contests); and
• Fair market value for large, non-cash prizes (cars, trips).
On sizeable gambling winnings and for winnings subject to federal income tax withholding, the payer should provide IRS Form W-2G. And whether your winnings are or are not subject to withholding, all gambling winnings should still be reported on your Form 1040 return.
“When reporting gambling wins and losses, you have to keep those numbers separate,” said CCH principal federal tax analyst Mark Luscombe. “You can’t combine your win-loss totals and only report the difference—it really needs to be a clear record of everything you won and lost over the course of the year.”
For a growing number of people who regularly place wagers at gambling establishments and web sites, trying to beat the odds isn’t just a hobby—it’s their job. Those who list their occupations as professional gamblers also must report wins and losses and must comply with a few different rules than casual gamblers.
For example, professional gamblers must be able to establish professional status by showing that gambling is a primary income producing activity and means of support.
They can report gambling winnings and losses on Form 1040 Schedule C, but unlike recreational gamblers, professional gamblers can also deduct travel and related expenses ordinary and necessary to their gambling activities.
Professional gamblers still cannot deduct gambling losses in excess of gambling income, but those other deductible expenses can exceed gambling income. By including those losses and expenses on Schedule C rather than Schedule A, professional gamblers can lower their adjusted gross income, and perhaps qualify for other or larger tax breaks, which is not the case for the recreational gambler. On the negative side, a professional gambler’s income is likely to be subject to self-employment taxes, which is not an issue for the recreational gambler.
In order to paint a truly accurate picture of how much you’ve won or lost, it’s important to track each change in your wagering status by holding onto printed gaming records and keeping your own win-loss score sheet.
Some suggested information for keeping accurate gambling records includes:
• Name and address of gaming establishment and the date of activity;
• Specific games or wagers made;
• Amount of winnings;
• Amount of losses; and
• Paper records or receipts (lottery tickets, horse race betting slips, keno tickets, casino credit/debit card data, etc.).
In addition to keeping your own personal gambling records, the IRS provides another tax form that may be used as proof of wins and losses. If you’re lucky enough to be part of a group sharing the proceeds of a winning lottery ticket or large contest payout, then Form 5754, Statement by Person(s) Receiving Gambling Winnings, should be filed by those in a group of two or more who split a grand prize. For more information on reporting gambling wins and losses on Forms W2-G and 5754, click here.
For more information about reporting gambling wins and losses, an expanded video interview with Luscombe is available on the CCH Wolters Kluwer Channel on YouTube.com.
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