As Sunday’s Super Bowl LVIII approaches, millions of Americans are gearing up to place their bets on the game between the San Francisco 49ers and Kansas City Chiefs. With Las Vegas, the gambling capital of the nation, hosting the event, a record-breaking 67.8 million Americans are expected to wager an estimated $23.1 billion on the game, according to the American Gaming Association. However, amidst the excitement and anticipation, it is crucial to be aware of the tax implications that come with gambling winnings.

While the joy of winning a bet can be exhilarating, it is important to remember that the U.S. government views itself as your silent partner when it comes to your gambling gains. Mitchell Drossman, the national director of wealth planning strategies at Bank of America, warns that the IRS expects a cut of any proceeds you earn from gambling. Whether you’re betting on the game itself, the coin toss, half-time festivities, or even how many times Taylor Swift, who is dating Chiefs tight end Travis Kelce, will be shown on camera during the telecast, your winnings are subject to taxation.

When it comes to reporting your gambling winnings to the IRS, there is no de minimis threshold for exclusion. Even if you win a seemingly small amount, every dollar should be reported on your tax return. For example, if you bet $100 on the game and end up winning $1,000, the $900 difference is considered taxable income. In some cases, you may even receive a Form W-2 G to report your gambling winnings, particularly if the amount exceeds $600.

If you bet a significant sum, typically exceeding $5,000, there may be a mandatory tax withholding. It is important to be aware of this requirement to ensure compliance with the IRS regulations. Regardless of whether you receive a formal notice, it is your responsibility to disclose your gambling gains to the IRS. As Mitchell Drossman asserts, “Income is income,” and it must be reported accordingly.

While reporting your winnings is crucial, there is a silver lining for those who experience losses in their gambling endeavors. It is possible to deduct these losses; however, there are limitations. According to Drossman, losses cannot exceed winnings. Although you can net your gains and losses throughout the year, you cannot fall into negative territory. It is important to note that deducting losses requires itemizing deductions, which may not be favorable for many individuals due to the large standard deduction offered by the IRS.

When it comes to state tax returns, it is essential to recognize that not all states follow the same rules as the federal government. While some states adhere to federal guidelines, others have their own regulations in place. Mitchell Drossman emphasizes that in states where only gross income is taxed, and itemizing is not allowed, only your winnings will be subject to taxation. It is crucial to consult the specific tax laws of your state to ensure compliance.

For individuals whose gambling activities extend beyond hobby or sporadic engagement, such as professional gamblers, the tax rules may differ slightly. In these cases, where gambling represents a livelihood, trade, or business, itemizing deductions is not necessary. Instead, professional gamblers would file a Schedule C to report their gains as business income. This opens up the possibility of a broader range of deductible expenses, including travel and hotel expenses, directly related to their gambling activities. Notably, to qualify as a professional gambler, one must demonstrate a certain level of gambling activity that rises to the level of a trade or business.

Currently, 38 states and Washington, D.C., have legalized sports betting markets. However, California and Missouri, the two states participating in this year’s Super Bowl, have not yet approved such gambling activity. As the popularity of sports betting continues to rise, it is essential for individuals to stay informed about the tax implications and regulations surrounding their gambling activities.

While betting on the Super Bowl may be an exciting and enjoyable experience, it is vital to understand the tax implications that accompany gambling winnings. The IRS expects individuals to report all winnings, regardless of the amount, and failure to do so can result in penalties. Furthermore, deducting gambling losses is subject to certain limitations, and state tax rules may vary. By staying informed and complying with tax regulations, individuals can enjoy their Super Bowl bets with peace of mind.

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