Are you one of the millions of Americans who fill out a bracket every March for the NCAA men’s basketball tournament? Do you ever put money down in hopes of pocketing some cool spending cash for the spring? If so, your winnings do not result in an automatic slam dunk into your personal bank account. Uncle Sam has his eye on everyone betting on basketball.
Gambling and Taxes
In the eyes of the IRS, money you take home from gambling winnings is considered a form of taxable income. This income might have been generated unexpectedly on a bet about the basketball games, but it still must be reported on your income tax return when filing your taxes each year.
There are specific types of winnings that fall into the gambling income category. These include money lucky people win from casinos, raffles, lotteries, and even horse and dog races. But cash prizes you put in your wallet are not the only type of winnings from which Uncle Sam wants to pull out a percentage for himself. This is because a good number of non-cash prizes are also taxable items. Contest winners must often pay taxes on the fair market value of a large prize, such as a new house, car, motorcycle, boat, expensive electronics, or vacation packages with airfare and hotel accommodations. So if you picked the correct Final Four teams or champion, and you win any type of substantial prize, you’ll likely be on the hook for giving a cut of it away to the IRS.
If you win a March Madness prize at a gambling facility, the facility may hand you a copy of Form W-2G before you leave. This special IRS form is commonly utilized to report certain gambling winnings. In some cases, a gambling facility will automatically withhold federal income taxes from your winnings before giving you a check or stack of cash. If a location does not handle this for you, remember that you’re responsible for covering any tax payments you owe on your winnings.
There are a few other IRS rules on reporting gambling winnings. In addition to including this financial information on Form W-2G, the total amount of your winnings each year must be included on line 21 of Form 1040. The IRS also requires some taxpayers to make estimated tax payments on the income they earn each year through contests or gambling, so you can’t always wait until April 15th to report this information since there may be additional payments to be made throughout the year, much like a business owner would face.
Can You Deduct Gambling Losses?
Although losing your hard-earned money through wagering on March Madness will take a bite out of your personal bank account, there is a silver lining. You may have the ability to deduct some of these gambling losses on your tax return.
If you itemize your deductions instead of claiming the standard deduction, you can write off your gambling losses for a particular year by putting this information on Form 1040, Schedule A, line 28. It’s also recommended that you hang on to any tickets, statements, or receipts that are used to document your winnings and losses. Keep in mind, however, that you are not allowed to deduct any gambling losses that exceed your total winnings each year.
For additional information about gambling and taxes you must pay on your March Madness winnings, turn to 1-800Accountant. Call 1-800-222-6868 or visit the “Services” section on www.1-800Accountant.
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