Sports betting taxes
Sports betting is a widely known and accepted industry, and with different countries legalizing it, it has become a famous money-making enterprise. However, while it is exciting to bet and earn money, knowing that your profits from sports betting activities may not be the complete or total income is crucial. How’s that? The truth is sports betting winnings are like every other income and are, thus, taxable. However, your tax varies according to your earnings. Read on to find all there’s to know about taxes in betting.
Are there taxes on sports betting?
The simple answer is yes, and these taxes apply to all online and physical sports betting in legalized countries. So, it is possible to play on a sportsbook online, 22Bet, in an illegalized sports betting country and not pay taxes and play on the same sportsbook in another country that legalizes it with taxes.
These taxes may be the same rate for all bettors in some cases and will most times depend on your income, ranging from 0% to 37%. However, the taxes are the same regardless of the games you bet on. Also, the winnings are taxed in the same way additional wages are taxed.
How taxes work in sports betting
Besides sportsbooks receiving commission from each bet you place, you must also give part of your earnings to the government. The thrill of betting and winning a massive sum of money is unmatchable. Still, the undeniable fact is that these earnings must be recorded as income on your federal tax return which could mean they are taxable.
According to the IRS, sports betting winnings should be recorded as “other income”, regardless of how much they are. So, if you win as low as $10, it has to be recorded on your tax return, but this doesn’t mean you’ll pay taxes on it. Luckily, you only pay federal taxes on winnings up to $600, and your tax rate varies according to your winnings. So the more you earn, the more taxes you have to pay. Additionally, you may have to pay both Federal and State taxes. You probably feel that’s a lot of cut out of your earnings, but there’s a good part.
The good part is that deducting your losses from your wins reduces the tax rate by reporting your losses. And this can only be possible if you outline your tax deductions. So, for instance, if you had a total of $10,000 in sports betting winnings and $5000 in losses, you can deduct the $5,000 loss. However, where this is the reverse, and you have $5,000 winnings and $10,000 losses, you can only deduct $5000 losses. Also, contact a tax professional to help you with your tax payment and explain the best process.
What happens if you don’t report your sports betting winnings?
It is best to always report your winnings as failures that may lead to penalties, an audit of your tax return and, in extreme cases, criminal charges. So if by chance you relocate to a country that legalizes and puts taxes on sports betting, you should always ensure you duly pay them.