Filling out those tourney brackets? Remember that your winnings (and all gambling winnings) are taxable! #TwitterTaxTip
(For more on twitter tax tips, see my prior explanatory post.)
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gambling winnings
There are a few things that we know for sure about today’s Super Bowl game:
- This year, no Manning will win the Super Bowl (thank goodness).
- The two quarterbacks who are playing in the big game (Warner and Roethlisberger) have not been particularly stellar throughout the regular season. Trust me. They were my fantasy football quarterbacks this year.
- The Super Bowl will be televised in 230 countries in 34 languages.
- Beer commercials will be plentiful – but not as much as last year. PepsiCo. dethroned Anheuser-Busch/InBev this year to top all advertisers this year in paid Super Bowl ad spots.
- Defense, defense, defense. The key to the game will be whether the Steelers could do what the Eagles could not (insert sobs here) and stop the Cardinals’ run.
- A lot of people will bet on the big game. A lot. Last year, legal bets alone on the Super Bowl totaled nearly $100 million with billions more made offshore, online and in office pools. This year, with illegal bets added in to the mix, analysts predict that nearly $10 billion will be wagered on today’s game, an increase of about $2 billion.
Yep, betting on the big game is all the rage. Experts predict that nearly half of all American adults will make some sort of wager on the big game. Apparently, a poor economy might make you rethink that authentic NFL jersey but not discourage you from throwing a few bucks in a betting pool.
If you win, you’ll need to pay up to Uncle Sam, regardless of whether the winnings were from legal sources. Gambling winnings, legally gained or not, are fully taxable and must be reported on your tax return. Winnings include proceeds from lotteries, raffles, horse races, casinos, cash winnings as well as the fair market value of prizes such as trips and cars.
And if you lose? Well, all is not totally lost. You can deduct gambling losses if you itemize deductions on your tax return on a Schedule A, though the amount of losses cannot be more than the amount of gambling income that you reported on your return.
Win or lose, it’s sure to be an exciting game. Who’d have figured a Steelers versus Cardinals finale? Even odds makers in Vegas have to be shaking their heads at this one.
Despite the crazy season, one of these unexpected teams will become the Super Bowl champions. So, what is the official line on the Super Bowl? The Steelers are the favorites to win by 6 points.
Go Steelers!
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Taxpayer asks:
Hello, I would like to ask some questions about tax evasion and honest mistakes:
I am being looked into (audited) for tax evasion for 2006 where I failed to file tax returns for online poker winnings of about $60,000.00. I did not file these returns for the sole purpose that my losses outweighed the winnings. I had about ~$50,000 in profit from this online poker but I had lost over $75,000.00 in Las Vegas and through a sportsbetting through a bookie. My problem is that I showed a profit online but when I lost the money through the bookie, since this illegal, I did not know how to report it. The government can tax any income even if its illegal, but I did not know how to report my illegal gambling losses. During this year I did not know how to show my losses to the bookie. I am currently wondering what penalities would be assessed if I were charged with about 50,000 dollars in unpaid taxes. I am a 27 year old school teacher who has no record and has steered clear of crimes. Would the IRS have leniency towards me since this was my first time? Would they consider my plea that I did not know how to file the losses? Would the penalty we jail AND money owed or only one of them? I am very scared because I did not be this intentually or willfully try to evade paying taxes. I lost the money I won and have nothing to show for this (such as new house, car, etc). I am fearing jail very much, please give me your incite. Thank you.
Taxgirl says:
Before I even begin to answer this question, I am going to tell you to talk to a lawyer. I say this because: (a) I’m not your lawyer and (b) even though I have some thoughts for you to consider, this isn’t legal advice. You really need some guidance about your specific situation – with all of the facts and circumstances laid out for analysis. So promise me you’ll get some help, okay?
That said, to allay some of your immediate fears, here are some thoughts:
1, Gambling losses are deductible. Just as gambling winnings are taxable – even if gained illegally – gambling losses are similarly deductible as a miscellaneous deduction, no matter how obtained, to the extent that they don’t exceed your winnings. So, you’ll only be able to claim up to your winnings (sounds like $60,000) as a loss in the best case scenario.
2, To claim gambling losses, you need have sufficient records of your losses. Diaries and annotated financial records may qualify as sufficient, depending on how thorough they are.
3, All of this said, reporting any illegal income or losses on a tax return can generate a road map for any authorities that could choose to investigate. Depending on how often you actually engage in this kind of behavior, this could be a concern.
So do you claim the losses at audit? I don’t know. Again, you do need to consult with someone about whether to do this or not. Don’t go to an audit alone.
If you choose not to claim those losses, the most common scenario to come out of an audit is an assessment for back taxes plus interest and penalties. Depending on your circumstances, criminal charges can be a possibility but to be honest, it’s really not common. Criminal charges are usually reserved for those who folks who deliberately and purposefully evade taxation. It just doesn’t sound like the case here. It sounds like you thought that you broke even and were just really not sure how to report that properly.
If you are simply assessed at a higher amount, it’s not the end of the world. You can likely work out an installment agreement to pay it off.
Don’t run away from this, whatever you do. It is serious. But it’s also manageable. Again, you need a tax professional to give you some specific advice. It’s worth it.
And one more thing. Since you’ve told me your age already, I’m totally going to sound like your mother for a minute. Those are really big dollars to be gambling away – especially for a school teacher. And betting through a bookie? That’s scary business (I’ve eaten in South Philly, I know these things). It sounds like you might have a problem beyond your tax woes. A resource to consider is the National Problem Gambling Helpline Network (1.800.522.4700) – it’s completely anonymous and free to call. You owe it to yourself to get things straightened out.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl! – Now on Facebook!
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