When it comes to Super Bowl, folks think chili, beer and commercials. They also think gambling. It’s one of those games that inspires a lot of big money, sure, but also enormous numbers of side bets and the ubiquitous office pools.
What does gambling have to do with tax? Plenty. Gambling winnings, no matter whether the source of your winnings are legal, are fully taxable and must be reported on your tax return. Winnings include proceeds from lotteries, raffles, horse races, casinos, cash winnings (just ask Richard Hatch) and the fair market value of prizes such as trips and cars (remember Oprah’s infamous Pontiac giveaway tax flap?).
And if you lose? Well, hopefully you won something along the way. You can only deduct gambling losses if you itemize deductions on your tax return on a Schedule A and the amount of losses cannot be more than the amount of gambling income that you reported on your return. To prove this, it’s important to keep accurate records of your gambling winnings and losses. If you have legal winnings, the form that is used to report winnings and losses of varying amounts (depending on the kind of game) to the IRS is a form W2-G.
So, all of this doesn’t apply to you, right? I’m *betting* that it does. Experts estimate that over $10 billion (yes with a “b”) will be wagered on Super Bowl XLII – and over 50% of all adult Americans will participate.
All of that said, what is the official line on the Super Bowl? The Patriots are the favorites to win by 12 points.
I did a little informal poll on the Business Channel. Here’s what a few of my bloggers think:
Kelly (that’s me): Patriots 35, Giants 28
Phil at slackermanager.com: Patriots 42, Giants 20
Chris at doingbizabroad.com: Patriots 31, Giants 28
Thursday at onevotematters.com: Patriots 42-48, Giants 28-34 (the original spreadsheet had 6 point blocks)
Rico at contract-worker.com (who doesn’t even follow “American football” but graciously participated anyway) has chosen Eli Manning as his MVP pick.
Check back on Monday!
Issuing a stern “cheater, cheater, pumpkin eater” warning to New England Patriots coach Bill Belichick, the NFL handed down a steep fine which will cost the Super Bowl coach $500,000. The Patriots were fined half of that, $250,000, in the same scandal for stealing an opponent’s defensive signals. And adding to the “ouch” factor, NFL Commissioner Roger Goodell has ordered the Pats to give up next year’s first-round draft choice if they reaches the playoffs (they will) and second- and third-round picks if they don’t (not a worry).
I don’t know whether a half million dollars out of pocket will hurt Belichick’s wallet or not. I have no experience as a Super Bowl winning coach – though if things don’t look up, I may be volunteering to play on the Eagles special teams squad come this weekend. But I have to think his pride is going to take a hit, even if his wallet doesn’t.
So, you’re wondering, what does any of this have to do with tax? Plenty. This whole thing got me to thinking about the increased crackdowns in the NFL and higher penalties in other leagues – and what it means from a tax perspective. I wondered whether the fine could be written off on Belichick’s taxes as some kind of unreimbursed expense or other deduction. I’ve come to the conclusion that he’s stuck with the fine and no deduction.
It’s clear that you can’t deduct fines, fees or penalties paid to the government for breaking the law (you can find it listed at Pub 529 or check out sec 162(f) of the Code) since it’s as against public policy. However, the NFL, despite how highly it thinks of itself, is not the government. So, deductible?
Putting aside the morality of it for a moment, it seems to be that it’s neither “ordinary” (in fact, this fine was pretty extraordinary) nor “necessary” in Belichick’s line of work. So, from a business expense perspective, I would say no on the deduction front. But while thinking about this and Google-ing up a storm, I found quite a bit of history which illustrates that companies have been doing this kind of thing for years – deducting fees, fines and penalties from civil acts as business expenses.
Hmm. But what about an individual? I couldn’t find anything in the US about this at all. And with the number of fines and penalties in professional sports, you know the issue has to have been raised…
If Belichick lived in Canada, he’d be in the clear. The Canadian tax laws allow for a deduction for fines and penalties “provided the action giving rise to the penalty was done to earn business income.” Oh yeah, a couple of Super Bowl trophies? I’d say the cheating worked out quite well for him. Cheating=winning=more money. So, in Canada, he’d have the benefit of a half million dollar deduction. (Note to self, those involved in immoral yet not necessarily illegal activities should consider a move to Canada.)
But in the US, I’m not so sure. My gut says no. Any thoughts?
