Who’s going to win Super Bowl LIII? So far, odds-makers have the New England Patriots edging out the Los Angeles Rams for the win in Atlanta. But not everyone is counting out the Rams: Gamblers are putting down big bucks, upwards of $1 million, in favor of the NFC Champions. MGM Resorts has reported a $2 million money-line bet on the Rams, while Bookmaker William Hill took a similar $1.5 million bet. Overall, nearly 10% of Americans will wager a combined $6 billion on this year’s Super Bowl game—and it’s all taxable.
From friendly wagers to jackpots, gambling winnings are reportable for federal income tax purposes. When the numbers are big enough, those winnings are also reported to the Internal Revenue Service (IRS) using a federal form W-2G, Certain Gambling Winnings (downloads as a pdf). A form W-2G is issued when gambling winnings other than those from bingo, slot machines, keno, and poker tournaments, are $600 or more and at least 300 times the amount of the wager. A form W-2G will also be issued if winnings are subject to withholding, including backup withholding and regular gambling withholding. For 2019, gambling withholding is equal to the cost of backup withholding: a flat 24% (note that this rate is less than the prior 25% rate).
If you gamble for fun, you include your winnings as income on line 21 on the new Schedule 1 as part of the not-so-postcard-sized form 1040 (more on the new form here). Someone who wagers occasionally, according to IRS (memo downloads as a pdf), is a casual gambler or one “not engaged in the trade or business of gambling.” If you’re wondering about the line between fun and business, the IRS uses a facts and circumstances test, noting “[l]ike any other taxpayer, a gambler has the burden of proving that his activities rise to the level of a trade or business.”
And here’s why that matters. While all gamblers have to report their winnings, casual gamblers may only deduct losses up to the amount of winnings as an itemized deduction on Schedule A. That didn’t change under the Tax Cuts and Jobs Act (TCJA). The deduction for gambling losses remains in place; miscellaneous deductions which exceed 2% of your adjusted gross income (AGI) were eliminated, but deductions for miscellaneous expenses not subject to the 2% threshold, like gambling losses, remain.
However, other TCJA-related changes may affect your ability, as a casual gambler, to claim losses. Most notably, the increase in the standard deduction, combined with restrictions on home mortgage interest (more on that here) and state and local tax deductions (more on those here), make it less likely that taxpayers will itemize. That means that most taxpayers will claim the standard deduction. If you opt to claim the standard deduction instead of itemizing your deductions, then any casual gambling loss is, well, lost.
When gambling is your trade or business, gambling-related income and expenses are reported on a Schedule C, which means that you do not have to itemize to claim your losses. However, the TCJA modified the definition of “gambling losses” under section 165(d) of the Tax Code to include any deduction otherwise allowable in carrying on any wagering transaction. What that means is that taxpayers whose business is gambling can no longer deduct non-wagering expenses, such as travel to and from a casino, separately from losses. So, for example, a taxpayer with $10,000 in winnings may deduct up to that amount in combined losses and related expenses. This change applies to professional gamblers for the years 2018 through 2025. That’s a shift from years past: Before the TCJA, professional gamblers could deduct travel and other costs related to gambling without regard to wins and losses (that was the rule previously confirmed by the Tax Court in Mayo v. Commissioner).
If you do plan to gamble—whether on Super Bowl Sunday or darts at the pub next weekend—keep excellent records. Your records should include the date and location where you were gambling, as well as the amounts and type of wager. That’s easy when you’re at MGM Resorts but a little more difficult when you’re betting with friends or office workers at your local bar. Consider writing those down in a notebook or capturing them on your cellphone so that you can present your tax pro with proof come tax time. Remember: Whether you’re rolling dice in Vegas or betting in your living room, the gambling and tax rules are the same.
