Every gambler has thoughts in their head of winning big. The reality is that it should be considered a win by turning even the smallest of profits. Most gamblers lose money, so there’s no shame in just winning a little bit.
When tax season comes around, how much can someone win without paying taxes? Every person has a different tax situation, but knowing a bit can help.
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How Much Money Can You Win Sports Gambling Without Paying Taxes?
According to the IRS, a sportsbook must issue a W-2G form to anyone who wins $600 or more. When a person wins $5000 or more, a sportsbook needs to automatically withhold 28% for federal income taxes.
State Taxes on Gambling Winnings
On top of federal taxes, some states also tax gambling winnings. They usually don’t take that much, but it’s important to check with each state beforehand. These tax laws are always evolving as well, as sports betting legalization is happening at a rapid pace. What might be true in the 2022 tax season could change in 2023.
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States understand that this can be a huge money-making opportunity for them. It’s one of the reasons why legalization is happening in the first place.
Taxes on Small Wins and Losses
If a person wins less than $600 gambling during a year, they are still technically obligated to add that to their income. It usually doesn’t make much if any difference to a person’s taxes, so it’s not a huge deal.
When it comes to losses, it’s very important to keep track of those as well. This is because they can be potentially deductible. This will require people to itemize so that they can deduct gambling losses, because otherwise, they will just receive a standard deduction.
Professional gamblers have a bit more leeway as far as the talking losses. It becomes a business expense in that area, which means it can go on Schedule C without necessarily itemizing. To qualify as a professional gambler, a person has the show that they are spending a lot of time placing wages like it’s their sole job.
Do Taxes Influence Sports Gamblers?
If the plan is to become a professional gambler, or even win thousands of dollars in a single year, taxes 100% need to be considered. It eats into a person’s profit, and it can be tricky the first time listing wins and losses on a return.
Keep in mind that taxes come out of any type of money earned, so this is no extra penalty. It’s always frustrating to find out how much is shaved off of the original win, but people still end up on top.
Strategies To Limit The Tax Burden
When it comes to winning money through sports gambling, a few different strategies exist that people can use to minimize tax burden and maximize winnings. Parlay betting helps with taxes, because people have a chance to win big once or twice instead of a bunch of smaller wins. Fewer bets mean less complicated taxes.
Remember to take advantage of tax-exempt accounts like IRAs to safeguard winnings. Additionally, many states offer lower tax rates for residents who gamble online, so it is important to consider the tax implications and rules in each state.
Why Taxes Exist in Sports Betting
The government always wants a cut of any money earned. Taxes help pay for a lot of things people take for granted, which is why they need all the revenue they can get. It’s a necessary evil that is hard for anyone to get around.
Take advantage of as many ways as possible to lower the tax burden. It might take a little bit more time when filing each year, but it’s worth it to stay in the game.