Did you know that your winnings are taxable?
The 2016 Champion Football Gamel is around the corner, so close you can almost smell the fresh, spicy wings and the bubbling nacho cheese dip. Apart from its delicious snack foods, this championship game is also known as the king of sporting gambling events. Upwards of 100 million is often gambled on this one sporting event alone. And that number only accounts for legal bets placed in Nevada, where betting on sports is legal!
Consider the fact that Nevada brings in $3.45 billion in commercial gambling sports bets per year, and compare that to the estimated $380 billion brought in nationwide by illegal sports wagers. Given the high tax rates, it’s evident that the IRS is missing out on a major source of revenue. How is that possible? Well, there are more ways to commit gambling offenses than most people are even aware–ways that end up with a call to an attorney.
Promoting gambling, bookmaking, book keeping, fifth degree conspiracy maintaining an illegal gambling resort: all of these are commonly-known gambling offenses. There are, however, gambling offenses that are less well-known but far more ubiquitous.
One Major Gambling Offense You Could Easily Commit
- Tax Evasion
Tax evasion is one of those gambling offenses that can happen in the blink of the eye. It’s also one of the biggest answers to the question, “what is considered illegal gambling?” In order to avoid this gambling offense, you actually have to go way, way out of your way. What might seem like an innocent round of poker among friends should–according to the law–still be noted with precise detail.
Bankrate.com points out the following ways to avoid tax evasion and the inherent difficulties for the average lay person to adhere to them:
“To substantiate these amounts, the IRS says you must keep records of every single gambling session. “You spend 15 minutes at the craps table and finish up with $500. Take a break, then spend 45 minutes at the blackjack table. That’s another session,” says Polizzano. “In my opinion, that’s overly burdensome. Who really does that?”
Another documentation requirement, per IRS Publication 529, Miscellaneous Deductions, is that you keep a diary or log of gambling activities. The log is supposed to show not only the amounts you win or lose, but also the date and type of your specific wager or wagering activity, the name and address or location of the gambling establishment, and the names of other persons present with you when you gambled.”
That applies to all gamblers, whether professional or recreational. The recreational gamblers have one set of rules that apply to how they declare their winnings. It is not sufficient to take winnings and losses, deduct the losses from the winnings, and just report that amount. Rather, you are required by law to declare the winnings as income, and then you have the option of deducting your losses (although you can deduct only the same amount of losses as your winnings–no more).
Kay Bell of Bankrate.com says, “In these cases, any winnings should be reported to the IRS as “other” income. Recreational gamblers also can reduce the amount of their taxable winnings by itemizing their expenses and counting gambling losses as a deduction in the “other miscellaneous deductions” category of Schedule A. Professional gamblers, on the other hand, essentially gamble regularly with the intent to profit enough to earn a living. The tax court ruling that set up the standards for professional gambling, says Polizzano, ‘basically requires people to file one way or the other, professional or recreational.’”
Now that you know what to avoid, don’t be caught with a ‘dear valued taxpayer’ letter and nothing to justify your winnings. It may seem painstaking, and at times frustrating, but it’s the best way to avoid committing any unwitting gambling offenses, and the negative effects thereof.