Sports Betting Tax Advice from my CPA

Yes, this is another tax thread. These are the direct answers I received from my CPA who has 25+ years of experience filing for gamblers, both professional and not. Don’t shoot the messenger.

Do I report winnings gross or net? Surely net, right? Right!??

Winnings are reported on a gross amount. If you open an app and it shows a ledger of $30,000 winnings, $28,000 bets wagered, Win/Loss $2000, the IRS needs the $30,000 number. The $28,000 gets reported on a Schedule A under gambling losses, and only factors into your net tax liability if you itemize.

But isn’t sports betting on an app just one long session? I don’t pay taxes on every hand of blackjack I win.

No. Unfortunately this matter relies on case law, for which the precedent for online gambling is an “every bet is a session” accounting.

So if I don’t itemize and I have huge gross winnings, that means I could owe thousands in taxes?

Yes. If you have thousands in gross winnings and didn’t plan to itemize, you will essentially owe taxes on the difference between your standard deduction and your pre-gambling itemized tax amount when switching to an itemized gambling loss deduction.

If I report net winnings instead of doing it by the book, what are the odds I get audited?

Almost zero. Obviously my CPA didn’t advise me to do this, but of the thousands of filings she had done in her career, she has only had 3 audits, and all of them were due to inconsistencies on a Schedule C filed only by professional gamblers. She also said that due to COVID delays, the odds of getting audited are even smaller.

Are there any other hidden downsides to having an inflated Adjusted Gross Income when I have gross winnings of tens of thousands of dollars?

Yes. Student loan interest deductions and child tax credits go away at certain AGI.

On the state tax side, she said certain states don’t allow ANY deduction for gambling losses on state taxes. I.e. if you live in IL, you probably just shouldn’t ever gamble. Every bet you win comes with a 4.95% tax on gross winnings. If your state doesn’t allow gambling loss offsets, there is no limit to what you could owe regardless of your year-end profitability.

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