Billions are being bet on basketball brackets as part of March Madness. But will you report the winnings?
Not much can console an inconsolable Michigan State Spartans fan during this weekend’s Final Four — except maybe for this tax tip.
If you’re stuck with a busted bracket, start throwing around this annoying tax tip at the sports bar: Gambling winnings, no matter the amount, are fully taxable.
The NCAA men’s basketball tournament isn’t just about the wings and brew. March Madness is one of the major wagering events in the U.S. where this year $9.2 billion is expected to be bet through office pools, Nevada sports books, illicit offshore sites and illegal bookies, according to the American Gaming Association.
That’s up from $9 billion last year.
The gaming association said 40 million people fill out brackets and the average person completes nearly two brackets. The average bet per bracket totals $29.
And of the $9.2 billion that will be wagered this year, only about $262 million will be bet legally at Nevada sports books.
But here’s the thing: Even if you don’t get a tax form when you win money in that office pool, taxpayers still are responsible for reporting the prize on their tax return, according to H&R Block.
Really? Who does that? Who reports $50 or $100 won in an office pool to the feds?
“In my 33 years of preparing tax returns, I have a 0% reporting rate,” said George W. Smith IV, a certified public accountant at George W. Smith & Co. PC in Southfield.
Gambling winnings — especially without a paper trail — are one of those things that, well, some taxpayers seem to forget when they head to their tax preparer’s offices.
“In practice, I seldom have a client meeting with me to do taxes, when the taxpayer tells me ‘I won a square in the Super Bowl for $100. Don’t forget to include that in my tax return!'” said Joseph DeGennaro, tax director for Doeren Mayhew in Troy.
Many times, he said, this type of undocumented income from minor gambling rarely sees the tax return. If a client tells the tax preparer about the winnings, DeGennaro said, the preparer must include it.
Marshall Hunt, certified public accountant and director of tax policy for the Accounting Aid Society’s tax assistance program in metro Detroit, said gambling winnings, including office pool winnings, should be reported on Line 21 of the 1040 federal tax return as “other income.”
The “other income” reporting applies to recreational gamblers. Professional gamblers, such as full-time poker players, use Schedule C. Most people, even if they do pretty well when they gamble, are not professional gamblers and shouldn’t try to use Schedule C.
Hunt said gambling winnings are taxable by Michigan and for residents of cities with an income tax, too.
For federal purposes only, gambling losses in a given year are deductible to the extent of winnings as an itemized deduction, Hunt said.
Michael Sonnenblick, tax analyst with Thomson Reuters Checkpoint, said gambling winnings are taxable regardless of the legality of the game.
“You might not win $600 from an office pool, but even if you win a dollar, it is taxable,” Sonnenblick said.
The office pool organizer would have to report to the IRS only if the winnings are $600 or more. The person running the office pool would have to submit a W-2G form to the IRS and send a copy to you if your winnings are $600 or more and at least 300 times the amount wagered.
Gambling losses, up to the amount of gambling winnings, are treated as a miscellaneous itemized deduction but they are not subject to a 2% limit. See Schedule A. The same’s true for some other losses, such as losses from Ponzi-type investment schemes.
In other cases, you must reduce the total of most miscellaneous itemized deductions by 2% of your adjusted gross income.
But remember, only winners can deduct March Madness losses. So you need a gambling win somewhere to deduct those losses. You’d need some proof of those losses, though.
Plenty of money, no doubt, was lost in Michigan on those crazy brackets. On March 18, MSU endured one of the biggest upsets in March Madness history when Middle Tennessee State University shocked the world by defeating the Spartans, who some had pegged to win the title.
Hard to imagine that a tax tip will ease the pain. But maybe it can help a bit. Or not.
Contact Susan Tompor: 313-222-8876 or email@example.com. Follow her on Twitter @Tompor.
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