Tax Strategies for Gambling Profits and Setbacks: Key Points to Keep in Mind
================================================================================
In the United States, all gambling winnings—including those from online sports betting—are fully taxable income and must be reported on your federal tax return. This applies regardless of whether you receive a Form W-2G from the betting operator or not.
Key tax implications for online sports betting winnings include:
- Taxable income includes cash winnings and fair market value of non-cash prizes (e.g., merchandise, trips) from sports betting.
- You might receive a Form W-2G if your winnings exceed certain thresholds ($600 or more for most bets if payout is 300 times the wager), but you must report all winnings even if you do not receive this form.
- You are required to report all winnings on your tax return, even if you lost money overall, and those winnings are fully taxable.
- You can deduct gambling losses only if you itemize deductions, but those deductions cannot exceed your total gambling winnings. Losses cannot be used to offset other types of income.
- Starting January 1, 2026, a new IRS rule will limit deduction of gambling losses to 90% of gambling winnings, meaning there could be taxable "phantom income" if your losses equal your winnings.
Regarding state taxes, most states also tax gambling winnings, including online bets; state rules vary widely but generally follow federal guidelines.
Recent Legislative Update
Previously, you could fully deduct losses up to your winnings. However, from 2026 onward, only 90% of losses can be deducted against winnings, potentially increasing taxable income from gambling.
In essence, anyone engaged in online sports betting must report all winnings, keep careful records of wins and losses, and be aware of the upcoming limitation on loss deductions starting in 2026 to remain IRS compliant.
The United States gaming industry is currently booming, with about 55% of all American adults gambled in the last year, according to the American Gaming Association. The taxation of gambling winnings is a significant aspect of the gambling industry.
References:
- IRS Notice 2023-03
- IRS Publication 525
- IRS Publication 505
- IRS Publication 3056
- IRS Publication 15-H
- Given the increasing popularity of online sports betting, it's crucial for anyone involved in this form of business to understand that their winnings, regardless of whether they stem from casinos, sportsbooks, or online platforms, are fully taxable and must be reported to the IRS.
- As the finance sector continues to evolve, the gambling industry, including casino-and-gambling businesses, has become more intertwined with the broader business landscape, requiring a comprehensive understanding of tax implications to ensure compliance and minimize potential tax liabilities.
