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Taxes on gambling winnings © Feng Yu/Shutterstock.com

Taxes on gambling winnings

Have you placed your Super Bowl office pool bets? Don't feel guilty. Gambling is inevitable.

That was the determination in 1976 of the Commission on the Review of the National Policy Toward Gambling, which spent 3 years studying gambling in the United States.

"No matter what is said or done by advocates or opponents of gambling in all its various forms, it is an activity that is practiced, or tacitly endorsed, by a substantial majority of Americans," the report noted 40 years ago.

A new landscape

Judging by the continually expanding gambling options across the country, the report was prescient. Almost every state and the District of Columbia sanction some sort of gambling.

The reason for the governmental imprimatur is the same one that tempts bettors: money. The gambling industry is an important part of many states' economies. Gambling proceeds also help fund education programs or special state projects.

Then there are the taxes. In most states, tax collectors get a portion of residents' winnings. So does the IRS, which collects taxes on gambling winnings since they are considered income.

Here's a look at some betting that could boost state coffers and the U.S. Treasury if all the winners pay their taxes.

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Super Bowl-sized betting

Super Bowl-sized betting | Scott Cunningham/Getty Images Sport/Getty Images

For fans of the Carolina Panthers and Denver Broncos, Super Bowl 50 is the culmination of their die-hard support. For the rest of the world, it is a chance to cash in on myriad wagers.

Each year, when the top 2 NFL teams meet for the season's final contest, around $10 billion is bet worldwide.

2014 Super Bowl bets were record breaking

In the United States, legal sports books in Nevada account for part of that money. The Nevada Gaming Control Board reported that a record $119.4 million was bet on the 2014 Super Bowl at Nevada casinos. Wagers on the 2015 NFL championship game came in at almost $116 million.

Legal sports betting in Nevada, however, is just a fraction of the domestic wagering picture. The Silver State's legal sports wagering represents less than 1% of all sports betting nationwide, according to the American Gaming Association.

Meanwhile, millions in illegal bets are placed with bookies or made online. In 1999, the National Gambling Impact Study Commission estimated all illegal sports wagers amounted to as much as $380 billion a year.

But all bets -- legal, illegal or even among co-workers dropping a few bucks in the office pool -- share one thing: Winning bets are taxable income.


Lucrative March Madness

Lucrative March Madness © Pierre E. Debbas/Shutterstock.com

In the spring, the U.S. sports gambling spotlight focuses on March Madness, when men's college basketball teams compete for the national championship.

Although the Super Bowl is the single biggest 1-day sports betting event, the expanded basketball playoffs make this tournament the biggest draw for gamblers in sheer dollars wagered.

March Madness

The college hoopsters battle on the court for a month, going from 68 teams to 64 to 32; then the Sweet 16 and Elite Eight elimination rounds. By the time the teams reach the Final Four, and then the ultimate championship game, thousands of bets have been placed.

Nevada's sports book operators estimate they take in $80 million to $90 million in wagers on the annual tournament. That, however, is less than 4% of the illegal take, according to the American Gaming Association.

The FBI estimates that more than $2.5 billion is illegally wagered on March Madness each year. That's $2.5 billion from which the IRS will never see a penny.


Racetrack bets and more

Racetrack bets and more © Cheryl Ann Quigley/Shutterstock.com

Although horse racing is not as popular as it once was, the "sport of kings" still draws its share of bettors.

That was apparent in 2015 when American Pharoah became the 12th Triple Crown winner. Racing fans had been waiting since 1978, when Affirmed won the Kentucky Derby, the Preakness Stakes and the Belmont Stakes, collectively known as the Triple Crown. In each race that American Pharoah crossed the wire first, excitement and bets increased. Although the bay colt has retired from the track, the horse racing industry is hopeful that the thrill of finally having another Triple Crown winner will carry into 2016 as bettors try to pick the 13th horse to take that title.

Not just fun and games

Part of the allure of gambling on the horses is that it demands some study. Fans pore over the Daily Racing Form and track programs, comparing not only the animals' lineages, but jockeys' and trainers' records.

Racing also offers a variety of ways to bet. In addition to the standard win, place and show, a bettor can choose to bet a quinella, exacta, trifecta, superfecta, daily double or picks 3, 4 or 6.

Such a plethora of ways to wager is probably the basis for the old saying that the sport of kings has impoverished a lot of commoners.

That's even truer now that many tracks also have casinos, known as racinos, on the premises. Racinos are found in 15 states: Alabama, Delaware, Florida, Indiana, Iowa, Louisiana, Maine, Maryland, New Mexico, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island and West Virginia.

When your horse does make it across the line first or your slot machine pull hits all sevens, remember to let Uncle Sam know of your good luck when you file your return.


Betting in Nevada, Delaware, New Jersey

Sports betting in Nevada, Delaware, New Jersey © L.E.MORMILE/Shutterstock.com

While full-scale sports betting is legal only in Nevada, the opportunity has opened up on the East Coast.

The Professional and Amateur Sports Protection Act, or PASPA, enacted in 1992, outlaws sports gambling everywhere except in states that had previously legalized sports wagering. This covers Delaware, Montana, Oregon and Nevada.

Delaware took advantage of its exemption and in 2009 authorized betting only on NFL games using parlay, or combined, betting cards. The limited sports betting has not deterred gamblers. The number of bets placed has increased every year, with nearly $38 million wagered in 2015.

Most online betting happens in New Jersey

In November 2013, neighboring New Jersey began offering online poker and other gambling options. According to a University of Las Vegas Center for Gaming Research study, New Jersey online betting accounts for more than 90% of the legal U.S. online gambling revenue. And while the monthly takes were inconsistent in the first year of Internet gambling, the Garden State's treasury took in almost $121 million from online bets between Nov. 21, 2013, and Nov. 30, 2014.

New Jersey also is continuing its effort to offer legalized sports betting, with a lawsuit that is working its way through the federal court system. The case is expected to eventually end up before the U.S. Supreme Court.


Poker and online gambling

Poker and online gambling © taylor/Shutterstock.com

Poker is viewed by many as a game rather than a sport, although poker tournaments have shown up on sports cable channels. However you characterize it, poker's popularity is growing. It's a particular favorite of online players.

For many years, online gambling, including poker, was the target of federal prosecutors. Under the Unlawful Internet Gambling Enforcement Act, Internet gambling sites were effectively shut down. The biggest strike against poker came in 2011 when an FBI sting operation closed the three largest online poker sites for violating Internet gambling prohibitions.

Online gambling still not legal nationwide

States are still allowed, however, to set their own online gambling laws. So far Nevada, New Jersey and Delaware have officially legalized online gambling, including poker playing.

At the national level, legislation has been introduced in past congressional sessions to legalize online gambling in general. Although those measures did not advance, supporters continue to lobby Congress.

The reason for this shift at state and federal levels? Once again, it's money. Dr. Kahlil Philander of the University of Nevada Las Vegas has researched the U.S. online poker market and says it could be worth more than $2 billion a year.

It's unclear whether recent state actions against fantasy sports operations like DraftKings and FanDuel will help or hurt the overall online gambling effort. The companies and their millions of fans say participation is in skill-based games. However, Attorneys General in several states, most notably New York and Nevada, have determined the online sites are illegal gambling and barred operation within their borders.


Online poker and real-life sports

Online poker and real-life sports © Bobboz/Shutterstock.com

Online poker now has a foothold in real-life sports.

PartyPoker.com, a website where players wager money in online poker games, had reached advertising deals with the NHL's New Jersey Devils and NBA's Philadelphia 76ers in 2014. Both teams are owned by Josh Harris.

Unlikely partnership

When it was signed, the multiyear agreement with PartyPoker NJ, a division of Gibraltar-based Bwin. Party Digital Entertainment, was reportedly worth $10 million. The deal was the first time that United States professional sports teams partnered with an online gambling operator.

It involved radio and television advertising, as well as signs at the teams' arenas and booths where the millions of NHL and NBA fans who attend games could get information about establishing an online poker account.

Since that groundbreaking sports-and-gambling partnership, the Philadelphia basketball team has changed course a bit. The 76ers terminated the poker deal in 2015, and replaced it with equally controversial fantasy sports giant DraftKings, which many say is thinly disguised online betting.

The 76ers and Devils' affiliation with an online betting site upset many sports traditionalists, as well as folks opposed to gambling in general. The shift by the NBA team to fantasy sports isn't likely to ease such criticism. NBA Commissioner Adam Silver, however, has no problem with the deal or betting on major league games. In a November 2014 New York Times op-ed, Silver argued for the legalization and regulation of sports betting on professional, not college, athletic events.

In Europe, where gambling on sporting events is commonplace, Bwin has deals with many European sports teams, including soccer teams Real Madrid in Spain, FC Bayern Munich in Germany, Manchester United in the United Kingdom, Olympique de Marseille in France, Juventus in Italy and RSC Anderlecht in Belgium.


How to file wins, losses on your return

How to file gambling wins, losses on your return © Shawn Hempel/Shutterstock.com

Regardless of how much you win on bets, sports and otherwise, you're supposed to pay taxes on the winnings.

Casual gamblers, those folks who visit casinos a few times a year or buy lottery tickets when the jackpot hits a record amount, are required to report gambling winnings as "other income" on line 21, Form 1040.

Sometimes the amounts won trigger withholding at 25% when the lucky gambler is paid. In other instances, a gambling establishment simply will ask winners for a tax ID (the individual's Social Security number) for tax-reporting purposes.

Form W-2G detailing the winnings and any withholding then is sent to the bettor, as well as the IRS. But even without official documentation, you are legally required to report all your winnings.

Good and bad news

The good news is that gambling losses are deductible. You tally all those bad bets in the "other miscellaneous deductions" section of Schedule A.

Remember, however, that you can only deduct losses to the extent of your gambling winnings. You might be able to zero out your winnings, but if you have more losses than payouts, too bad.

You cannot use your bad betting luck to claim a tax loss on your return.

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