The last thing you probably thought about when you filled out your college basketball tournament brackets was the possibility that you will have to pay taxes on your winnings. But that’s the case, says Mark Luscombe, principal federal tax analyst for Wolters Kluwer CCH Tax and Accounting.

Of course, the IRS realizes that your co-worker who’s in charge of the NCAA men’s basketball tournament office pool isn’t going to send you a W-2G detailing how well your picks paid off.

The IRS is depending on all winners of March Madness bets to voluntarily report that income on next year’s tax return.

Sorry, Uncle Sam. You are out of luck. The thousands of office pools that begin with today’s basketball games are likely to produce taxable, yet unreported, income.

Lots of lost gambling tax money

And that’s the least of tax collectors’ worries.

Sports betting is a — some say, the — major U.S. pastime. While the Super Bowl is the single biggest betting event, more money is wagered in Las Vegas during the 2 1/2 weeks the annual college basketball tourney is underway.

And the FBI estimates that more than $2.5 billion is illegally wagered on March Madness each year. You can be sure those bookies and their clients aren’t thinking about 1040 forms as the under-the-table money changes hands.

Advocates of legalized betting, be it in person at casinos or off-track betting parlors or online, say that one of the advantages of sanctioning gambling would be more official revenue. When it’s legal, the bet payers would then report their customers’ winnings to the proper tax authorities.

That revenue argument is gaining some traction as the federal and state governments are on a constant search for more money. But legal gambling nationwide is still a long way from being reality.

Gambling tax tasks

So until then, the IRS wants to remind you of your duty to tell it about all your gambling luck.

All gambling winnings are taxable income.

If, however, some of your NCAA brackets don’t pan out or you make some bad bets on your next trip to the race track or Las Vegas, they can offset any other gambling winnings. They cannot, however, be used to reduce other income. Losing wagers can only be claimed on Schedule A to the extent that they are less than or equal to your winnings.

And, points out Luscombe, be careful if your winnings come in the form of a prize, such as a car or vacation trip. In these cases, he says, the value of the prize is still taxable, but you didn’t get any cash to cover the taxes.

You’ll have to come up with that money out of your own pocket. That’s just another chance you take when you gamble.

More tax info from Bankrate

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Veteran contributing editor Kay Bell is the author of the book “The Truth About Paying Fewer Taxes” and co-author of the e-book “Future Millionaires’ Guidebook.”

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