Win a Sporting Wager? You can Bet it's Taxable

Did you place a bet on the Super Bowl or recently pick up a lottery ticket? 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 three 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 almost 40 years ago.

Judging by the continually expanding gambling options across the country, Americans' support of gambling hasn't waned. Almost every state and the District of Columbia sanction some sort of gambling.

The reason 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 Internal Revenue Service, 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.

Taxes On Gambling Winnings In Sports

Super Bowl-sized betting

For fans of the Seattle Seahawks and the Denver Broncos, Super Bowl XLVIII will be the culmination of their die-hard support. For the rest of the world, it will be a chance to cash in on myriad wagers.

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

In the United States, legal sports books in Nevada account for part of that money. In 2013, the Nevada Gaming Control Board reported that a record $98.9 million was bet on the Super Bowl at Nevada casinos.

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 as Super Bowl Sunday nears. 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.

Taxes On Gambling Winnings In Sports

Lucrative March Madness

Next up in the U.S. sports gambling spotlight is March Madness, when men's college basketball teams compete for the national championship.

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

The college hoopsters battle on the court for a month, going from 68 teams to 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.

But this year, the stakes are higher than ever. Legendary investor Warren Buffett is backing a bet that will pay out a $1 billion prize over 40 years to anyone who can accurately predict the victor of every tournament game.

The likelihood of anyone actually winning is nearly impossible. But in the event someone does, the IRS will definitely get its share.

Taxes On Gambling Winnings In Sports

Racetrack bets and more

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

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.

Taxes On Gambling Winnings In Sports

Sports betting in Nevada, Delaware, New Jersey

While full-scale sports betting is legal only in Nevada, the opportunity is opening 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. Delaware bettors wagered more than $25 million on the NFL in 2012. For the 2013 professional football season, the state doubled the retail sites where sports lottery tickets could be bought.

Neighboring New Jersey is challenging the federal sports-betting prohibition. Voters there passed a sports-betting referendum in 2011. However, the NFL, NBA, NHL, Major League Baseball and NCAA sued the state, citing PASPA, and arguing that the betting law would harm the integrity of their games.

New Jersey has lost lower court rulings, but state officials have vowed to take the case to the U.S. Supreme Court.

The legal fight has been costly, but analysts say sports betting could raise more than $100 million a year for New Jersey.

Poker and online gambling

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.

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.

Meanwhile, legislation has been introduced in Congress to legalize online gambling in general by Rep. Peter King, R-N.Y., and Internet poker in particular by Rep. Joe Barton, R-Texas.

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.

Online poker and real-life sports

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. Both teams are owned by Josh Harris.

The multi-year agreement with PartyPoker NJ, a division of Gibraltar-based Bwin.Party Digital Entertainment, reportedly is worth $10 million.

Bwin also has a deal with Borgata casino in Atlantic City, N.J., but its deal with the Devils and 76ers is the first time that United States professional sports teams have partnered with an online gambling operator.

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.

The U.S. deal will reportedly involve radio and television advertising, as well as signs at teams' arenas and booths where the millions of NHL and NBA fans who attend games can get information about establishing an online poker account.

How to file gambling wins, losses on your return

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.

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.