Although Maryland House Bill No. 989 failed to pass and legalize in-state sports betting in 2018, industry experts believe betting on sports will become legal in our state sooner rather than later, and it could have a major impact on Maryland’s economy.
In fact, with the flurry of legislative activity surrounding legalized sports betting in the United States over the past year, it seems the question isn’t if Maryland will someday have legal sports gambling, but rather when. But what would legalization mean in terms of taxes for the lucky winners (or unlucky losers)?
Keep reading to learn more about state-sanctioned sports gambling and find out how it could affect Maryland residents and their taxes.
In May of 2018, the Supreme Court overturned the Professional and Amateur Sports Protection Act (signed into law in 1992) by a 6-3 vote, which means states can now choose to legalize sports betting on a state-by-state basis.
Within weeks, Delaware and New Jersey casinos were up and running with their own sports betting programs, and Pennsylvania quickly followed. However, Maryland failed to pass its own legislation (House Bill No. 989) in 2018, which means state legislators are now looking forward to 2020 as their next chance to legalize sports gambling in our state.
While Maryland residents can’t yet gamble on sports legally at home, many individuals are willing to make the relatively short drive north to Pennsylvania or south to West Virginia to place their wagers on professional and college sports games, and Las Vegas remains a popular vacation spot. So, many of our clients at S.H. Block are already contacting our offices to ask us how to report their sports gambling winnings when they file their taxes.
In case you had any doubt: yes, the government charges income tax on all gambling winnings, including those from sports gambling. So, if you’re planning on laying down a big bet for this year’s Super Bowl or going all out for March Madness, you’ll want to understand how the tax process for reporting gambling winnings works to avoid getting yourself in hot water come tax time.
Whenever someone wins at least 300 bets or at least $600 in proceeds betting on sports, the gambling facility is required to report those winnings to the IRS, which then considers the winnings income. In addition, the IRS requires the facility to withhold 24% of any winnings as federal withholding tax. When tax season rolls around, winners will receive a Form W-2G. This form lists the total amount of winnings and states how much was withheld for tax purposes.
Even if you don’t receive one of these forms, you’re still required to report every cent of your gambling winnings, whether from sports betting or any other type of gambling. So, be sure to file honestly to avoid fines, penalties, an audit, or even criminal charges. Depending on the nature and extent of an inaccurate or fraudulent tax return, you could face as much as $250,000 in fines and a maximum three-year jail sentence in addition to any back taxes owed.
Winners can itemize their losses as miscellaneous deductions on their annual tax return, but the deduction amount can’t exceed your total winnings. In other words, if you win $4,000 betting on sports but then lose $7,000, you can only deduct the $7,000 loss from the $4,000 total winnings, which will let you claim total gambling winnings of $0. You can’t deduct the remainder of your gambling losses from any other income.
Be sure to keep meticulous records of your losses, hold on to all your betting tickets, and file a Form 5754 to officially declare your gambling winnings and losses for tax purposes.
Whether you want to protect your legal gambling winnings, resolve a tax debt with the IRS through an Offer in Compromise, or navigate a State of Maryland audit of your small business, S.H. Block Tax Services is here to help.
Our attorneys and support staff have decades of legal experience, and we’ve earned an A+ rating with the Better Business Bureau. Please reach out today to schedule your free consultation so we can discuss your current situation and go over your options. To contact us, just call (410) 872-8376 or complete this brief online contact form.
References
Barker, J., & Dresser, M. (2018, May 14). Supreme Court clears way for sports betting, and Maryland casinos want in. The Baltimore Sun. Retrieved from https://www.baltimoresun.com/business/bs-md-sports-betting-maryland-20180514-story.html
Melser, L. (2018, July 23). Maryland trails neighboring states in sports betting after SCOTUS ruling. WBAL TV. Retrieved from https://www.wbaltv.com/article/maryland-trails-neighboring-states-in-sports-betting-after-scotus-ruling/22519611
The content provided here is for informational purposes only and should not be construed as legal advice on any subject. Please read our full disclaimer here.
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