Tax Cat Buzzkill: Super Bowl Betting Wins Are Taxable

Did you participate in an office gambling pool or place a few bets with your friends? Well, bad news, big winner: those bets were illegal and your winnings are taxable.

Tax researcher CCH cites unreported gambling winnings as the most prominent of 10 behaviors that can cross the line from tax avoidance to outright evasion.

Simply put, if you receive money, prizes or awards like a trip or new car from a lottery, a local raffle, a casino or sports betting, you are supposed to report the winnings as income on Schedule A of your federal-tax return. You could be subject to estimated tax payments on your winnings as well.

“If you win an informal office pool, you technically are supposed to report it,” said John W. Roth, a senior federal-tax analyst at CCH.

“But I think (the IRS) is more concerned about Internet betting, which is easier to track through credit cards.”

The most likely time a gambling situation could come to the IRS’ attention, he adds, is during an audit.

Gambling losses are actually deductible, but you can only use the deduction to offset gambling wins. You also can’t claim the deduction unless you keep an accurate record of your betting.

So how’d you make out tonight? Illegal winnings or potential deductions?

Bowl wins taxable: IRS bets on gamers [The Arizona Republic]
Sorry, Tax Cat is just mopey because he couldn’t watch the game being a Tax Cat and all. Cheer him up by befriending him on Facebook.

Comments

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  1. Stephen Brooks says:

    I lost :(

    Now to go win some to use my deductions.

  2. >YourAdHere<_GitEmSteveDave says:

    I bet my cats dinner that the Steelers would lose. How much more do I have to give them now, and can I deduct that?

  3. joellevand says:

    Didn’t bet tonight, though we did win when the Eagles beat the Cowboys in the playoffs.

  4. MooseOfReason says:

    Well, like the taxpayers will on April 15th, the Cardinals got robbed tonight.

    • Shadowfire says:

      @MooseOfReason: Possibly. The call was late, and was very much a potentially game-changing call. :|

    • Yossarian says:

      @MooseOfReason: Only if you believe that an uncalled block in the back on an interception return for a TD without which points the Steelers lose is getting robbed.

      Yeah, they got robbed.

      • MooseOfReason says:

        @Yossarian: I’m talking about the one in the last minute of the game, where the guy’s feet didn’t look like they landed in the end zone, just to clarify.

        They said they would review the call, and then a couple seconds later, the game ended. One tip-toe in the end-zone for a second until you fall outside it, should not have counted. But they should have at least reviewed it.

        • GreatCaesarsGhost says:

          @MooseOfReason:
          2 things:
          1) “One tip-toe in the end-zone for a second until you fall outside it, should not have counted.” It was two tiptoes, per the rule. The left foot was never in question. The right foot was questionable, but just barely. Then again…
          2)It was reviewed! It was at this point that Al Michaels made the idiotic comment (after the referee announced the result of the review) that the fans must know something because they started cheering.

          • GreatCaesarsGhost says:

            @GreatCaesarsGhost:
            After further review of the tape, it took 2:30 for the official review of the play. The review did not merely fail to find sufficent evidence to reverse the call, but actually confirmed the call.

            Also, apologies to Al Michaels, cuz apparently I made that whole part up. Must have been the booze.

        • Yossarian says:

          @MooseOfReason: I think Holmes got his feet down for the TD on that play.

          However, Woodley blocked in the back like a madman at the Cardinal 32 on the interception return right before halftime, and a flag should have been thrown giving Pittsburgh the ball at the 42 with 0 seconds left in the half.

        • XTC46 says:

          @MooseOfReason: It was reviewed, and the reply clearly showed he had full control of the ball and both feet touched the groung (there is no rule on how long they be in the end zone). I wanted the cardinals to win also, but the steelers played a hell of a game (despite their poor sportsmanship on several occasions)

          • Shadowfire says:

            @xtc46: Actually, I can’t believe anyone would call shenanigans on the tip-toe call. That was fair game.

            The one that irked me was the asshat pummeling the Cardinal to the ground, and the call being late. Half a second earlier, and the call would have been 15 yard penalty, Cardinals 1st down. It could have been the difference between a touchdown and a safety.

    • t325 says:

      @MooseOfReason: Robbed? I’m getting a $2,200 refund. No complaints here.

      • Traveshamockery says:

        @t325: So you floated the government a $2200 loan at 0% interest? You robbed yourself.

      • jimconsumer says:

        @t325: Dude, do you have no idea how your taxes work? Your “refund” is just them giving your OWN MONEY back to you. Why don’t you actually look at your taxes and figure out how much you PAID over the course of the year? That will piss you off. They take in excess of a grand from me every MONTH.

        Imagine how quickly we could improve the economy if we allowed to keep (and spend) more of our own money, rather than being forced to give it to these goobers in D.C…

  5. gStein_*|bringing starpipe back|* says:

    is Tax Cat in any way related to Captain Duvel Moneycat?

    • Trai_Dep says:

      @Gstein: Since they’ve never been seen in the same place/time and one of them wears thick, obscuring glasses, I’m betting alter-ego, fluttering capes and utility belts loaded for bear with catnip.

  6. Lucky225 says:

    IRS form 1040, line 21, Other Income, list type and amount.

    Type: Illegal Gambling pool

    Amount: $5,000

    Anyone? :D

    • mythago says:

      @Lucky225: “Miscellanous Income”. The IRS doesn’t care if you sold live beating kitten hearts for cash, as long as you correctly report and pay the amount of sales tax you collected.

  7. Anonymous says:

    So gambling in a private pool is illegal, but if you do it, the government wants its cut…

    Yeah, few things drive home harder how much of a protection racket taxes are than that.

  8. humphrmi says:

    Since there’s no way to differentiate an illegal office pool from a $50 ticket at a Vegas sports book (you did have a friend in Vegas at the time, right? :), it’s pretty unlikely that if you claim winnings from an office pool that you’ll be targeted for illegal gambling.

    The other issue of course is whether or not you claim the winnings. A couple hundred bucks from an office pool isn’t really going to change your tax liability that much.

    • jimconsumer says:

      @humphrmi: No, the real issue is why the morons running our government think they have any damn business telling us we can’t bet amongst friends. The fact that the office pool is illegal should prove American Citizens’ status on the food chain: We are but cattle to be controlled by the self-appointed “elites”.

  9. GreatCaesarsGhost says:

    are such bets really illegal? I’ve searched laws and codes for where I live (Columbus, OH) and near as I can tell, gambling is legal so long as you don’t “Engage in betting…as a substantial source of income or livelihood.” And this is a state with no legal bookmaking.

    Could someone please correct me if I’m wrong?

    • humphrmi says:

      @GreatCaesarsGhost: Two points I would make that there is no such thing as illegal gambling in the US:

      1. Gambling itself is legal in most states, within a casino. The problem for the states that don’t have legal gambling is, how do they prove that you didn’t just go to another state to place your bet?

      [www.worldcasinodirectory.com]

      2. The IRS doesn’t give a crap about illegal gambling, only collecting taxes. In theory, they work with the Treasury Department, but if you are consistently reporting gambling winnings on your tax forms, they certainly are not going to risk that income by turning you in.

      The only remaining issue is offshore gambling, which the Feds and states are definately taking an aggressive approach to. So just don’t bet at offshore sports books, or at least don’t leave a paper trail (like credit card receipts) and you’re probably not going to get dinged.

      I say, for all intents and purposes, that gambling is completely legal in the US.

      • humphrmi says:

        @humphrmi: …And I should have added it at the end of my rant above: I AM NOT A LAWYER.

      • microcars says:

        @humphrmi: except where it specifically defined as
        “a game of chance played for money”

        tell these guys that gambling is completely legal in the US:
        [www2.hernandotoday.com]

        these guys as well:
        [www.tcpalm.com]

        • humphrmi says:

          @microcars: Sure, when you play for higher stakes, you’re risking a bust. But I don’t think the OP and the question at hand is about high stakes card games. I think it’s about playing an office pool against the Superbowl. And in that case, it’s pretty hard for the police to “bust in” and take evidence… what, the pool sheet from your office?

    • GreatCaesarsGhost says:

      To answer my own question, this site explains how “social gambling” laws vary by state:

      [www.gambling-law-us.com]

      Ohio allows it, and Florida (as in microcars 2nd example) does not.

    • hellinmyeyes says:

      @GreatCaesarsGhost: I agree. I didn’t see anything in the gambling summary that implied “illegal” at all. I think Consumerist added that for a bit of flair.

      Nevertheless, you are supposed to supply ALL forms of income on your return, legal or illegal. Look at “bribe” and “stolen” in Publication 17. If you receive $50K to murder your neighbor, that’s taxable income. Just think Al Capone. Not brought down for any of the mob business, he was convicted of tax evasion.

  10. Pink Puppet says:

    Psh, you people and your fancy monetary betting.

    How does the IRS handle someone winning a pair of my shoes? D:

  11. mikey07840 says:

    It may be legal but where I work, it is against company rules.

    A few years ago, the company fired about 25 people in my office for participating in an office pool.

    Just be careful out there if you company has a code of conduct that prohibits gambling.

  12. coren says:

    lol, the IRS taxing illegal gains strikes me as utterly hilarious.

    • humphrmi says:

      @coren: The IRS is only interested in revenue, not actual activities that generate that revenue. If Al Capone had claimed his income, he’d probably have died in a retirement home in Florida.

      Again, I AM NOT A LAWYER.

      • freelunch says:

        @humphrmi: um….. yeah…

        Correction: they want your money regardless how you earned it. Though they are required to report you to the proper authorities if (through your tax filing) they identify evidence of illegal activities.

        that said – they problably won’t do much about small gambling winnings, since the impact to society is small. I had a nice coversation once with an IRS agent that had audited a hitman though, and needless to say the authorities were waiting before the audit was finished (guess what: the guy actually paid taxes on his income, but the lack of W2s and 1099s got him flagged for the audit).

  13. Yankees368 says:

    How can something that is illegal be taxable?

  14. HYDRAULICMONSTER says:

    Wow! My illegal football winnings are taxable?
    Well then, I’ll be sure to file it with the IRS as soon as I turn myself in to the police.

  15. KillTheAcademy says:

    If Uncle Sam thinks I’m giving him a dime from an “informal office pool” when my paychecks get raped month in and month out, then Uncle Sam can go fuck himself.

  16. radiochief says:

    All income is taxable.
    It does not matter if it was gained illegally.

    If betting was legal, it would likely be treated like state lotteries where you can deduct your losses up to the amount of lottery earnings you received.

    Frankly these best thing to if you’re a criminal is to pay taxes on your ill-gotten gains. Every criminal/mob bigwig usually gets busted on tax evasion not on the actual crimes they’ve fostered.

    • Beerad says:

      @radiochief: “Frankly these best thing to if you’re a criminal is to pay taxes on your ill-gotten gains. Every criminal/mob bigwig usually gets busted on tax evasion not on the actual crimes they’ve fostered.”

      You do realize why that is, right? There are certain problems inherent in reporting my taxes as “$60,000 from extortion, $40,000 from pimping, and $50,000 from various smuggling activities.” Sure, the IRS would be happy to collect taxes on my profitable business, but they do talk to their buddies at the FBI, DEA, etc. Tax evasion is what you get nailed for if they can’t pin the underlying crimes on you, and unsurprisingly there is not a line out the door to admit to the government that you’re engaging in said crimes. Most people would not consider that the “best thing to [do].”

      • Landru says:

        @Beerad: Simple: $60,000 from “consulting”, $40,000 from “promotional activities”, and $50,000 from various “transportation services”.”

        • Beerad says:

          @Landru: Well, then, you aren’t really paying taxes on your ill-gotten gains, you’re just lying on your tax return. Which subjects you to similar tax evasion problems in the first place.

          But I do like your professional descriptions of the work. : )

  17. Anonymous says:

    “the winnings as income on Schedule A of your federal-tax return.”

    Uh, WRONG!

    Schedule A is Itemized Deductions. Gambling income goes on Line 21 of form 1040. If this quote came from CCH, I really have to wonder how good their research service is if the screw up this super simple one.

  18. P_Smith says:

    The IRS: Making Mafia “Protection” Look Legit Since 1917

    Others mentioned laughing at illegal gains being taxable, yet certain “legal” gains on corporate share dividends remain completely untaxed.

    Who are really the bigger criminals here? Even if small-time gambling (e.g. office pools) amounted to billions of dollars, that’s a pittance compared to tax revenue lost to stock dividends and tax deferrals.

    • FinanceGuru says:

      @P_Smith: You make no sense. Do you even know how a stock dividend works? If you own 100 shares of Amazon for which you paid $100 (i.e., $1/share) and they declare a 1:1 stock dividend, you now have 200 shares of Amazon, but your investment in each of them is now — WAIT FOR IT — $0.50/share. And, almost as if by magic, your investment is exactly the same as before.

      You know why a stock dividend is not generally taxable? It’s not because the Pentavaret sneaked it into a tax bill at Midnight. It’s because a stock dividend does not meaningfully change the shareholders’ economic position.

      That’s not the same as getting $1/share in cash dividends. All holders of (that class of ) common stock are being equally diluted by the same amount, at the same time.

      So explain how a stock dividend is tax avoidance?