Uninformed Gamblers in Kansas Disregard Tax Rules Pertaining to Betting
In the heart of the United States, Kansas has celebrated the second anniversary of its legalized sports betting market. With numerous opportunities for gambling, many residents, like casual gambler Michael Pointer, enjoy placing bets on various games and events. However, a recent study has shown that a significant number of US gamblers, including those in Kansas, are not aware of the requirement to report their gambling winnings to the Internal Revenue Service (IRS) [1].
The IRS expects gamblers to compile a log of their gambling activities throughout the year, including the amount they wager, the games or events they bet on, and when they bet [2]. This log is crucial for accurate reporting of taxable income, as gamblers are required to report even small winnings as income, which can affect their taxable income [3].
Sportsbooks only send a tax form (W-2G) for hefty wins, allowing bettors to self-report smaller winnings [4]. Shane Albrecht, the general manager of Liberty Tax in Kansas, Oklahoma, and Arkansas, emphasized this requirement [6]. Bettors who do not reach the threshold needed to receive the W-2G form are still required to keep track of all their wins and losses as they occur [5].
When asked about filing his gambling losses with his taxes, Pointer said he "had no idea" he was required to do so [7]. This lack of awareness is not uncommon, as the Treasury Inspector General for Tax Administration conducted a study showing that as of March 2023, nearly 150,000 Americans have failed to file their taxes on big gambling winnings [8].
The IRS has pointed out that bettors may also be required to file taxes in the respective state if they place a bet in another state, such as Colorado [3]. Failure to report all gambling income can result in penalties, interest, and additional taxes owed, as the IRS cross-checks gambling wins against third-party reports like Forms W-2G [1].
Following these guidelines ensures compliance with IRS regulations and helps Kansas gamblers accurately report gambling income and related taxes. Key steps for correct reporting and compliance include:
- Report all gambling winnings, including cash, noncash prizes, and pooled winnings, on your federal return even if you do not receive Form W-2G.
- Deduct gambling losses only if you itemize deductions on Schedule A, and only up to the amount of your gambling winnings. Losses cannot reduce other income.
- Keep accurate records of all gambling activities, including wins, losses, wagers, and related documentation to support your reported figures and deductions if audited by the IRS.
By adhering to these guidelines, Kansas gamblers can ensure they are in compliance with IRS regulations and avoid potential penalties and additional taxes.
[1] https://www.irs.gov/newsroom/underreporting-of-gambling-income-continues-to-be-a-concern-for-the-irs [2] https://www.irs.gov/taxtopics/tc421 [3] https://www.irs.gov/taxtopics/tc421/tc421-00.html [4] https://www.irs.gov/taxtopics/tc421/tc421-010.html [5] https://www.irs.gov/taxtopics/tc421/tc421-011.html [6] https://www.kansascity.com/news/business/article263848078.html [7] https://www.kansascity.com/news/business/article263848078.html [8] https://www.treasury.gov/tigta/auditreports/2023reports/202330034fr.html
- Michael Pointer, like many sports betting enthusiasts in Kansas, enjoys wagering on various sports events, but he might not be aware that he needs to report his gambling winnings to the IRS, even for small victories.
- Because sportsbooks only send out a W-2G tax form for significant wins, bettors must keep a record of all their winnings and losses in order to comply with the IRS requirement for reporting taxable income.
- Engaging in casino-games or sports-betting activities in Kansas or any other state does not absolve gamblers from their responsibility to report their gambling income, and failing to do so can result in penalties, interest, and additional taxes owed.
