Super Bowl 59 tax tip: Don't bet on being able to deduct your gambling losses

Super Bowl 59 tax tip: Don’t bet on being able to deduct your gambling losses

Posted by author February 6, 2025 Gambling

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All gambling winnings are taxable, which isn’t exactly the tax tip that you want to hear on Super Bowl Sunday.

But when the Detroit Lions — once a favorite to play in the Super Bowl back in early January — aren’t anywhere near the Caesars Superdome in New Orleans, well, why not spread the pain?

Tax-related paperwork for winners was bound to grow, along with legalized sports gambling. Legalized betting — including online sports betting — makes it easier for the IRS and state tax authorities to track your big wins and make sure that you pay the taxes owed.

“I’m seeing a lot more IRS notices regarding unreported gambling winnings. The IRS has clearly figured out it’s a winner too in this game,” said George Smith, a CPA with Andrews Hooper Pavlik in Bloomfield Hills.

Super Bowl 59 will be a day of super-sized betting activity, and according to the gaming industry, will mark another major milestone in the growth of the legal U.S. sports betting market.

A record $1.39 billion is expected to be bet legally on Super Bowl 59, according to predictions issued Tuesday by the American Gaming Association. The estimate includes legal wagers only in U.S. legal jurisdictions.

Right now, 38 states and the District of Columbia have legalized sports betting. A U.S. Supreme Court decision in 2018 opened the gates for all states to offer sports betting.

The Michigan Gaming Control Board announced in late January that iGaming and sports betting operators handled more than $5 billion in bets overall in 2024.

The state of Michigan officially allowed online sports betting for the first time starting Jan. 22, 2021.

People bet on all sorts of things. Philadelphia Eagles running back Saquon Barkley is favored to score the first touchdown of Super Bowl 59, according to a news release from BetVictor Canada issued a few days before the Super Bowl.

Barkley has received 12% of bets in the first touchdown market, according to BetVictor Canada, and 42% of bets to score a touchdown at any time during the Super Bowl.

April Walker, lead manager for Tax Practice & Ethics with the American Institute of CPAs, said the fact that sports betting has been legalized in more states in recent years likely means that more people will face tax forms related to their gambling winnings.

“Whether they’re all winning or not, that’s a whole different story,” she said with a laugh.

Many times, she said, people wrongly think they can just net out their losses against their gains to save money on their tax bill. But it’s not as simple as saying, ‘I won $2,000 but I lost $1,000 on gambling in 2024.’ No, you cannot just decide to do the math and only report winnings of $1,000 in this example. Chances are you could owe more in taxes than you’d imagine.

What do casual gamblers need to know at tax time?

All those gambling losses aren’t worth much anymore

Gambling losses for most people aren’t worth as much as they think they are at tax time.

You can claim gambling losses up to the amount of your winnings only if you itemize all your deductions. Most people don’t itemize these days because they get a better tax break by taking the standard deduction.

“If they cannot itemize their deductions, they probably get no tax deduction benefit of the gambling losses they incurred since, as we all know, the house always wins,” said Smith, the Bloomfield Hills accountant.

And remember the term “up to the amount of your winnings.” If, for example, you lost $5,000 on bad bets, but won $1,000 in 2024, you might be able to claim only $1,000 in losses. You could not claim $4,000 in losses in this example. Again, that’s only if you itemize deductions.

Roughly 10% of taxpayers choose to itemize; about 90% of taxpayers claim the standard deduction.

The Tax Cuts and Jobs Act of 2017 nearly doubled the amount of the standard deduction that could be claimed. And the act, which runs through 2025, eliminated or reduced many itemized deductions.

The standard deduction is $14,600 for 2024 tax returns for single taxpayers and married individuals filing separately.

The standard deduction climbs to $29,200 on 2024 returns for married couples filing jointly.

For heads of households, the standard deduction is $21,900 for tax year 2024.

For 2024, the additional standard deduction amount for taxpayers who are 65 and older at the end of the tax year or blind is $1,950 for single or head of household; and it’s $1,550 for married taxpayers or qualifying surviving spouse.

For tax year 2024, you’re considered to be 65 if you were born before Jan. 2, 1960.

What if you do itemize?

Sure, nobody likes to crunch the numbers to add up how much money they’ve lost making bad bets in a year. But maybe you wouldn’t mind as much, maybe, if you could get a tax break.

“Every taxpayer has two options when they file their federal tax return: They can either take the standard deduction or itemize their deductions,” said Mark Steber, chief tax information officer for Jackson Hewitt Tax Services.

Some taxpayers, he said, should itemize deductions if their allowable itemized deductions are greater than the standard deduction.

Those who should consider itemizing their deductions, he said, could have “unreimbursed medical or dental expenses that exceed 7.5% of their adjusted gross income, home mortgage interest, gifts to qualifying nonprofit organizations, or even gambling losses.”

You need records — and your itemized deductions should exceed the amount that you’d be allowed for a standard deduction. You cannot take both the standard deduction and itemized deductions.

All types of gambling losses can be used, so you can add up losses from lottery tickets, sports betting, casinos and more. Again, it’s not a simple step.

“In order to deduct gambling losses, the taxpayer is not allowed to simply net or offset their losses and winnings on the form 1040,” Steber said.

Instead, you’d report gambling winnings, including those where a W2-G wasn’t issued, on one section of your tax return. And if able to itemize, you’d, report losses in another section.

You’re required to report gambling winnings on your federal income tax return, even if you don’t receive a Form W-2G for certain gambling winnings. Tax filers often start receiving a W-2G shortly after Jan. 31.

Typically, you’re required to report all gambling winnings on the “other income” line for the 1040. See line 1h on the front of the 1040 for 2024 marked “other earned income.”

You’d file a Schedule A if you itemize deductions and deduct gambling losses on line 16 for “other itemized deductions.”

“The IRS allows taxpayers to deduct gambling losses, but only to the extent of gambling winnings,” Steber said.

“This means a person can offset their casino losses against their gambling income, which can include winnings from lottery tickets or similar, but only if the taxpayer is itemizing their deductions.”

Another point to consider: If you bought a $5 lottery ticket and won $500, you must report the full $500 win as income, tax experts say. If you itemize, you’d be able to report the $5 spent on the lottery ticket as part of itemized deductions.

Casual gamblers cannot deduct expenses related to their lodging, transportation, or food and other incidental expenses during their gambling, Steber said.

“There is a possibility of even more deductions if someone is in the business of gambling,” Steber said. “A professional gambler is considered self-employed and eligible to deduct travel and lodging expenses while working.”

Steber makes another key point: You have to report winnings, even if you cannot deduct losses.

“Regardless of someone having winnings and losses from gambling, the gross winnings must be reported on a tax return as income. This includes winnings from bingo, a state lottery, reservation casino, or other types of casinos,” Steber said.

It’s also important, he said, that taxpayers do not overlook state issues. In some states, Steber said, the rules for taxation of gaming proceeds and deduction of losses are very different from the federal tax rules.

For some, it may be best to review the rules a few times and even work with tax software or a tax professional.

BetMichigan.com has an online calculator to figure out taxes on gambling winnings. Click on MI Gambling Tax.

Hold onto your paperwork

In general, tax professionals recommend that you keep careful track of your winnings. If possible, Smith said, get annual gambling win/loss statements from the casinos or sports books to support gambling losses you claim if eligible.

“With all the informational forms W2-G being filed by the casinos and sports books, I believe a lot of people lose track of what they won and lost gambling and end up with a tax problem,” Smith said.

It’s easy to forget or lose track.

“Even my most organized gamblers seem to miss some reported winnings and receive an inquiry from the IRS for unreported gambling winnings,” Smith said.

What do you need to know about the Michigan Lottery and taxes?

Michigan Lottery winnings are subject to federal, state and local taxes. But it’s important to know that the Michigan Lottery will not withhold taxes on prizes of $600 or lower.

If you won more than $600 in the Michigan Lottery, you’d receive a W2-G form. Here the Michigan Lottery will not withhold taxes on winnings from $601 to $5,000. Even so, you still must report winnings to the IRS and the Michigan Department of Treasury.

If you win more than $5,000 the prize is subject to automatic withholdings at both the state and federal tax levels. 24% will be withheld for federal taxes, and 4.25% will be withheld for Michigan state tax.

When do you receive a W2-G for gambling winnings?

A Form W-2G reports gambling winnings and any income tax withheld on those winnings.

The IRS notes that the requirements for reporting and withholding on a W-2G depend on the type of gambling, the amount of the gambling winnings, and generally the ratio of the winnings to the wager.

FanDuel Sportsbook, for example, notes that a W-2G will be issued for each sports betting transaction when both of the following conditions are met: Winnings (reduced by wager) are $600 or more; and winnings (reduced by wager) are at least 300 times the amount of the wager.

FanDuel Sportsbook doesn’t withhold taxes on all winnings. “We’re legally required to withhold federal taxes from sports wagering winning transactions when both of the following conditions are met: Winnings (reduced by wager) are greater than $5,000; and winnings (reduced by wager) are at least 300 times the amount of the wager.”

It’s important to note that you could be looking at more than one W2-G form, even if you do all your wagering at one spot.

Everyone bets differently, so FanDuel notes, there isn’t a simple answer that applies to everyone when it comes to how many W-2G forms to anticipate.

Much depends on the number of your individual wagering transactions that qualify for Form W-2G reporting throughout the year. Factors include the wager amount, the odds, and the game type.

The IRS notes that a Form W-2G must be issued to you if you receive:

$1,200 or more in gambling winnings from bingo or slot machines;
$1,500 or more in winnings (reduced by the wager) from a keno game;
More than $5,000 in winnings (reduced by the wager or buy-in) from a poker tournament;
$600 or more in gambling winnings from an event like horse racing and the payout is at least 300 times the amount of the wager. (This limit doesn’t apply to winnings from bingo, keno, slot machines, and poker tournaments)

Don’t risk it all on your tax return

Don’t underestimate winnings on your tax return — or overstate on your losses.

“I’m finding the IRS is holding up processing returns and refunds of gamblers who appear to report a lot of gambling winnings and losses on their returns. I think this is an IRS hot spot,” Smith said.

To deduct your losses, the IRS notes that you “must keep an accurate diary or similar record of your gambling winnings and losses and be able to provide receipts, tickets, statements, or other records that show the amount of both your winnings and losses.”

Don’t kid yourself into thinking the IRS won’t get the same forms that you just received to report those winnings. A casino or other gambling entity sends that same information to the IRS.

“The house does not care about your tax situation,” Smith said, “and is definitely going to provide any reportable gambling winnings to the IRS.”

“They do not want any IRS hassles.”

Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X @tompor.