March Madness – When Brackets Are Won, Taxes Are Due

As states legalize sports betting, tax implications emerge

March Madness is a popular time to fill out your National Collegiate Athletic Association (NCAA) basketball brackets and hope for a winner. Wolters Kluwer Tax & Accounting points out that, according to the Internal Revenue Service (IRS), betting activities could be considered gambling, business, or a hobby – all of which are considered taxable income. Even winning the office brackets pool is a taxable event. The handling of expenses and the reporting of that income can be different depending on state and is another reason to reach out to a tax professional for guidance.

States, the IRS and your office bracket pool

Placing a bet in the NCAA bracket office pool is considered to be gambling, even though participants may claim some skill in selecting their bracket winners. Under the Tax Code, any income earned from gambling is taxable whether the gambling is legal or illegal. Under a US Supreme Court decision in 2018, all states are now permitted to offer sports gambling, and many have enacted or are starting to enact enabling legislation. This will make it easier to do legal sports betting and may also help the IRS track sports betting activity.

14 and counting

Fourteen states now have legal sports betting (AR, DE, IA, IN, MS, NH, NJ, NM, NV, NY, OR, PA, RI, and WV). An additional six states (CO, IL, MI, MT, NC, and TN) and the District of Columbia have recently passed sports betting legislation. Legal sports betting operations will be likely to report winnings to the IRS and state tax authorities, and may even do tax withholding from larger jackpots.

Is it a hobby or a business?

Under the 2006 Unlawful Internet Gambling Enforcement Act, fantasy sports were determined to be a game of skill rather than gambling. As a game of skill, it is either a hobby or a business depending on the facts involved. Income from a hobby or business is also taxable. If an individual can establish profits from the activity for three of the last five years or if that activity is the primary source of income for the taxpayer on a full-time basis, the individual can be considered to be engaged in a trade or business, which makes it more likely that related expenses are deductible against income.

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Depend on a trusted source

Tax expert Mark Luscombe, JD, LL.M, CPA, Principal Federal Tax Analyst at Wolters Kluwer Tax & Accounting, can help sort through the various rules, requirements and reporting forms for gamblers, hobbyist or businesses, as well as the different ways in which expenses and losses are handled.

Media Contact

To arrange interviews with Mark Luscombe and other federal and state tax experts from Wolters Kluwer Tax & Accounting on this or any other tax-related topics, please contact:

MARISA WESTCOTT
212-771-0853
Marisa.westcott@wolterskluwer.com

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

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