If you're betting on the Super Bowl on Sunday, think twice about your plans for the winnings.

Nearly half of it could be owed as taxes, which could put you in a tough spot if you spend it all ahead of filing your 2024 tax return.

All gambling winnings are considered taxable income by the Internal Revenue Service, even if you aren't a professional gambler.

"Win big? You gotta pay the piper," Romeo Razi, a certified public accountant based in Las Vegas, tells CNBC Make It.

You'll likely owe state taxes, too, as most U.S. states levy taxes on money made through gambling. Check out your state's department of revenue website for more information.

To help you navigate the tax implications of gambling, here's look at how your winnings are reported to the IRS, as well as how gambling losses are deducted. Knowing the facts ahead of time could help you avoid a nasty surprise when you file your 2024 tax return.

You are responsible for tracking your winnings and losses

If you win $600 or more using gambling websites or apps, the vendor will likely send you a W-2G tax form, which is a record of your earnings. Importantly, they send the form to the IRS, too, which means they won't miss it, either.  

If the winnings are $5,000 or greater, the business that processed your bet might withhold up to 31% of the proceeds for federal income tax, according to the IRS. This will be indicated in Box 4 of your W-2G.

That said, companies don't always send those forms. And it doesn't really matter, in a way, since you're responsible for tracking all of your gambling income, whether you receive a form or not.

The IRS recommends keeping "an accurate diary or similar record of your gambling winnings and losses," as well as receipts, tickets, statements or other records to support your claims. Fortunately, many popular gambling websites and apps have a downloadable record of your transactions.

How to report your winnings and losses

Your gambling winnings and losses are reported separately in your tax return. Although the IRS is vague on this, the winnings you claim as income include the cost of gambling, or the original wager or bet, says Razi, a former revenue agent at the IRS.

Of course, you didn't "win" your wager, but it's included as gross winnings because that's how it's reported on the W-2G forms, he says. 

The amount is added as "gambling income" on line 8 of your Form 1040, Schedule 1, which is used to report types of income not listed on the primary 1040 tax form. That total is then added to Form 1040 line 8. If you use tax software, these forms will be filled out automatically based on your answers to a questionnaire.

As for gambling losses, you can deduct them as an itemized deduction, although they can't exceed the winnings you report as income. The reason for that "is to prevent tax filers from offsetting other income with gambling losses," says Razi.

You can also include the initial wager of a bet. "Your wager is like your cost of service, or your loss. And that goes on the itemized deductions," he says.

To give an example of how this would work, "let's say you bet $1,000 and you get $3,000 back," says Razi. You would report the $3,000 and have a bet loss of $1,000 as an itemized deduction, he says.

Why you probably won't actually claim gambling losses as a deduction

The only way to claim your gambling losses is to itemize your deductions, which most taxpayers don't do. 

That's because the standard deduction for 2024 is a hefty $14,600 for single filers and $29,200 for those married filing jointly. This typically exceeds the amount that most people can deduct as itemized expenses, so it doesn't make a lot of sense for most filers.

After all, the goal with deductions is to minimize your overall tax liability, or the amount that you owe in taxes.

What happens if you don't report your gambling winnings

By not reporting all your gambling winnings, you're violating the law. The IRS can uncover discrepancies by comparing your income with the W-2G forms they receive or by examining your bank deposit activity.

A 20% penalty can be applied if the total underreported amount is more than $5,000 or 10% of your actual tax liability — whichever is greater. For larger sums, you risk jail time.

More casual gambling that doesn't involve W-2G forms, like fantasy football pools between friends, are less noticed by the IRS. But large cash deposits between friends can still trigger an audit from the IRS. For that reason, you should report everything.

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