Americans will bet $8.5 billion on this year’s March Madness tournament.
Twenty percent of adults bet on NCAA brackets.
March Madness gamblers should be aware of the tax implications if they win (or lose).
The first round of March Madness begins on March 21, and office pools are abuzz with talk of which teams to wager on, who the upsets might be and which bracket names are worthy of praise.
Americans will bet a whopping $8.5 billion on the world’s premier basketball tournament, with approximately 20 percent of U.S. adults putting at least some money on the contests, according to a new survey by the American Gaming Association (AGA).
How March Madness Winners — and Losers — Can Be Financially Prepared
With gamblers placing the lion’s share of these wagers through formal, legal avenues such as a sportsbook, casino sportsbook or betting application, it becomes extremely important for gamblers to be aware of a few vital tips when it comes to dealing with the tax man, win or lose.
1. Report All Gambling Earnings to the IRS
The Internal Revenue Service requires gamblers to report all revenue via your tax return.
If you win a substantial amount in one lump sum — or if your winnings exceed your wager by a multiplier of 300 or more — you will likely end up with a W-2G tax form. Gamblers who place their bets with a reputable casino should receive the W-2G form immediately after winning a qualifying wager, and anyone filling out the form will need to provide a photo ID and matching Social Security number.
On a typical tax form, you’ll enter all winnings resulting from March Madness wagers and any other gambling activities on Schedule 1 (Form 1040), line 21.
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2. Know About Tax Deduction Limits for Gambling Losses
Can you deduct your March Madness losses? You’re allowed to deduct gambling losses provided they do not exceed the amount of winnings concurrently claimed in a tax year. For example, if you make several wagers over the course of the tax year which result in $200 in winnings and $400 in losses, you may only claim a maximum of $200 in losses during itemization. Gambling income and losses are always reported separately and do not “cancel” each other out.
If you do opt to itemize, make sure to retain all receipts for any wagers you make, whether it’s a busted March Madness bracket or not.
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3. Observe State and Local Taxes
Although most people are aware of the pesky federal taxes that claw back some portion of large payouts, many gamblers remain dangerously unaware that several states and local governments also tax gambling income.
This situation might be even more complicated if you’re betting while abroad, for business, or while on vacation. Make absolutely sure to research individual state and local laws regarding gambling payouts, both for your home state as well as for the state in which you are gambling. There’s nothing nastier than a multi-tiered tax surprise just as you reach for your winnings.
And if your NCAA teams just don’t end up performing this year, learn how to recover your March Madness gambling losses.
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This article originally appeared on GOBankingRates.com: Americans Will Bet $8.5 Billion on March Madness This Year — See 3 Money Tips for Your Winnings