Over/Under: A Look at Sports Betting and Taxes

The tax filing deadline for most Americans got pushed back to April 18, a product of the 15th falling on a Saturday and Emancipation Day and Patriots’ Day is observed on Monday. 

As legalized sports betting has rolled out to more states since the Supreme Court struck down the Professional and Amateur Sports Protection Act (PASPA) five years ago, Nevada’s status as the only state to place a bet went with it. 

On the plus side: More than 30 states have taken billions of tax dollars off sports betting. 

The downside if you hit a lot of parlays in 2022: With more people ditching offshore sportsbooks that operate illegally in the U.S., Americans are now more likely to claim winnings — and losses — in their filings. 

Individuals are supposed to report any winnings — even for the 50 won for finishing third in your March Madness bracket — no matter the amount as income. And betting companies like DraftKings and FanDuel must report annual winnings that tally more than $600 to the IRS and, typically, your state.

But legendary Southern California accountant Gary Margolis explained why you might not need to worry about the IRS. 

“They know most people stink,” Margolis said. “Most people don’t make a profit.”

Margolis caters to those in the entertainment industry and has a stable of clients who are pro poker players. While most certified public accountants who provide tax services don’t have to deal with gambling-related returns often, Margolis said about 5% of his clients classify their profession as pro gramblers.

Bettors can claim losses, but only against winnings. So, if you made $1,000 betting on NASCAR and lost $500 on table tennis, you could deduct $500 on an itemized return. 

You can’t deduct losses if your losses are more than your winnings.

Federal and state governments have made out no matter if you won or lost at your legal sportsbook. 

More than $3 billion in state and federal taxes have been taken by legalized sports betting since PASPA was overturned in May 2018, according to American Gaming Association Senior VP Casey Clark. The states received $2.68 billion, while the federal government’s take has been $516 million.

“We’ve seen remarkable growth in this space,” Clark said, “Americans have been betting on sports for a really long time. They just didn’t have access to legal markets to do it in. Outside Nevada, those bets were generating $0 in tax [before PASPA was struck down].”

From bookies to offshore books, the AGA estimated $64 billion was wagered illegally in 2022 — down from more than $150 billion before 2018. 

New York ($308,333,132), Pennsylvania ($107,343,524), Illinois ($98,585,341), and New Jersey ($97, 879,592) took in the most in sports gambling tax revenue in 2022, according to the National Conference of State Legislatures. 

Nevada — the only state where legal U.S. wagers could be made for decades — took in $29,167,630. That may sound low, but the total handle (the total best placed) and Nevada tax revenue last year have doubled since 2018.

The Silver State has the advantage of having Las Vegas, where tax revenues come way more from table games, lodging, sports, entertainment — and everything Sin City offers that can be taxed, including weed. 

So, Nevada’s rate of taxes on revenue from sportsbooks and online betting is lower than most states that joined the game in recent years. 

Nevada’s tax rate on revenues for sports betting ranges from 6.75% for gross wagers at casinos to 14.25% for online sports betting. Rhode Island, by comparison, charges 51% on wagering revenue. 

“In order to create a viable and sustainable legal sports betting market, we needed to have regulations and policy in place that allowed the legal market to effectively compete with the offshore sportsbooks,” Clark said. “In some states you’ve got ridiculously high tax rates that are hindering the legal market. In turn, that’s probably keeping some bettors in the pervasive and predatory illegal market. I think that’s doing a disservice to American consumers who want to bet on sports.”