The Tax Consequences on Your Super Bowl XLIX Betting

By Jeffrey Levine, IRA Technical Expert
Follow Me on Twitter: @IRAGuru4EdSlott

If you’re one of the millions of Americans that will have some type of money riding on this weekend’s big game, your gambling wager could have both tax and IRA planning consequences.

Super Bowl XLIX will be held in Glendale, Arizona this Sunday. The game will feature a heavy-weight match-up between last year’s Super Bowl winning Seattle Seahawks and their bruising defense, and the New England Patriots led by “Golden Boy” Tom Brady. If the Vegas line is any indication, this year’s Super Bowl should offer more drama than last year’s 43 – 8 drubbing Denver suffered at the hands of Seattle. As of this writing, the Patriots are favored by a single point, while the over/under stands at 47.5 points.

The Slott Report’s official 2015 Super Bowl pick follows this article. All of this, of course, is for entertainment purposes only, as the Slott Report does not endorse any form of gambling, legal or otherwise.

In case you didn’t already know it, the Super Bowl is the most bet on sporting event in the world. You can bet on the obvious, such as which team will win, but that’s far from the only way you can place. This year, so-called “prop” bets included perennial favorites, such as “Will the pregame coin flip turn up heads or tails,” as well as Super Bowl XLIX specific wagers, such as “What color will Katy Perry’s hair be when she begins the Halftime Show?” Regardless of the type of bet placed however, there are certain tax rules you should know.

Let’s start with those who finish the day on a sour note and lose money. If you lose money gambling, you may be able to claim the loss as a miscellaneous itemized deduction on your tax return. Since the deduction is an itemized deduction, it can only be taken if you itemize your deductions, as opposed to taking the standard deduction. Furthermore, the only income this deduction can offset is other gambling winnings. About the only good news you might have if you are trying to claim a gambling loss deduction is that unlike many miscellaneous itemized deductions, this one is not subject to the so-called 2% floor.

Okay, enough of that. Nobody thinks they’re going to actually lose their bet, right?, So let’s move on and talk about the rules if you win money. After you’re done celebrating and figuring out where to spend your winnings, the first rule to know is that regardless of where you place your bet and how it is placed, if you win money on a Super Bowl bet, it’s taxable. Gambling income is considered ordinary income and is taxable at ordinary rates. If you place your bet through legal avenues, such as through a licensed casino, depending on the size of your bet and a host of other factors, the casino might issue you a W-2G and/or withhold some of your winnings for federal income taxes. If, on the other hand, you place your bet via a more “friendly” (a.k.a. illegal) method, your winnings are still technically taxable. The tax code provides that all income from any source is taxable unless there is a specific exclusion. Not surprisingly, there’s no such exclusion for illegal gambling.

Some people might make the mistake of thinking that just because they’re paying tax on their gambling winnings they can use these winnings to make an IRA or Roth IRA contribution. That is generally not the case. IRA contributions must be made using income that qualifies as “compensation” under the tax code. Compensation includes wages, self-employment income, taxable alimony, but it does not include gambling winnings. In fact pretty much the only way you could use gambling winnings to make an IRA contribution is if your occupation was a professional gambler. Now is not the time to get into specifics on that, but suffice to say, there’s a really, really good chance you don’t qualify as a professional gambler. Plus, although you could use gambling winnings to make an IRA contribution if you are a professional gambler, your net profit at the end of the year, before your IRA contribution, would be subject to self-employment tax. That end result would likely favor IRS and not you.

So there you have it, your game plan for dealing with the tax consequences of your bet on the big game. If you lose, don’t feel too bad. Super Bowl 50 – yes 50, the NFL will be abandoning Roman numerals for next year’s game only – will be here before you know it. If you win, enjoy your spoils, but don’t get too excited. Remember, Uncle Sam’s a partner in your success.

The Slott Report’s Official Super Bowl XLIX Pick

Final Score
Seattle: 23
New England: 20