Office Pools and Fantasy Football
Think you can omit gambling winnings on your income statement? Wanna bet?

Gambling, for better or worse, is part of American life. Everyday, people buy gas and pick up a lottery ticket. They join an office pool. They log into a fantasy football website. In fact, more than 80 percent of Americans gamble at least occasionally, experts say.

With so many people taking their chances, the dollars add up quickly. In 2004, an estimated $10 billion was wagered just on the Superbowl and basketball’s March Madness tournament, according to published reports. That’s a lot of money.

And Uncle Sam wants his piece of it.

Line 21
Although most people don’t automatically connect taxes and gambling, the fact is, winnings are income and income is taxable. It doesn’t matter how much or how little you win, gambling winnings of any amount go on Line 21 of the 1040 tax form under “other income.”

Different kinds of gambling activities are reported differently to the IRS. In some games of chance, if a person wins at least $600 and if the amount won is at least 300 times the amount wagered, the payer (loser) has to report the payment to the federal government. The thresholds are higher, however, for bingo, keno and slot machines. In most games of chance, if an individual wins more than $5,000, the payer has to withhold at least 25 percent for taxes as well as report the transaction to the IRS. And if the payer reports it, it had better be on the winner’s 1040 as well.

Even $20 lottery ticket winnings should be listed on your tax return. “Admittedly, because the payer doesn’t have to report such small winnings, it would be pretty unlikely for $20 to register on the IRS’s radar screen,” says Kathy Burlison, director of tax implementation for H&R Block. That is, unless you’re audited.

“One way they find things is if they are auditing you and the cash flow doesn’t come out right,’’ Burlison says. ``In some cases, they go through your bank deposits and they might say, ‘I see your regular income, but where did the rest come from? Is it a gift or unreported taxable income?’”

But beyond the question of “will the IRS catch it?” is the issue of preparing an accurate tax return. And gambling winnings, from the very first dollar, are taxable.

The Silver Lining
What about losses? Can you take them as a deduction? Yes, Burlison says, to the extent that you also won. The IRS permits people to take gambling losses as a miscellaneous deduction on Schedule A, Form 1040. But you can only take losses up to the amount of income you gained from winning. For example, if you won $20 in an office pool but lost $50 at fantasy football, you have to report the $20 win, but you can also take a $20 loss if you itemize deductions. In other words, you can only deduct losses totaling the amount that won.

So if you like games of chance, it’s a good idea to keep receipts, lottery ticket stubs and other records, and faithfully report your wins and losses. Failing to report gambling income is betting against the odds.

For more information on gambling and taxes, talk with your local tax professional or visit www.hrblock.com.