Did you pick the correct amount of chalk in your NCAA tournament bracket? Did you correctly back red-hot Oregon to reach the Sweet 16? Don't forget that any bracket winnings you have need to be declared on your tax return, and make sure your clients know that, too.
The main federal tax provisions relating to NCAA brackets are:
- Bracket prizes are considered gambling winnings for tax purposes. (The American Gaming Association says more people gamble on the NCAA tournament than any other sporting event, including the Super Bowl.)
- All gambling winnings, cash and non-cash, are taxable and should be reported on your federal return.
- If you placed your bets at a casino or with another organized entity, that entity should issue you a W-2 form, especially for larger winnings. Large prizes ($5,000 or more) may be subject to federal tax withholding before payout.
- You can deduct gambling expenses if you itemize deductions, provided the amount of those deductions doesn't exceed any gambling income or winnings you claim. Like other expenses, to deduct losses, you must keep records, including receipts, tickets or statements, along with an accurate log.
- Winnings and losses must be reported separately. Taxpayers must report the full amount of their winnings as income on Schedule 1 of U.S. Internal Revenue Service (IRS) Form 1040 and claim their losses (up to the amount of winnings) as an itemized deduction.
- Gambling winnings are subject to taxation by states that impose income taxes. If you win while traveling, you could face taxes in that state and in your home state, although the home state would likely provide a credit for the taxes collected by the other state.
Good luck the rest of the way!