Millions of Americans tuned in to watch the Denver Broncos emerge victorious over the Carolina Panthers in Super Bowl 50 and many of those millions also placed bets on the “Big Game.” For all those who won money gambling on the game, the IRS wants its cut of your earnings. The Sixteenth Amendment states that “Congress shall have power to lay and collect taxes on incomes, from whatever source derived” and money earned through gambling and sports betting constitutes income. When it comes to reporting winnings from informal pools, the government depends on people reporting such income through their own volition. As a result of this “honor code” practice, most people fail to report such winnings as income on their IRS Form 1040. Nevertheless, for those ultra-virtuous taxpayers who voluntarily report their gains, there is a bright side—they may also report their losses to offset income when deductions are itemized. However, the total losses reported cannot exceed your total winnings. For example, if you win $4,000 but lose $4,500, you can only report up to $4,000 in losses. When listing your winnings and losses, you need to maintain a straightforward record of everything you both won and loss over the last twelve months. As Benjamin Franklin eloquently stated, “in this world nothing can be said to be certain, except death and taxes.”
Loren Shokes is an Entertainment and Sports Highlight Contributor for the Harvard Journal of Sports and Entertainment Law and a current second year student at Harvard Law School (Class of 2017).