March Madness is upon us and, at least until Thursday, all brackets have yet to be busted. When completing your bracket for your office pool or a pick ‘em group with friends, keep in mind the tax consequences if you hope to cash in on your bracketology skills with more than just bragging rights. Gambling winnings of casual gamblers are taxable and are reportable on an individual’s tax return as “Other Income” on line 21 of Form 1040. Winnings over $600 may require special reporting, and winnings over $5,000 may require tax withholding before payout. However, regardless of special reporting or withholding, any winnings are included in income. Gambling income includes cash winnings as well as the fair market value of any other prizes up for grabs.
Importantly, if you do find yourself in the prize money this March, keep in mind that although winnings are taxable, any gambling losses may be deductible as itemized deductions on Schedule A. If you took a shot at the record-setting Powerball jackpot, spent any time at the blackjack tables or a friend’s poker room, you can deduct any losses from those wagers that didn’t play out the way you’d hoped. Note however that losses may only be deducted to offset gambling winnings, and are only deductible up to the amount of winnings for the year. Be sure to hold on to any documentation for those losses if you plan to deduct them from any winnings. See IRS Publication 525 for more details on income reporting, and IRS Publication 529 on deducting losses.