The 2015 NCAA Tournament is turning out to be particularly exciting, with many close games and upsets. With 67 total games and a range bets to put money down on — including game outcomes, brackets and prop bets — March Madness is a huge money mover. Gambling on NCAA brackets alone will total at least $ 2 billion, but total betting on the 2015 NCAA Tournament is expected to reach up to $ 9 billion, according to a study from the American Gamblers Association (AGA).
“The Super Bowl used to be, anecdotally, the biggest betting time of the year. Now I think March Madness has surpassed it in terms of broad participation across the country, in terms of money,” Kevin Whyte, executive director for the National Council on Problem Gambling, told International Business Times. “It’s become a national gambling holiday.”
If you’re betting on NCAA March Madness brackets this year and planning on winning a substantial amount of money, you should know that you can get dinged by the IRS if you don’t report your winnings as taxable income. Even worse, you could face criminal prosecution.
Reporting March Madness Bets as Taxable Income
Las Vegas bookies make $ 100 million from March Madness each spring, reports BetFirm, while millions of dollars more is bet through unofficial venues such as an office pool or online sportsbooks. Of the bets placed on March Madness, only $ 240 million will be placed through Nevada sportsbooks, according to the AGA study.
Winnings from under-the-table bets are rarely reported as income, meaning the IRS misses out on millions of unpaid taxes on unofficial winnings. If a gambler is audited, bets placed online with a credit card or large bank account deposits can be a red flag for the IRS that the gambler has unclaimed betting income, even in the form of gambling winnings.
If you win big with your NCAA bracket (the IRS requires gamblers to claim total annual winnings of $ 1,200 or more), you should claim those gambling winnings as income, especially if you’re at great risk of being audited, reports CPA Practice Advisor. The IRS can’t take action against you for claiming income, even if it comes from a questionable source. And while it’s a pain to pay taxes on winnings, it’s nowhere near the headache of being audited.
The good news is that even if your NCAA bracket is already a dud, you can still write off any bets lost on your taxes. Taxpayers can deduct gambling losses on their taxes, but only to reduce income made from gambling winnings
March Madness Gamblers Could Face Criminal Prosecution
Running betting pools can also put gamblers at risk for criminal prosecution. For example, one office manager ran a pool that totaled $ 30,000, reports Fortune, and took a 10 percent fee ($ 3,000) for managing the huge pool. Profiting from a betting pool is illegal, so the manager got hit with charges that led to a five-year sentence.
To avoid running amuck of local, federal or tax laws, it might be best to have the prizes in your betting pools be a little simpler. A gift card, free lunch or even merchandise of the winner’s favorite team would all be appropriate and relatively safe, Challenger, Gray & Christmas CEO John Challenger told Fortune.