Earlier this month, I lit $85 on fire.
I didn't use a lighter or a match. Rather, I joined and then immediately bombed out of an NFL survivor pool. These contests require each participant to choose one NFL team to win each week, without picking the same squad twice. If your team wins, you survive another week. Lose, and you're done for the year.
After two wild weeks of NFL action, even more serious gamblers are feeling the burn: Of the 6,133 participants who paid the $1,000 entry fee to compete in the survivor pool offered by the Circa Sportsbook in Las Vegas, just 2,033 remain.
Can you blame us though? The prize for winning Circa's pool is north of $6 million. My more modest pool's pot is worth more than $40,000. Imagine what you could do with that kind of money.
As a financial writer I'm here to tell you: First, you'd pay taxes on it.
"Every CPA will tell you that you should report income from any source," says Ray Kondler, a certified public accountant at Kondler & Associates in Las Vegas. "If you win $100 in your office pool, in theory, you should report that."
That goes for winnings from casinos and legal sportsbooks as well as payouts from unofficial pools like the one I'm no longer in.
Money Report
If you take down a modest score, say, a couple hundred bucks, it's up to you to report your winnings to the IRS — neither a casino nor Bob from accounts payable will do it for you.
If you're a big winner at a casino (generally if your winnings are at least $600 and at least 300 times the amount of your bet) you'll receive an IRS Form W-2G. The winner of my pool won't receive any such documentation, but they'd be wise to follow the law, says Kondler.
"They can take the $40,000 and put it in their bank account," he says. But, "if they get audited they're going to have a tough time explaining what that is."
As for us losers, there's one silver lining: The IRS allows gamblers to deduct their losses — with a few important caveats.
First, if you're an amateur gambler, you'll have to itemize to take the deduction. These days, since the standard deduction for single filers is $12,950, most people don't itemize, meaning you're more than likely going to have to take the loss on the chin.
Professional gamblers have it a little better. If you're a pro, you can deduct your losses as business expenses on Schedule C without having to itemize.
Whether you're a pro or not, you can only deduct losses to the extent that they offset your winnings. If you have $500 in winnings (which would be taxed as income) and $1,000 in losses, you can only deduct $500 in losing bets.
If you do plan to do some gambling math on your tax return, it's smart to keep a log of your wins and losses separately throughout the year, says Kondler. "In a perfect scenario, you'll be able to show all of your income and deduct all your losses," he says. "If you play different events, try to keep track of the things you enter and lose."
If you are lucky enough to score a huge win like my survivor pool prize, having some losses to report could help lower an otherwise large tax bill. But make sure they are, in fact, your losses.
Last time I was at a sportsbook in Vegas, a gentleman was roaming the room asking for losing tickets before frustrated bettors ripped them up or trashed them — he even offered to exchange free drink coupons for my losing slips.
It turned out he'd hit a $100,000 parlay early in the year and planned to use this collection of losing bets to offset his winnings. You don't have to be an accountant to know this strategy could get you into extremely hot water with the IRS.
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