States use lottery and gambling revenues to fund a variety of public programs and services, including education and economic development, and as a supplement to general funds. Many states also use a portion of gaming revenues to mitigate the negative effects of gaming. Most gambling tax revenues go to the state's general fund. Other beneficiaries are career wallets, county and city governments.
As sports betting becomes more popular in the U.S. UU. However, the reduction of the layers demonstrates that this money can be evasive and sometimes detrimental to the local economy. Mike DeWine signed legislation in December that makes Ohio the 33rd state to legalize sports play, the local talk was less about opening up the joys of betting on who will score the first touchdown for the Cleveland Browns than on the avalanche of new money he would bring to the state coffers.
But economists warn that state officials may want to wait before planning how to spend their sports betting boodle. Those who have studied the real-world impact of the growing wave of legalization of sports gambling, and previous expansions of other forms of gambling, such as lotteries and racing casinos, say the numbers are still uncertain and plagued by confounding factors. If all goes well, they say, legalized sports gambling could be, if not a big money gain for states, at least an easy way to collect taxes in an otherwise clandestine economy. Otherwise, it could end up replacing new taxes with old ones, or even costing states money in the long run.
Whether that money is considered a windfall or not depends largely on what you think the Garden Staters would have done with that money if it weren't for legalized sports betting. If they had otherwise spent the same amount making illegal bets, that is fresh money, just as the legalization of cannabis has allowed states to tax economic activity that would otherwise be off the official books. But if legalization ends up cannibalizing other local spending that was previously taxed — known in economics as the “substitution effect,” because one form of spending is replaced by another — that could cause state tax revenues to fall. West Virginia was especially affected by the substitution because video slots, formally known as video lottery terminals, or VLTs, are taxed at an extremely high rate, 53.5% of net revenue.
In contrast, sports betting only faces a 10% tax, meaning that the state was effectively creating huge tax evasion for the gaming industry by allowing a low-tax betting option. Matheson warns that the situation in West Virginia cannot be directly extrapolated to other states. Even so, there are worrying signs elsewhere of the substitution of sports betting. Betting on dog racing and horse racing has cratered in recent years, he points out, and there is reason to suspect that this is related to other, more accessible forms of betting.
At the same time, states can cannibalize sports betting revenues against each other, as players cross state lines to place their bets, but this also comes with potentially diminishing returns, as one state's profits could soon be diverted by the next state to legalize. Dadayan, the gambling tax researcher, points out that the most recent growth in gambling in casinos and “racinos” (gambling centers on racetracks, aimed at boosting those sites, since horse racing has seen much of its audience disappear) has been in states that recently legalized that form of gambling, apparently cannibalizing bets that would otherwise have been placed on their pioneering neighbors. Neither Matheson nor Dadayan are opposed to legalized sports betting, but both warn that states should moderate their expectations on the amount of new revenues to be made. Sports gambling, Dadayan acknowledges, could attract more new customers to the gaming world, especially in its online variants that could attract younger bettors who wouldn't be caught dead on a racetrack.
While this could reduce cannibalization, gambling economists point out, it also risks creating a new explosion of gambling addiction, a problem that currently affects between 1 and 10 million Americans. A colleague of his, he says, was able to make a living as a professional online poker player when online poker first debuted, but the colleague eventually found it increasingly difficult to find easy money. The following rules apply to casual players who are not in the gambling business or business. Winnings from gambling are fully taxable and you must report the income on your tax return.
Gambling revenues include, but are not limited to, winnings from lotteries, raffles, horse racing and casinos. Includes cash winnings and fair market value of prizes such as cars and travel. The state where you live usually taxes all of your income, including gambling winnings. However, if you travel to another state to place a bet, you may be surprised to learn that the other state also wants to tax your winnings.
And they could withhold the tax from your payment to make sure they get what they're owed. However, you will not be charged two taxes. The state in which you live must give you a tax credit for the taxes you pay to the other state. Unfortunately, if you win big while playing, you can't keep every penny.
Gambling winnings are fully taxable, and the Internal Revenue Service (IRS) has ways to ensure you get your share. And it's not just about casino betting. Winnings from lotteries, horse racing, off-track betting, sweepstakes and game shows are also subject to tax. That is, if a state builds a new casino, it will most likely attract players who were already using existing casinos (in the state or in a neighboring state) rather than adding new players to the group.
For sports betting, most states impose a fixed tax rate on sportsbook revenues, with rates ranging from 6.75 percent in Iowa and Nevada to 51 percent in New Hampshire, New York and Rhode Island. States were now free to legalize sports gambling if they wanted to, and, thinking that their residents were already betting on games with Las Vegas sports bookmakers without paying any local taxes where they lived, lawmakers launched a wave of legalization that continues to spread across the U. However, like cigarette taxes, a portion of gambling revenues is often spent on programs that offset harmful gambling-related costs, such as gambling addiction. The vast majority of states with legal gambling do not allow gambling operators to make these exclusions and, as a result, tax them on revenues that never existed.
If states insist on taxing gross revenues, they should make sure to exclude promotional bets to avoid inflating the effective tax rate. One of the magazine articles edited by Matheson provided a clue as to how much new forms of sports play can cannibalize older betting habits. You must report all gambling winnings as Other Income on Form 1040 or 1040-SR (use Schedule 1 (Form 1040), PDF), including earnings not reported on a Form W-2GPDF. But unlike cigarette taxes, for example, state and local governments don't tax gambling to discourage people from doing so.
To deduct your losses, you must keep an accurate journal or similar record of your winnings and losses in the game and be able to provide receipts, tickets, account statements or other records showing the amount of your winnings and losses. If you receive a Form W-2G along with your gambling winnings, don't forget that the IRS will also receive a copy of the form. So, if you claim the standard deduction, you're out of luck twice, once for losing your bet and once for not being able to deduct your gambling losses. Before you head to the Las Vegas Strip, make sure you understand the tax law when it comes to gambling to avoid a mess with the IRS in the future.
Unfortunately, no state does this, as they usually only devote a miniscule amount of tax revenue to handling gambling problems and transfer the vast majority of the money to the general fund or unrelated spending programs. . .
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