Gambling Winnings And Michigan Income Tax Returns: 3 Things To Know

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Winning money from sports betting can be enjoyable, but dealing with the taxes on those winnings is far from pleasant. Unfortunately, gambling winnings are subject to taxation, which is acknowledged by the Internal Revenue Service, the state of Michigan, and several local governments within the state.

With the approaching extended deadline for filing your income tax returns for the tax year 2020, it is common to have inquiries, particularly regarding online gambling, which is a recent addition for residents of Michigan. Therefore, here is a brief guide highlighting three crucial aspects that you need to be aware of regarding taxation on your gambling endeavors in MI.

1. When are my 2020 gambling winnings taxes due?

In light of the COVID-19 pandemic, the filing deadline for taxes has been extended to May 17, 2021 by both the IRS and the MI Department of the Treasury. This deadline extension also encompasses MI cities and counties that impose their own local income taxes.

Just because this year has an additional four weeks compared to pre-pandemic times, it does not imply that the tax rates have changed. Similarly, the collecting authorities still anticipate individuals to report all their gambling winnings from the mostly quarantined 2020.

Many gamblers often make the mistake of believing that they are only required to report their gambling winnings if they have made a profit throughout the year. However, this perception is incorrect. To better understand this, it can be compared to your gross and net paycheck from your employer.

Regardless of how much you wagered, federal and state laws mandate that you report and pay taxes on your gambling winnings, which are equivalent to your gross wages before deductions. For instance, if you placed $500 in bets on sporting events in 2020 and won $50, you must still report and pay taxes on the $50, even if your net loss for the year was $450.

To access comprehensive information on reporting gambling winnings on your tax returns and to learn about the corresponding rates, refer to our detailed guide. Additionally, it is crucial to emphasize that it is not advisable to take risks by not reporting your winnings.

2. Trying to hide your gambling winnings is a losing bet

If your winnings exceed a specific limit, a portion of the prize is automatically deducted by the awarding organization. In numerous instances, this deduction fully or largely covers your tax obligation. Depending on your individual tax circumstances, you may still owe a small additional amount or potentially receive a refund.

Failing to report your gambling winnings on your returns will prevent you from determining the appropriate next steps. If the casino, racetrack, sportsbook, or any other operator has already withheld enough to cover your tax obligations, attempting to conceal your gambling winnings would only put you at risk of an audit without any valid justification.

While it is true that tax authorities are unlikely to conduct an audit for small amounts of a couple of hundred dollars, there is no prohibition preventing them from doing so. In such a scenario, you would not only be liable for the amount you owe, but you may also incur additional fines and interest.

When you receive a W-2G Form from a gambling company, it is highly likely that the respective government authorities have also received one containing your details. Therefore, it would be unwise to neglect reporting your winnings, even if it means higher tax liability for the year. Apart from a sense of security, it is advisable to always act responsibly in this regard. This mindset should encompass all of your gambling transactions, regardless of the outcomes.

3. Whether in-person or online, it’s all the same for tax purposes

MI has recently emerged as a thriving hub for online gaming with the launch of Michigan online casinos, Michigan online poker, Michigan online sports betting, and the ability to play the Michigan Lottery online. When it comes to income taxes, all winnings are treated equally.

Whether you placed your winning sports bet in-person at a window or online through your phone, the tax remains unchanged. The same principle applies to online slots and table games, online poker, and lottery games online.

You can relax about the tax consequences until next year’s filings since these online capabilities were only legalized in Michigan on Jan. 22, 2021. However, it’s beneficial to familiarize yourself with this matter now as well.

There are a couple of ways in which online gambling can simplify tax time. Firstly, opting to itemize deductions and include gambling losses becomes easier with the help of account statements, as they serve as a reliable record of your gambling activity.

Additionally, it offers a practical means to monitor and manage your anticipated financial obligation as you navigate through the year. For each withdrawal made, you can allocate a portion of your earnings to cover the estimated liability for the entire year.

As long as you remember a few key points, dealing with gambling winnings and taxes can be a straightforward process. The deadline for filing taxes for the year 2020 is nearing, but going through this experience will hopefully make you more at ease when online gaming becomes more prominent in the coming years.

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