A Horse Named Tax

Of the three Triple Crown races, the Kentucky Derby is the most well-known, highest attended, and highest grossing. It’s the most exciting two minutes in sports. And if you’re an accountant this year’s race will leave you beside yourself with excitement. Why you ask? Because there is a horse racing in the Kentucky Derby this year named Tax! Even Dean Dorton, a Kentucky based accounting firm, can’t wait to see this horse race: on April 29th, they announced a sponsorship of Tax for all three Triple Crown races. And although we’d love to talk about Tax the horse, we need to talk about “tax” the money you owe the government.

Casinos and most kinds of gambling related activities are illegal in Kentucky; betting on horse racing is one of the exceptions to that rule, probably due to Kentucky’s rich history with horse racing. From Claiborne Farms, whose horses have sired 6 of the 13 triple crown winners, to Gainesway Farms, whose famous sire Tapit had a record setting $140.5 million in progeny earnings, Kentucky knows their horses. And to foster a love of the sport, Kentucky goes all out to promote horse racing.

If you’re planning on betting on a horse at Derby this year, whether you’re actually at the track or betting from afar, you need to know the tax implications that come with it.

Federal Taxation of Gambling Winnings from Horse Racing

ALL gambling winnings need to be reported to the IRS, but only after a certain amount do you need to fill out a Form W-2G and give it to the payer. And those amounts depend on what type of gambling you’re doing. For horse racing, you need to file a Form W-2G for winnings that are:

  1. $600 more, and
  2. At least 300 times the amount of the wager

So, if you decide to place a $20 bet on a horse that’s 30 to 1 in the Run for the Roses, and he wins, you’re going to have to fill out a W-2G and give it to the payer.

Gambling Losses

You can deduct your gambling losses if you itemize your deductions, file a Form 1040 (no 1040A or EZ), and keep a strict record of your winnings and losses. This means you need to provide tickets, statements or other records to complete your record of gambling wins and losses. Also, you can only deduct losses up to the amount of gambling winnings. So, if you win $1200 but lose $1500, you can only deduct up to $1200.

Other Implications

In addition to federal taxes, many states tax gambling winnings as well. Check with your state’s department of revenue to understand the specific tax implications of gambling winnings and losses.

Now that you’re an expert on the tax implications of gambling at horse races, you’re off to the races! Whether you’re planning on watching the Derby in person or spending your time at home watching the 5-hour live broadcast, we have a great Derby Day promotion happening this weekend. Save $100 on any Unlimited CPE Package with code DERBY.

Megan Bierwirth graduated from the University of Kentucky in 2013 with a Bachelor’s of Science in Accounting and passed the CPA exam within 6 months of graduation. She worked in both public accounting and industry while becoming a CPA and now runs a virtual bookkeeping company focused on preventive, integrative and complementary medicine professionals.

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