Horse Racing Taxes: What You Need to Know About Winnings and Losses

When it comes to betting on horses, taxes aren’t always the first thing we worry about, right? We are more concerned about picking the right horse and usually don’t care much about wins, losses, and the best way to handle each scenario.

But that day will eventually come, and you might win some money. So, what should you do with your horse racing winnings? You might still celebrate your last win, but it’s time to get serious and talk about taxes.

It’s kind of a buzzkill, but it is what we must do to avoid getting into trouble. So, you’ve won some money on the track? Well, before you start splurging on more bets or fancy dinners, let’s talk taxes.

It seems like Uncle Sam wants to take a percentage of your winnings, and if you are not careful, you might lose more than you’ve won.

Therefore, let’s learn how to properly manage taxes from horse racing bets.

Are Winnings from Horse Racing Taxable?

The short answer? Yes! So, I think that you already know the answer to this question. After all, everything is taxable in modern society.

This means that whether you won a big bet at the Kentucky Derby, or thinking about betting on an underdog horse after seeing the 2024 Breeders’ Cup odds, you need to worry about taxes.

The IRS doesn’t care how much fun you have; they want a slice of the pie.

Winnings are reported as “Other Income” on Form 1040, and it doesn’t stop there. If your payout is significant (think $600 or more, with certain odds thresholds), the racetrack will file a W-2G form, sending a copy to both you and the IRS.

Withholding Requirements: The 24% Rule

For larger winnings, the IRS requires automatic withholding of 24%. So, if you win $5,000 on a horse bet with odds that net you $10,000, $2,400 might already be withheld by the track and sent directly to the IRS. You’ll receive the remaining $7,600, but don’t think you’re done with taxes just yet—your total tax liability could be higher depending on your tax bracket.

What If I Don’t Receive a W-2G?

Not all winnings will trigger a W-2G. Smaller wins under $600 or those with long-shot odds often fly under the radar.

But here’s the kicker: you’re still required to report them. I know you’ve already considered making smaller bets to avoid paying the taxes, but that’s not how it works and you’ll get caught.

Yep, even if the track doesn’t hand you a form, you must let the IRS know. Think of it like this: no W-2G, no problem—but only for the racetrack, not for you!

Therefore, I suggest that you start reporting those smaller wins as soon as possible.

Can I Deduct My Losses?

If you are an experienced horse racing bettor, then you’d probably know that you won’t win every bet. In other words, you’ll get your fair share of lost bets. So, what can you do with the amount of money you’ve lost? Can you deduct your gambling losses and pay less taxes?

Don’t worry, the IRS has a bit of good news for you—you can deduct your gambling losses, but only to the extent of your winnings. If you win $10,000 but lose $7,000 throughout the year, you can offset your taxable winnings with those losses, bringing your taxable total down to $3,000.

Pro tip: Keep track of your bets, wins, and losses like a pro. The IRS requires documentation such as:

• Betting slips
• Wagering records
• Bank statements

Without these, your losses might not be deductible, and you could pay more than necessary.

But What About State Taxes?

Federal taxes are just the start of it. Most states will want their cut, too. States like California, New York, and Kentucky also tax gambling winnings, so be prepared for a double dip in your earnings. Some states may not have gambling taxes, but they’re rare. Check your state’s tax laws to see if you need to file additional forms.​

Do Casual Bettors Need to Worry?

“Come on, I’m not a pro gambler! Do I need to deal with all this?” Yes, you do. It doesn’t matter if you’re at the track every weekend or placed just one bet in your life. All gambling winnings are taxable, no matter how often or rarely you bet. The IRS doesn’t differentiate between professional gamblers and the casual fan. Sorry!

What Happens If I Don’t Report My Winnings?

Let’s get real—failing to report your winnings could land you in hot water. The IRS receives a copy of your W-2G form, so they know what you won and are pretty sharp at matching things up. If you underreport, you could face penalties, interest, and, in extreme cases, criminal charges. It’s just not worth it.