Governor Roy Cooper is urging the General Assembly to allow gamblers to deduct gambling losses from their winnings, an option not currently available for North Carolina bettors.
Power of Deduction
The IRS allows gamblers to deduct gambling losses equal to or less than their winnings. This is a commonsense tax rule that is also employed by most states that impose a state income tax. However, North Carolina is not one of those states and with the advent of mobile sports betting, there will be many unhappy bettors in the Tar Heel State who will have to pony up for taxes on their winnings without being able to deduct their losses.
The lack of a deduction will be painful enough for gamblers who have won money for the year but particularly so for those who have suffered net losses yet are still obligated to pay on any money they did win. It could very well dissuade people from betting with licensed U.S. sportsbooks and drive them to offshore sportsbooks where gambling winnings are not reported to the government.
In North Carolina, the state tax on gambling winnings is 4.5%, which means if a bettor won $10,000, they would be obligated to pay the state $450. That would be particularly galling if that bettor has gross losses of $20,000, which means their net losses total $10,000.
It’s not a good look for a state that has just launched mobile sports betting, and although many North Carolinians may not be aware of the tax consequence on gambling winnings, they will find out soon enough once they try to write off their losses at tax time next year.
Governor Has Eureka Moment
North Carolina Governor Roy Cooper appears to understand the inequity of the law and is appealing to lawmakers in his state to change it. The governor’s aha moment apparently came after reading a column written by Nathan Goldman, a CPA and accounting professor at North Carolina State University, and Christina Lewellen, an associate professor of accounting at NC State. Goldman wrote:
“The state actually has the power to address this immediately. Most notably, what would really help, is it would eliminate these tax surprises. And, it would really help connect the North Carolina tax system with what many people perceive to be a just tax system.”
“It’s really important that taxpayers understand what they’re getting into when they gamble, that this is going to be income,” Goldman added. “These apps track every single bet that you make. They track every single winner. They track every single loser. They know exactly where you made that bet too, whether you’re in North Carolina or Virginia or New York. And, they’re keeping very careful track of your gambling activity.”
If a bettor makes more than $600 in gambling winnings, the government is notified and there is no hiding from it. If the winnings are less than $600, then the law states that the bettor is expected to self-report it on their income tax statement.
“Once you exceed $600, you will receive a W-2G in the mail,” Goldman said. “This is gonna be just like any other document that you get from like your employer or from a brokerage if you have some investments.”
“You’re required to self-report it,” Goldman told WRAL. “Whether or not you do it is up to you. And I suspect a lot of taxpayers will probably err on the side of not reporting it. But that’s not what the law says.”
