There’s a tax method to the madness

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in Small Business Tax,Small Business Tax Deduction Strategies

Q. I won $1,000 in a March Madness pool. Do I have to pay income tax on it? Norwich, Conn.

A. First, congratulations! Second, you technically owe tax on winnings from gambling activities, regardless of the amount, although the payer generally won’t report the information to the IRS if the payout is under $600. (Information from a pool among friends or a workplace isn’t likely to be reported.) When required, the payer will also issue you a Form W-2G, Certain Gambling Winnings. In any event, you can use losses from other gambling activities during the year, like outings at casinos and racetracks, to offset your annual winnings. Keep detailed records.

Tip: Gambling losses are claimed as miscellaneous expenses on your tax return, but aren’t subject to the usual 2%-of-AGI deduction threshold.

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