Online Sports Betting Hits Missouri, Tax Bills Are Not Far Behind

December 1^st marks the first day that legalized sports betting is permitted in the state of Missouri. Missouri now becomes the 39^th U.S. State to allow legalized sports betting, according to CBS Sports. While sports betting has grown into a form of entertainment for sports fans, many of those engaging in the activity may not be aware of the significant tax consequences associated with legalized sports gambling. This article discusses the tax rules for sports betting and some special considerations that Missourians should consider as they fire up their mobile phone apps and start making their bets.

Sports Betting Taxation

According to Section 61 of the Internal Revenue Code, all income is subject to income taxation from whatever source derived. This definition of income stretches from earned wages in a traditional job to finding $100 on the street. Inclusive in this definition is income earned from sports gambling.

As I discussed in my Forbes contributor piece, taxpayers must pay taxes on all winning bets. However, the taxpayer can only deduct losing bets as itemized deductions.

For instance, if a taxpayer wagered $110 to win $100 on the Dallas Cowboys to cover the spread against the Kansas City Chiefs on Thanksgiving Day, the taxpayer would have an increase in their taxable income of $100. The taxpayer would then pay between $10 and $37 in Federal income taxes based on their other income. The taxpayer would also be subject to state income taxes. For instance, in Missouri, which imposes a top income tax rate of 4.8%, this taxpayer would have to pay $4.80 on their winning Cowboys wager.

However, if the taxpayer also wagered $110 to win $100 on the Baltimore Ravens on Thanksgiving Night, the taxpayer’s tax treatment would depend on whether they itemize their taxes. If they do not itemize because their itemized deductions are less than $15,750 in 2025 ($31,500 if filing as Married Filing Jointly), then the taxpayer will pay taxes on their wins without being able to deduct their losses. This would mean that the taxpayer would still have to pay between $10 and $37 in Federal income taxes ($4.80 in Missouri income taxes) on their Cowboys win despite losing $10 overall on their two wagers.

Conversely, if the taxpayer itemizes their taxes, then they can offset their losing bets against their winning bets and deduct their losing bets to the extent of their gains. This netting process is done by the taxpayer increasing their taxable income by $100 and then increasing their itemized deductions by $100. Using the same situation above, the taxpayer would increase their taxable income by $100 for the Cowboys’ win, then deduct $100 from the losing bet on the Ravens. The taxpayer still faces a $10 net loss. However, he or she will not have to pay income taxes on these activities since the income and deductions will net out against one another.

3 Key Sports Betting Tax Implications For Missourians

According to KCTV5, December 1^st marks the first day when Missourians will have access to legalized online sports gambling. Starting now, within the Missouri state boundaries, users can go to their FanDuel, DraftKings, Caesars, BetMGM, bet365, Fanatics, and ESPN Bet apps and make bets on limitless sporting event outcomes. While this may be exciting for many, there are three key tax implications that Missourians need to be aware of before they start wagering.

(1) Sports Betting Triggers Tax Liabilities

As outlined above, betting on sports has almost immediate tax consequences. What some users may not be as familiar with is that these tax liabilities occur for any winnings. This notion is important as the sports betting providers will offer significant incentives for users to sign up.

For instance, according to CBS Sports, Fan Duel is offering up to $400 in bonus bets – a risk-free bet — for new Missouri users. If a taxpayer takes that $400 bonus bet and wins $400, even though the bet was risk-free, the $400 earned is now considered taxable income to the taxpayer. This point is especially relevant for Missouri taxpayers since Missouri is offering among the lowest tax rates on sports gambling providers (10%) in the U.S., meaning that these providers are more likely to offer more lucrative bonus bets to their users.

Importantly, for the vast majority of taxpayers, it is up to them to follow the tax rules. The IRS’s rules for whether the sports gambling providers are to issue official tax forms to users are very loose, in that a taxpayer must earn more than $600 and at least 300 times the size of their bet.

However, just because the taxpayer does not receive a tax form for their gambling activities does not preclude them from paying taxes on their gambling activities. Taxpayers must carefully track their gambling activities throughout the year – an action made simpler by the sports gambling providers who easily organize this information for the taxpayers – and accurately report the activities on their tax returns.

(2) The Sports Betting Tax Laws Will Change In 2026

Missourians learning about the sports gambling tax laws will have to learn an important nuance to these rules, starting with the second month of legalized sports gambling in Missouri. A provision passed as part of the One Big Beautiful Bill Act of 2025 limits the miscellaneous itemized deduction for sports gambling losses to 90%.

As I discussed in a Forbes contributor article, even taxpayers who itemize their taxes and break even on their sports gambling wagers will have a tax liability at the Federal and State level starting in 2026.

For example, consider a taxpayer who wins $100,000 and loses $100,000 on various sports gambling wagers. In 2025, the taxpayer will increase their taxable income by $100,000 and deduct the same amount as a miscellaneous itemized deduction. In 2026, only 90% ($90,000) of the losses can be deducted, meaning that even though the taxpayer broke even, they will owe between $1,000 and $3,700 at the Federal level and $480 in Missouri (actual deduction rules will vary by state).

While this provision is currently part of the 2026 tax law, legislation has been brought up in attempts to revert to the prior sports betting rules. Thus, this treatment could be subject to change.

(3) Sports Betting On Prediction Markets Has Different Tax Treatments

Many users have recently switched their focus to making sports gambling wagers via prediction markets. As I discussed in a Forbes contributor article, prediction market providers like Kalshi and Underdog provide opportunities for users to predict who will win or lose a game in a way that is eerily similar to a sports gambling bet, but with differing tax treatments.

For instance, prediction market wagers and losses can be netted together without the taxpayer itemizing their taxes. Furthermore, if the prediction bets are treated as capital losses, than the net annual losses from these wagers can be used to lower ordinary income by up to $3,000 a year. Thus, for compliant taxpayers, wagering via prediction markets has clear tax advantages.

Conversely, prediction market wagers get reported to the taxing authority as long as specific thresholds are triggered. The threshold for receiving tax forms from prediction market providers is significantly lower than that of sports gambling providers, meaning that taxpayers (and the taxing authority) are much more likely to receive these tax forms.

While many Missourians welcome the onset of legalized sports betting effective December 1^st, it is important that they are aware of the upcoming tax consequences to avoid an adverse tax surprise come tax day in April. Importantly, they must be aware of the upcoming changes starting in 2026 to the tax sports gambling laws, as well as be aware of how the tax treatment may differ should they wish to make wagers via prediction markets instead.