Do you owe taxes on sports betting wins?

Having your favorite team come out on top is a great feeling. And it is even sweeter if you placed a bet on that outcome.

All you probably want to do next is celebrate the big win — but there is, unfortunately, the question of taxes to contend with. As it turns out, if you gain wealth of any kind, you must pay taxes on it — and "winning a bet counts as gaining wealth, which means you must report it to the tax authorities," said SmartAsset.

How is sports betting taxed?

Your sports betting winnings "are considered taxable income — specifically they are deemed ordinary income on your return," said H&R Block. This means the rate "can be anywhere from 10% to 37% based on your income tax bracket."

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As for the circumstances under which you will pay taxes on sports betting, the IRS "considers all winnings from gambling fully taxable — whether from a website, state lottery, casino, raffle, bingo game, horse race, fantasy football league, poker tournament or just a small friendly wager," said CNBC Select. "Cash winnings and the fair market value of cars, trips and other prizes" count, too.

Beyond federal taxes, you might have state taxes on sports betting wins to worry about too. "Tax rates and reporting requirements vary widely across the U.S.," and "there may be local taxes that businesses are required to withhold as well," said NerdWallet. Check what the rules are in your state to see what is required.

Can you deduct sports betting losses?

You can, but only if you itemize your deductions. Because this can be a bit of a pain, "if you think your gambling losses and other deductions combined won't be more than the standard deduction for your tax bracket, it probably doesn’t make sense to write off your gambling losses," said CNBC Select.

Certain limits and rules also apply to these deductions. For one, "gambling losses can only offset gambling winnings," meaning "they cannot be used to reduce your taxable income from other sources," said SmartAsset. Second, you can deduct "only up to the amount of the gambling winnings you claimed," said H&R Block. So, for instance, "if you won $2,000 but lost $5,000, your itemized deduction is limited to $2,000."

How should you report sports betting on your taxes?

"You'll report your winnings as 'gambling income' on Form 1040, Schedule 1," said H&R Block. When filling this out, "you need to report each wagering transaction separately," and "you can't reduce your gambling winnings by your gambling losses and report the difference." Any losses are separately reportable on Schedule A.

Note that you might receive extra paperwork if your wins were more sizable. "If you won at least $600 and 300 times the wager amount, casinos, gambling platforms and online sportsbooks should provide you with IRS Form W-2G," said CNBC Select. Meanwhile, "winnings of $5,000 or more may require gambling institutions to withhold federal income taxes, typically 24% of your total." You will see that amount in Box 4 of your W-2G if this occurs.