Don’t gamble with taxes
If you’ve won a big payday on a correct prediction that defied the odds, make sure you don’t roll the dice on what you owe Uncle Sam.
Gambling winnings are fully taxable, and the Internal Revenue Service (IRS) has numerous forms that the lucky winners will need to fill out.
Conversely, gambling losses are deductible up to a certain point, and extensive recordkeeping is necessary to report both.
Traditional gambling wins are subject to a flat 24% federal tax, in addition to any additional state taxes, which will vary depending on where you live.
If your winnings came via a crypto platform, like Polymarket, you may think you’ve successfully hidden your money from the tax man.
However, Polymarket uses USD Coin, a federally-regulated stable coin backed by the U.S. Dollar that is subject to the same taxes as normal income.
Polymarket has previously said it does not allow U.S. citizens to bet on U.S. elections in order to comply with federal regulations.
An October ruling from a Washington court permitted election betting on the online trading startup Kalshi while it battles lawsuits from the Commodity Futures Trading Commission.
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Read MoreHow to manage a financial windfall
But as many lottery winners have found, a financial windfall isn’t always a blessing. Getting a major payday — whether it’s from an inheritance, lottery winnings, or a gamble that paid off — can be exhilarating. However, anxiety inevitably settles in.
Taking careful consideration of your next steps will help ensure you make the appropriate financial planning decisions. After all, those initial steps could be the difference between long-term financial wealth and losing almost everything.
For starters, don’t make any big purchases immediately after getting an influx of money. In fact, consider reaching out to a trusted financial adviser for help in weighing your options and setting realistic goals.
It’s probably a good idea to avoid advertising your newfound wealth too broadly, and that sometimes means not telling friends and family about your financial situation — at least not until you’ve sorted out how you’re going to manage your money.
To help you avoid that conversation with loved ones, at least initially, consider living below your means and avoiding lifestyle creep — like upgrading your car or taking a lavish vacation right away — because this will signal to the people in your life that you’ve received a sudden influx of cash.
Set aside a safety net for unexpected financial emergencies, such as sudden home repairs, unforeseen medical bills, or in the event of a job loss. Having an emergency fund that covers three- to six-months’ worth of living expenses will save you in the long-run.
If you’re heavily in debt, consider paying them off as one of your first priorities. The average credit card debt in the third quarter of 2024 was $7,236, according to LendingTree.
If you haven’t started saving for retirement yet, you can make your newfound wealth work toward securing your future. One option is to open an individual retirement account (IRA). This will allow you to harness the power of compound interest and build more wealth over the years.
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