Before the Fight of the Century, Manny Pacquiao fan Mark Wahlberg challenged P. Diddy (aka Sean John Combs) to a wager here. Diddy backed Mayweather, suggesting $100,000 on the match, but they eventually upped the ante to $250,000. Although Wahlberg lost, before the fight he had promised to give his winnings to charity.
Winning and then giving the money to charity can still mean paying taxes, as strange as that sounds. If you win $250,000 and give $250,000 to charity, how is that possible? Charitable contribution deductions are limited, so it doesn’t all wash. Of course, Walhberg lost and Diddy won, and that means Diddy must report the $250,000.
After all, gambling winnings are taxable no matter what. But losses are often nondeductible, which hardly seems fair. Professional gamblers can deduct their losses just like any other business would. But most people don’t gamble for a living. That means most people who gamble—even celebrities—are only casual gamblers.
Casual gamblers face strict rules about tax deductions. You can’t deduct gambling losses that are more than your winnings, and even then, deductions are limited. But all gambling income is taxed, including winnings from lotteries, raffles, horse and dog races and casinos. If you win in kind, you’ll have to pay tax on the fair market value of prizes such as cars, houses, trips or other non-cash prizes.
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