The world's most famous horse race, The Kentucky Derby, will be this Saturday, May 4th. While it may not be the richest horse race or the oldest continuous horse race, it is the first race of the Triple Crown races and well known as the 'Greatest 2 Minutes in Sports'.
You might think that winners of the 2 million dollar purse and the bettors will walk away with a large sum, but there are a lot of taxes and fees to prevent that. For starters, the 2 million dollar purse is split between the first five horses to cross the finish line meaning the winner may get a little less than 1.25 million dollars. That profit is then divided between the owners, trainer, and jockey. Each of their earnings is taxed and used to pay off fees such as the horse handlers and the jockey's agent.
For bettors, taxes have become more friendly for them. Pari-mutuel betting is common at horse races and means your winning bet is divided by your original wager. Of course, office fees and taxes are taken out of that as well. Pari-mutuel taxes only apply if the odds of the pari-mutuel bet are 300 to 1 or greater. In the past, you would have to report your earnings if you bet $100 and won more than $600 with 300 to 1 odds. This is because the IRS viewed the ticket as individual opportunities to win ($1 for each of the combinations). In 2017 new standards were implemented meaning the entire pari-mutuel bet would be considered as an opportunity, and only your total wager would be considered to determine if you needed to report your earnings. You would have to win $30,000 from your original $100 bet to be required to report your earnings and have taxes withheld.
For more taxes involving horse check out our recent article listing some bizarre taxes including horse sales in the state of Kentucky.
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