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Taxes on fantasy winnings (1 Viewer)
- Thread starter NREC34
- Start date
Interseptopus
Footballguy
wut
Interseptopus
Footballguy
My posting was meant to infer, who actually claims private fantasy winnings on taxes.... 
I guess if you just have way too much money, have at it...
I guess if you just have way too much money, have at it...
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NREC34
Footballguy
Ah I see...My posting was meant to infer, who actually claims private fantasy winnings on taxes....
I guess if you just have way too much money, have at it...
jusr sort of wanted to know if anyone claimed for it or got caught not...
Interseptopus
Footballguy
I may or may not have won winnings in gambling and other events with monetary stakes and not claimed said winnings on my taxes. I suppose it would be tough to prove. My friends just sometimes give me hundreds of dollars. Usually for favors I do for them. Such as showing them they need to educate themselves in the NFL.
Anything that I receive that later comes documented on a paper with a "W" at the top I do report, yes.
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NREC34
Footballguy
I wouldn't have a problem reporting it. Just seems like a lot of trouble to try and do it.
fred_1_15301
Footballguy
Lol at expecting a W-2 from the commissioner. Now I've heard it all.
FUBAR
Footballguy
Topic 419 - Gambling Income and Losses
The following rules apply to casual gamblers who aren't in the trade or business of gambling. Gambling winnings are fully taxable and you must report the income on your tax return. Gambling income includes but isn't limited to winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and the fair market value of prizes, such as cars and trips. For additional information, refer to Publication 525, Taxable and Nontaxable Income, or review How Do I Claim My Gambling Winnings and/or Losses?
Gambling Winnings
A payer is required to issue you a Form W-2G (PDF), Certain Gambling Winnings, if you receive certain gambling winnings or have any gambling winnings subject to federal income tax withholding. You must report all gambling winnings on your Form 1040(PDF) as "Other Income" (line 21), including winnings that aren't reported on a Form W-2G (PDF). When you have gambling winnings, you may be required to pay anestimated tax on that additional income. For information on withholding on gambling winnings, refer to Publication 505, Tax Withholding and Estimated Tax.
Gambling Losses
You may deduct gambling losses only if you itemize your deductions on Form 1040, Schedule A (PDF), and kept a record of your winnings and losses. The amount of losses you deduct can't be more than the amount of gambling income you reported on your return. Claim your gambling losses up to the amount of winnings, as an "Other Miscellaneous Deduction" (line 28) that's not subject to the 2% limit.
Nonresident Aliens
If you're a nonresident alien of the United States for income tax purposes and you have to file a tax return for U.S. source gambling winnings, you must use Form 1040NR (PDF), U.S. Nonresident Alien Income Tax Return. Refer to Publication 519, U.S. Tax Guide for Aliens, andPublication 901, U.S. Tax Treaties, for more information. Also, nonresident aliens of the United States can't deduct gambling losses.
Recordkeeping
To deduct your losses, you must keep an accurate diary or similar record of your gambling winnings and losses and be able to provide receipts, tickets, statements, or other records that show the amount of both your winnings and losses. Refer toPublication 529, Miscellaneous Deductions, for more information.
The following rules apply to casual gamblers who aren't in the trade or business of gambling. Gambling winnings are fully taxable and you must report the income on your tax return. Gambling income includes but isn't limited to winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and the fair market value of prizes, such as cars and trips. For additional information, refer to Publication 525, Taxable and Nontaxable Income, or review How Do I Claim My Gambling Winnings and/or Losses?
Gambling Winnings
A payer is required to issue you a Form W-2G (PDF), Certain Gambling Winnings, if you receive certain gambling winnings or have any gambling winnings subject to federal income tax withholding. You must report all gambling winnings on your Form 1040(PDF) as "Other Income" (line 21), including winnings that aren't reported on a Form W-2G (PDF). When you have gambling winnings, you may be required to pay anestimated tax on that additional income. For information on withholding on gambling winnings, refer to Publication 505, Tax Withholding and Estimated Tax.
Gambling Losses
You may deduct gambling losses only if you itemize your deductions on Form 1040, Schedule A (PDF), and kept a record of your winnings and losses. The amount of losses you deduct can't be more than the amount of gambling income you reported on your return. Claim your gambling losses up to the amount of winnings, as an "Other Miscellaneous Deduction" (line 28) that's not subject to the 2% limit.
Nonresident Aliens
If you're a nonresident alien of the United States for income tax purposes and you have to file a tax return for U.S. source gambling winnings, you must use Form 1040NR (PDF), U.S. Nonresident Alien Income Tax Return. Refer to Publication 519, U.S. Tax Guide for Aliens, andPublication 901, U.S. Tax Treaties, for more information. Also, nonresident aliens of the United States can't deduct gambling losses.
Recordkeeping
To deduct your losses, you must keep an accurate diary or similar record of your gambling winnings and losses and be able to provide receipts, tickets, statements, or other records that show the amount of both your winnings and losses. Refer toPublication 529, Miscellaneous Deductions, for more information.
FUBAR
Footballguy
So what do you need to know about reporting to help all of your fantasy-football-playing clients?
Unfortunately, the IRS has not ruled on the treatment of fantasy sports income and losses, and there is little if any authority for the proper reporting on tax returns: only IRS Letter Ruling 200532025, which discussed the various methods of reporting winnings by a taxpayer that ran a site for online game-playing tournaments. According to the letter ruling, the three possible reporting methods are:
Reporting fantasy sports activities—which method is correct for your client?
A client’s fantasy sports activity could be characterized in several ways. Which method is used affects how the income (or loss) is reported. The threshold question is whether participation in fantasy sports constitutes a gambling activity.
It could be argued that many fantasy sports leagues are wagering pools, governed by Regs. Sec. 44.4421-1(c)(1). In Letter Ruling 200532025, the IRS defines a wagering pool as “an arrangement to pool bets into a common fund, which are wagered on a sports event or contest, with the successful bettor (or bettors) receiving the pool proceeds, subject to the pool seller[’]s commission.” If fantasy sports operations constitute a wagering pool, the players are gambling. Note that while fantasy sports are carved out as an exception from the Unlawful Gambling Enforcement Act, that doesn’t necessarily mean they don’t count as a gambling activity for other purposes.
On the other hand, if the winnings are predetermined and must be awarded regardless of how many participants there are or how much is collected in entrance fees (which appears to be the case with the major online sites), then fantasy sports would not constitute a wagering pool. In Rev. Rul. 57-521 the IRS ruled that if a prize is offered in a contest of mental or physical skill, and the contest must award the prize in any event, the contest is not gambling. Fantasy sports players would no doubt argue that their success depends on skill, and therefore they are not gambling.
Determining how the client’s activities should be characterized will depend on that client’s facts and circumstances.
After determining whether the activity constitutes gambling, the question then becomes whether the activity is not engaged in for profit (i.e., a hobby activity, if it is not gambling, or casual gambling, if it is gambling) or if the activity rises to the level of being a trade or business. The taxpayer’s activity, whether it is considered nongambling or gambling, is a trade or business if the activity qualifies as such under Regs. Sec. 1.183-2(b)—that is, it is a regular activity that the taxpayer engages in with a profit motive.
1. Hobby activity. If the activity is not gambling, then for most individuals (i.e., those whose fantasy sports activity does not achieve the level of activity required to qualify as a trade or business), reporting would fall under the hobby loss rules of Regs. Sec. 1.183-1, Activities not engaged in for profit. Hobby income is reported on Form 1040, U.S. Individual Income Tax Return, line 21, “Other income.” Expenses that are otherwise allowable under other relevant sections of the Code are allowed subject to Regs. Sec. 1.183-1(b) and are treated as expenses related to the production of income under Sec. 212. This means that deductions are generally allowable only up to the amount of income from the activity and only if the taxpayer itemizes deductions. These expenses are reported as miscellaneous itemized deductions subject to the 2%-of-adjust-gross-income (AGI) floor, and they are disallowed for alternative minimum tax (AMT) purposes. Expenses here would include the taxpayer’s entrance fees for losing contests and other substantiated expenses related to the activity.
The Form 1099-MISC received from the daily fantasy sports league would likely be incorrect, under Letter Ruling 200532025, since most leagues report amounts in box 3 using the cumulative net method, i.e., winnings less total entry fees. The tax preparer should consider filing a disclosure under Form 8275, Disclosure Statement, if there is no correction made to income as reported on Form 1099-MISC.
2. Nongambling activity—trade or business: For the activity to qualify as a trade or business, the client would need to keep complete and accurate books and records and conduct the activity in a businesslike manner. Note that the IRS will consider whether the activity contains “elements of personal pleasure or recreation” (see Regs. Sec. 1.183-2(b)(9)), which could indicate that the activity is not engaged in for profit. If the client’s fantasy sports activity does manage to qualify as a trade or business, although ordinary and necessary expenses could be deducted under Sec. 162, the net income from the fantasy sports activity would be subject to self-employment tax. The taxpayer will report the activity as a sole proprietor on Schedule C.
3. Casual gambling activity. If the fantasy sports activity qualifies as gambling, then the usual rules governing gambling activities would apply. Entrance fees for losing contests of the taxpayer should be reported as gambling losses and would be allowable only if the individual itemizes deductions. The losses, to the extent of winnings, are miscellaneous itemized deductions but are not subject to the 2%-of-AGI floor (and thus, not disallowed for AMT purposes). Excess losses cannot be carried over to another year. No other expenses of engaging in the activity would be deductible. All winnings would be reported as income, even if the taxpayer’s losses exceeded the winnings. Also, all of the client’s gambling winnings and losses should be reported together, not just winnings and losses from fantasy sports.
4. Professional gambling activity—trade or business. Some taxpayers who play fantasy sports may qualify as professional gamblers in the trade or business of gambling, either based on their level of activity in fantasy sports leagues or their overall gambling activities. For these taxpayers, gambling winnings and losses are reported on Schedule C. Gambling losses can only be deducted to the extent of gambling gains and losses in excess of gains cannot be carried over to another year; however, ordinary and necessary business expenses the taxpayers incur to engage in the gambling activity can be deducted. As under item 2, the taxpayer must establish that the gambling activity rises to the level of a trade or business, which the Supreme Court has held may be possible if the taxpayer pursues gambling full time, in good faith, with regularity, for the production of income for a livelihood, and not as a mere hobby (see Groetzinger, 480 U.S. 23 (1987)).
State taxes
Of equal importance to most clients will be how their state handles the taxation of fantasy sports income. However, because this is an emerging issue, many states are still grappling with it, and the few that have issued guidance have focused on the fantasy sports operators and not the players
- See more at: http://www.journalofaccountancy.com/newsletters/2016/feb/how-to-report-fantasy-football-winnings.html#sthash.jnWJQ2JS.dpuf
Clear?
Unfortunately, the IRS has not ruled on the treatment of fantasy sports income and losses, and there is little if any authority for the proper reporting on tax returns: only IRS Letter Ruling 200532025, which discussed the various methods of reporting winnings by a taxpayer that ran a site for online game-playing tournaments. According to the letter ruling, the three possible reporting methods are:
- The gross method. The site operator reports the total of all winnings for the year on Form 1099-MISC, Miscellaneous Income (if the player wins $600 or more).
- The net method. The site operator reports the total of all winnings for the year and subtracts the entrance fees from winning contests only. These are also reported on Form 1099-MISC, assuming the net amount the player wins exceeds $600.
- The cumulative net method. The site operator reports the player’s total winnings less all entry fees for the year, regardless of whether the participant received a prize.
Reporting fantasy sports activities—which method is correct for your client?
A client’s fantasy sports activity could be characterized in several ways. Which method is used affects how the income (or loss) is reported. The threshold question is whether participation in fantasy sports constitutes a gambling activity.
It could be argued that many fantasy sports leagues are wagering pools, governed by Regs. Sec. 44.4421-1(c)(1). In Letter Ruling 200532025, the IRS defines a wagering pool as “an arrangement to pool bets into a common fund, which are wagered on a sports event or contest, with the successful bettor (or bettors) receiving the pool proceeds, subject to the pool seller[’]s commission.” If fantasy sports operations constitute a wagering pool, the players are gambling. Note that while fantasy sports are carved out as an exception from the Unlawful Gambling Enforcement Act, that doesn’t necessarily mean they don’t count as a gambling activity for other purposes.
On the other hand, if the winnings are predetermined and must be awarded regardless of how many participants there are or how much is collected in entrance fees (which appears to be the case with the major online sites), then fantasy sports would not constitute a wagering pool. In Rev. Rul. 57-521 the IRS ruled that if a prize is offered in a contest of mental or physical skill, and the contest must award the prize in any event, the contest is not gambling. Fantasy sports players would no doubt argue that their success depends on skill, and therefore they are not gambling.
Determining how the client’s activities should be characterized will depend on that client’s facts and circumstances.
After determining whether the activity constitutes gambling, the question then becomes whether the activity is not engaged in for profit (i.e., a hobby activity, if it is not gambling, or casual gambling, if it is gambling) or if the activity rises to the level of being a trade or business. The taxpayer’s activity, whether it is considered nongambling or gambling, is a trade or business if the activity qualifies as such under Regs. Sec. 1.183-2(b)—that is, it is a regular activity that the taxpayer engages in with a profit motive.
1. Hobby activity. If the activity is not gambling, then for most individuals (i.e., those whose fantasy sports activity does not achieve the level of activity required to qualify as a trade or business), reporting would fall under the hobby loss rules of Regs. Sec. 1.183-1, Activities not engaged in for profit. Hobby income is reported on Form 1040, U.S. Individual Income Tax Return, line 21, “Other income.” Expenses that are otherwise allowable under other relevant sections of the Code are allowed subject to Regs. Sec. 1.183-1(b) and are treated as expenses related to the production of income under Sec. 212. This means that deductions are generally allowable only up to the amount of income from the activity and only if the taxpayer itemizes deductions. These expenses are reported as miscellaneous itemized deductions subject to the 2%-of-adjust-gross-income (AGI) floor, and they are disallowed for alternative minimum tax (AMT) purposes. Expenses here would include the taxpayer’s entrance fees for losing contests and other substantiated expenses related to the activity.
The Form 1099-MISC received from the daily fantasy sports league would likely be incorrect, under Letter Ruling 200532025, since most leagues report amounts in box 3 using the cumulative net method, i.e., winnings less total entry fees. The tax preparer should consider filing a disclosure under Form 8275, Disclosure Statement, if there is no correction made to income as reported on Form 1099-MISC.
2. Nongambling activity—trade or business: For the activity to qualify as a trade or business, the client would need to keep complete and accurate books and records and conduct the activity in a businesslike manner. Note that the IRS will consider whether the activity contains “elements of personal pleasure or recreation” (see Regs. Sec. 1.183-2(b)(9)), which could indicate that the activity is not engaged in for profit. If the client’s fantasy sports activity does manage to qualify as a trade or business, although ordinary and necessary expenses could be deducted under Sec. 162, the net income from the fantasy sports activity would be subject to self-employment tax. The taxpayer will report the activity as a sole proprietor on Schedule C.
3. Casual gambling activity. If the fantasy sports activity qualifies as gambling, then the usual rules governing gambling activities would apply. Entrance fees for losing contests of the taxpayer should be reported as gambling losses and would be allowable only if the individual itemizes deductions. The losses, to the extent of winnings, are miscellaneous itemized deductions but are not subject to the 2%-of-AGI floor (and thus, not disallowed for AMT purposes). Excess losses cannot be carried over to another year. No other expenses of engaging in the activity would be deductible. All winnings would be reported as income, even if the taxpayer’s losses exceeded the winnings. Also, all of the client’s gambling winnings and losses should be reported together, not just winnings and losses from fantasy sports.
4. Professional gambling activity—trade or business. Some taxpayers who play fantasy sports may qualify as professional gamblers in the trade or business of gambling, either based on their level of activity in fantasy sports leagues or their overall gambling activities. For these taxpayers, gambling winnings and losses are reported on Schedule C. Gambling losses can only be deducted to the extent of gambling gains and losses in excess of gains cannot be carried over to another year; however, ordinary and necessary business expenses the taxpayers incur to engage in the gambling activity can be deducted. As under item 2, the taxpayer must establish that the gambling activity rises to the level of a trade or business, which the Supreme Court has held may be possible if the taxpayer pursues gambling full time, in good faith, with regularity, for the production of income for a livelihood, and not as a mere hobby (see Groetzinger, 480 U.S. 23 (1987)).
State taxes
Of equal importance to most clients will be how their state handles the taxation of fantasy sports income. However, because this is an emerging issue, many states are still grappling with it, and the few that have issued guidance have focused on the fantasy sports operators and not the players
- See more at: http://www.journalofaccountancy.com/newsletters/2016/feb/how-to-report-fantasy-football-winnings.html#sthash.jnWJQ2JS.dpuf
Clear?
ghostguy123
Footballguy
WTF?
FUBAR
Footballguy
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NREC34
Footballguy
You just enter it under miscellaneous income and deduct the entry fee, right?
no other paperwork needed?
Dezbelief
Footballguy
Dezbelief
Footballguy
Yep; you can subtract any membership fees from fantasy football sites, league dues from other leagues and any $5 bets you paid off during the year.
Did you save the receipt from that fantasy football magazine you bought the day before the draft?
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MaxThreshold
Footballguy
ghostguy123
Footballguy
WTF??
Andy Dufresne
Footballguy
While you're at it, don't forget to pay your state for the sales tax you owe them for all the "tax free" online purchases you made last year.
whole-show
Footballguy
It' gotta be right?! Hahaha
buck naked
Footballguy
Private leagues, no.
But if you get to the level that you receive tax documents from an organization like FFPC or NFFC reflecting your winnings over $600, you better claim fantasy winnings on your taxes. A couple years ago, the IRS questioned an entry on my 2012 personal taxes relating to my law firm, and I showed the necessary documents to clear the issue. BUT, I am 100% convinced those pricks saw on that same return my itemized deductions for fantasy football because I claimed it as a business. Next thing I know, I receive an audit by mail. I had meticulously saved all receipts of winnings and expenses, and justified every dollar. They, being the pricks they are, claimed it was a "hobby" and not a business and demanded $12,000. I was dealing with ignorant IRS attorneys who probably graduated at the bottom of their respective law school classes, because they understood nothing about this. Long story short, after 18 months of fighting this ruling and even filing a claim against their ruling in Tax Court, the file finally arrived with a sensible attorney. She reviewed the file and my information, and the IRS finally relented and dropped the claim in total. That was a sweet day because I hate the IRS.
Bottom line - claim anything where you actually get a document paper-trailing your winnings over $600.
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Isn't it, though?
I mean, I'm glad you won, but I'm just sayin'
You must've had quite some winnings that year if they wanted $12k in taxes.
buck naked
Footballguy
They claimed because it was a hobby and not a business, I was not entitled to deduct the expenses, so they claimed I had additional income that I needed to pay taxes on.
If you look at the elements of what is a business v. hobby, the facts proved many of the elements that the extent of my fantasy involvement is a business. For many people, it is a hobby and I would agree with you.
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Snorkelson
Footballguy
What if I have acquired a 2018 1st, is there a space to claim that, future winfall?
dont forget to subtract your administarative fees for research and your internet bill. probably your phone too...
dont forget to subtract your administarative fees for research and your internet bill. probably your phone too...
Snorkelson
Footballguy
What if I have acquired a 2018 1st, is there a space to claim that, future winfall?
dont forget to subtract your administarative fees for research and your internet bill. probably your phone too...
dont forget to subtract your administarative fees for research and your internet bill. probably your phone too...
Bossman
Footballguy
thanks for the laugh
Hot Sauce Guy
Footballguy
As a non-professional gambler, my wins are offset by my losses. 
FreeBaGeL
Footballguy
Pretty different scenario than the OP if you were claiming FF as a business and deducting expenses.
Anyway there seems to be a lot not adding up here. If you were claiming it as a business the expenses should have been itemized on a separate form. Also the major relevant difference between a hobby and business is that you can't claim a loss on a hobby (your expenses can only take you down to 0) while you can on a business. It sounds like you were claiming a massive loss on your FF "business" and using that to vastly reduce your personal income?
Don Quixote
Footballguy
I claim it, but tax lawyer. (And, yes, I also claim state use tax.)
buck naked
Footballguy
I don't know what "massive" and "vastly" mean to you, but I know I itemized, claimed a business, and took a loss that year. I also showed them how I won in the past years before that and paid taxes on it.
FreeBaGeL
Footballguy
Well we don't have to guess what they mean. They are roughly the percent tax bracket you are in divided by $12,000. So roughly a $40,000 loss you're claiming on your FF "business" (even more than $40,000 if you're not in the top tax bracket).
I'm sure there are tax experts that might know of something else that would make that kind of difference, but as far as I'm aware the way that a reclassification of a business to a hobby could cost you $12,000 on your taxes is if your business was operating on a $40,000+ loss, which the hobby re-classification would change to a $0 loss (since a hobby cannot count as a loss against your overall earnings), thereby raising your income by that $40,000+ amount which would then require you to pay more (the taxes on that amount).
Anyway, not meaning to come after you or anything, it just got me interested. I think it's safe to say we're in completely different waters than the OP here though.
SaintsInDome2006
Footballguy
Un-American.
No.
No.
ghostguy123
Footballguy
Not sure what is funnier here, the original question, or the serious answers.
The General
Footballguy
dickey moe
Fingerpicker
IT REALLY ISN'T GAMBLING PEOPLE
Hot Sauce Guy
Footballguy
Next thing ya know they'll be taxing you on the amount of love for Josh Gordon we have.at gambling/lottery winnings being taxed. america... one hit after another.
your bill will be like a billion dollars. :(
Dreamer
Footballguy
The IRS is serious business, and they will come after you if you get a 1099 and don't claim it.
ghostguy123
Footballguy
buck naked
Footballguy
Maybe hitting your head will finally cause you stop making snarky comments all the time.
I used to do so, as long as all incomes from fantasy sports are considered as gambling as well, at least in the States: https://en.wikipedia.org/wiki/Fantasy_sport#Federal_law_related_to_fantasy_gaming it must be reported for your tax return with the form W-2 for certain gambling winnings if it hits the limit of $600
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