Fantasy Sports & Taxes: What You Need to Know

October 7, 2015
If your fantasy team wins because Tom Brady threw four touchdown passes, you might be on the hook for taxes on those winnings. 1-800Accountant explains fantasy sports and taxes.

If your fantasy team wins because Tom Brady threw four touchdown passes, you might be on the hook for taxes on those winnings. 1-800Accountant explains fantasy sports and taxes.

Are you one of the millions of Americans who indulges in fantasy sports? Do you have a fantasy football league in your office? Do you play one-day or one-week fantasy sports on sites like FanDuel or DraftKings? If so, winning money on fantasy sports is all fun and games – until you realize the IRS tax implications involved.

Do Fantasy Sports Players Owe Taxes on Winnings?

Income you earn from gambling, prizes, barters, hobbies or other activities not tied to a job or business should be reported as miscellaneous income on your IRS income tax return. Winnings from playing fantasy sports also fall under this miscellaneous income category.

In many cases, income you make by playing fantasy football or baseball is treated as hobby income rather than gambling income. This may include non-cash prizes such as gift cards, NFL tickets, or vacation packages.

If a fantasy team owner wins over $600, the player will receive Form 1099-MISC from the fantasy sports provider. If you don’t receive this tax form, you should still keep records on your own and report any income you earn as miscellaneous income.

Can You Deduct Fantasy Sports Expenses?

Many fantasy sports leagues require some type of entry fee in order to participate in them – and, obviously, for there to be money to go around to winners. Let’s say a fantasy football player wins $1,000 in a one-day league, but there was a $100 entry fee to partake in the league. This player can claim $900 as net income from this prize and can then write off any associated expenses incurred to play, including the entry fee. As a hobbyist, you can deduct any hobby-related expenses up to the amount of income you bring in from such a hobby.

Like most tax deductions, there are some rules on writing off these costs. To claim expenses other than fantasy sports entry fees, you must itemize the deductions on your tax return rather than claiming the standard deduction. Plus, hobby expenses and any additional miscellaneous itemized deductions must be greater than 2% of your adjusted gross income. You can then only deduct the amount that exceeds 2% of this AGI amount.

Remember that fantasy sports winnings are typically not considered business income and should not be reported as such when filing your taxes. Business income is earned to make a living, while playing fantasy sports is more of an entertainment activity that simply could result in significant income.

Can Fantasy Football Constitute Gambling?

While it may seem like gambling on the surface, most experts in the accounting and finance field tend to agree that playing fantasy sports is a hobby and is not considered a traditional form of gambling in terms of tax requirements. This is because players are not betting on real teams, but instead are betting on varied teams of real players who they assemble themselves.
On the other hand, football pools in which participants bet on the results of actual games each week are considered a form of gambling. As such, you would owe income taxes on winnings from either an informal game among your friends or a contest through a website. Use Form W-2G to report this type of income. Gambling losses are deductible, but you cannot deduct any losses that exceed the amount of your annual winnings.

If you play fantasy sports and win money at it, you should seriously consider working with an accounting expert to ensure you’re fulfilling all IRS tax obligations on either hobby income or gambling income. Call 1-800Accountant today at 1-800-222-6868, or check out the “Services” page on www.1-800Accountant.
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