Dana Bull, CPA •
Congratulations! You just won your Super Bowl bet! Or, you did your research, poured over the stats, drafted wisely and won your fantasy football league. You now have bragging rights for the year! You may also have a tax bill. Most people are aware that other income sources such as wages, salaries, interest and dividends are taxable. But other income such as gambling and prizes are also taxable. The IRS requires taxpayers to report these winnings as miscellaneous income.
Congratulations! You just won your Super Bowl bet! Or, you did your research, poured over the stats, drafted wisely and won your fantasy football league. You now have bragging rights for the year! You may also have a tax bill. Most people are aware that other income sources such as wages, salaries, interest and dividends are taxable. But other income such as gambling and prizes are also taxable. The IRS requires taxpayers to report these winnings as miscellaneous income.
The winnings from fantasy leagues and sports betting generally fall into one of two categories: A hobby activity or a casual gambling activity. Participating in most pay-to-play fantasy leagues, including popular one-day or one-week leagues, is usually not gambling. Playing a fantasy sport is not gambling if the team is not based on a real team and the awards or prizes are disclosed up front, independent of the number of participants. Also, winning should depend on a player’s knowledge and skills and the average results from multiple events, not the scores or performances of a real team or individual athlete.
“Pick-em” contests that rely on the results of actual teams and with a prize based on how many people enter may constitute gambling. This is true whether players use an online commercial platform or informal office pool This is different than hobby income and expenses.
Hobby activity – If the activity is not considered gambling, reporting would fall under the hobby loss rules. The income would be reported as other income on the taxpayer’s form 1040. Expenses 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-adjusted-gross-income (AGI) floor, and they are not allowed for alternative minimum tax purposes. Examples of deductible expenses are entrance fees and other substantiated expenses related to the activity.
Casual gambling activity – If the activity qualifies as gambling, then the rules governing gambling activities would apply. All winnings are reported as income, even if the taxpayer’s losses exceeded the winnings. Gambling losses are allowed only to the extent of winnings and are only deductible if the taxpayer itemizes deductions. The major difference here is that the losses are not subject to the 2%-of-AGI floor.
So enjoy your windfall, but just remember the IRS wants in on the action too!
If you have questions about fantasy football or gambling winnings, please contact the team at Mason + Rich for assistance.
“Pick-em” contests that rely on the results of actual teams and with a prize based on how many people enter may constitute gambling. This is true whether players use an online commercial platform or informal office pool This is different than hobby income and expenses.
Hobby activity – If the activity is not considered gambling, reporting would fall under the hobby loss rules. The income would be reported as other income on the taxpayer’s form 1040. Expenses 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-adjusted-gross-income (AGI) floor, and they are not allowed for alternative minimum tax purposes. Examples of deductible expenses are entrance fees and other substantiated expenses related to the activity.
Casual gambling activity – If the activity qualifies as gambling, then the rules governing gambling activities would apply. All winnings are reported as income, even if the taxpayer’s losses exceeded the winnings. Gambling losses are allowed only to the extent of winnings and are only deductible if the taxpayer itemizes deductions. The major difference here is that the losses are not subject to the 2%-of-AGI floor.
So enjoy your windfall, but just remember the IRS wants in on the action too!
If you have questions about fantasy football or gambling winnings, please contact the team at Mason + Rich for assistance.
RSS Feed