You've Won! Time To Celebrate ... Or Is It?
Your adrenaline is pumping - you've just won a daily fantasy matchup in FanDuel or DraftKings, an online March Madness bracket, or some other type of fantasy sports! You begin to think about what you will do with your winnings - go on vacation, buy a car, pay off debt - fantasizing about how you'll put all of the money you won to good use.
Not so fast.
If you're planning on using all of the money you won, you're in for a rude awakening. The IRS is entitled to a portion of your winnings; the percentage varies based on your particular circumstances. If you fail to pay, you can quickly find yourself in a world of hurt. Consequences include owing even more in taxes, additional interest owed to the government, tax liens on your property, fines and possibly even jail time.
In this article, we address some of the most frequently asked questions related to fantasy sports winnings and taxes. We help you understand how issues with fantasy sports winnings arise and give advice on what to do if you're the target of an IRS audit or investigation.
If you're concerned that some or all of the situations described in this article apply to you, please contact Silver Tax Group as soon as possible at (855) 441-7921; if the IRS has already contacted you or is likely to come after you due to unreported earnings from fantasy sports, you need an immediate, proactive defense strategy in place.
How Much Can I Win In Fantasy Sports Before I Have To Report It To The IRS?
IRS regulations require you to report all of your income, including money earned from fantasy sports. Even if you have not received a tax document from the fantasy game company (see next section), you are responsible for accurately reporting your income to the IRS.
How Will The IRS Know About My Winnings? What Happens If I Don't Report Winnings On My Tax Return?
The IRS learns about your winnings in several ways, but the primary one is the tax form that fantasy sports companies provide you and the IRS if your profits are $600 or more. Whether you receive a W2-G (to report gambling winnings), a 1099-MISC (for miscellaneous income) or a 1099-K (usually used when winnings are received via PayPal), the IRS will expect you to report that income on your tax return. Even if you have not received one of these forms, you will need to report your winnings or face action by the IRS.
What About State Taxes? Are There Different Rules For Fantasy Sports?
In addition to federal income tax, you may have to pay state (and even city) taxes on your earnings. As of early 2016, nearly 30 states have considered or enacted legislation dealing with daily fantasy sports. Much of this legislation deals with how to regulate these games, but some states, such as New York and California, are considering adding tax requirements as well.
I've Heard That I Can Claim Fantasy Winnings As A Business Expense - Is That True?
While it is true that you may be able to report your fantasy winnings and losses as part of a business, most casual fantasy players will not qualify for this approach. Why would you want to take this approach? The business deduction route can allow you to deduct losses in excess of income (which businesses can do), so that any negative outcomes from the year have a less significant effect.
To claim that playing fantasy sports qualifies as a business (for tax purposes), though, you must convince the IRS that doing so is more than just a hobby. There is a complex test that determines hobby vs. business, but a good general rule is that you must play fantasy sports with regularity and play with the intention of earning a profit.
A more practical answer: If you aren't playing fantasy sports as your full-time job, it's not likely that you can claim your expenses as a business expense.
What Can I Do If The IRS Has Already Come After Me?
Don't let a mistake in tax reporting spiral out of control and affect your finances and your life for years to come. The IRS will continue to act quickly and aggressively, so you need to take action immediately.
Call our tax defense team at (855) 441-7921 and set up an appointment; after we hear your side of the story, we will start building a strategy that protects you and your finances while addressing outstanding tax issues.