Fantasy sports have become a booming business in recent years, and that trend looks to continue through 2016 and beyond.
In recent years, Forbes estimated that fantasy football itself was between a $40 billion and $70 billion industry. When these traditional game types are coupled with daily fantasy sports (DFS), the payouts to fantasy players end up in the billions of dollars.
What Can Go Wrong With Fantasy Sports Betting?
The best way to show all of the issues you can encounter after winning in fantasy sports is to use a hypothetical situation.
In this situation, Mark (our hypothetical fantasy player) has won $25,000 through a daily fantasy site.
If he complies with all of the laws and IRS regulations that affect his winnings, he won't have a problem. But it can be tough to know exactly how to comply with those rules without guidance.
In this scenario, we highlight every step of the process where Mark can (and did) do something wrong.
- Mistake one: Mark figured that because his winnings were from an online source and not from his regular day job, he could get away with not reporting the winnings on his taxes. This was especially foolish because the fantasy company sent him a 1099-MISC form, meaning it let the IRS know about the winnings, and the IRS was expecting to see a matching report on Mark's tax return. When an individual makes more than $600 in profit playing fantasy sports, the company is required to send a 1099 form.
- Mistake two: Mark learned that he should have reported his winnings on his taxes, but takes no action. He figures that it will "all even out" and that the IRS will just fix it on his tax return next year. By not taking action, Mark has put this in the hands of the IRS and will always be reacting to its demands rather than taking charge with a proactive approach.
- Mistake three: Mark gets notice from the IRS that it is coming after him for the significant omission of income on his tax return. Not wanting to own up to his mistake by getting outside help, Mark decides to try to negotiate with the IRS by himself. That eventually fails, and Mark finds himself trying to appeal a decision in federal tax court.
The result? Mark has wasted significant time, and he now owes interest on top of the original amount he should have paid in taxes.
What He Should Have Done After Winning At Fantasy Sports
So what should Mark have done? To avoid the first mistake, he should have claimed the income and sought the help of a tax professional. Once that mistake had been made, he should have sought the help of a tax defense lawyer. The right attorney could have negotiated on his behalf, helped him avoid mistakes two and three, and resolved this problem as quickly as possible.
If you find yourself in the same situation as Mark, contact Silver Tax Group at 800-778-2741 to see how we can help you. We serve clients with tax defense needs throughout the United States.