Fantasy Sports: Reporting Your Winnings

Fantasy sports are when individuals assemble an imaginary team of real players from a professional sport. Teams compete based on the performance of these players in their actual games throughout the entire season. Fantasy sports are considered a game of skill, so they are not gambling. Money used for winnings comes from fees, advertising, and partnerships.

Daily fantasy sports (DFS) are fantasy sports that are conducted over short periods of time, like a single day or week. They are typically structured as “contests” which are paid competitions where winners receive a pre-determined amount of money funded by entry fees. Like fantasy sports, DFS are not gambling because they are regarded as games of skill.

How are fantasy sports winnings taxed?

All winnings from fantasy sports are taxable income, regardless of how small the amount won. So, even if you win just $1, you are supposed to report it as a winning.  

If you profit $600 or more for a year, the fantasy sports site or organizer must issue a Form 1099-MISC form to you and the IRS. When you profit $600, some sites may send you an electronic W-9 form for you to complete for IRS reporting.

How do you report fantasy sports winnings?

Fantasy sports winnings are reported on line 21 of Form 1040 as “other income.” If you receive a 1099, your winnings must be reported. The IRS will match the amount on your 1099 with the amount reported on Form 1040.

Can you file a Schedule C instead?

In order to file a Schedule C instead of reporting your winnings on Form 1040, your DFS have to be run as a for-profit business (not as a hobby.) The IRS uses nine factors to determine if DFS are a business or hobby.

1.    Are books accurate? Is there a separate business account? Are records used to improve performance?

2.    Did the taxpayer study business practices? Were experts consulted?

3.    Does the time and effort invested indicate an intention of making a profit?

4.    Is there a history of profits from similar activities?

5.    What is the history of any losses?

6.    Has the activity been profitable in previous years?

7.    Does the taxpayer have a source of income other than from DFS?

8.    Is there an expectation of asset appreciation from the activity? (This applies for fantasy sports only; not DFS.)

9.    Does the activity lack elements of personal pleasure or recreation?

As you can see, deciding whether to file as a hobby or a business is complicated! If you do file as a business, you could also have to pay Self Employment Taxes. While you will have to pay the additional taxes, the benefit is that there are more things that can be deducted as expenses, including internet access, DirecTV, etc.

Can you also be taxed at the state or local level?

Yes! Different states, cities, and municipalities have their own tax considerations and tax liabilities. For example, some states have itemized deductions and other states do not.

Contact me!

Fantasy sports are fun! They are a great way to stay in touch with family and friends around the world! Fantasy sports have increased viewership of sports on television. And they can bring in additional income! “Fun” often comes with a price, and in this situation, the price involves taxation.

If you have questions about fantasy sports and reporting income, please contact me! As always, my goal is to keep you in compliance and also help you keep your money in your pocket!