If you’ve turned on your TV recently, chances are you’ve seen an advertisement for DraftKings or FanDuel, two of the most popular daily fantasy sports gaming sites. Daily fantasy sports (DFS) are similar to regular fantasy sports, with the main exception being that the contests are held over a much shorter time frame.
Most online gambling and sports gambling in the U.S. is illegal. However, fantasy sports sites claim their contests are legal under a federal law exemption whereby fantasy sports are considered a “game of skill” rather than a “game of chance.”
As these sites have grown in popularity, some states are beginning to challenge the legality of daily fantasy sports within their jurisdiction. Here in Indiana, Republican State Representative Alan Morrison says he plans to revisit a bill he introduced earlier this year.
As tax season inches closer, one question that frequently arises is, “What are the tax consequences associated with playing daily fantasy sports”?
If you are a profitable DFS player and win more than $600 during the year, then you and the IRS will both receive a Form 1099-MISC reporting the income. The income listed on this form should be included by the taxpayer as income on their Form 1040.
The income on Form 1099-MISC is calculated by daily fantasy sports sites with the following formula: Income = (Winnings – Total Entry Fees) + any Bonuses/Rewards.
This is a formula players should keep in their records so they can track their income and plan for any possible tax reporting at the end of the year. As shown in the formula, entry fees are deducted in determining taxable income, but you may also be eligible for more deductions depending on the frequency of play and your individual tax situation.
If you are a casual DFS player, the most common scenario would be claiming any other applicable expenses and losses as a miscellaneous itemized deduction on Schedule A. The caveat is that in order to obtain a deduction for miscellaneous expenses, they must exceed 2% of your adjusted gross income.
Another potential option would be to report the income as business income on Schedule C. This option would allow a DFS player to directly deduct all relevant expenses such as site subscriptions, TV sport packages, internet and phone data. However, the only way a DFS player could report the DFS activity as a for-profit business (Schedule C) is if that player is in the trade of business of being a DFS player (i.e. business vs. hobby loss rules).
If you have any questions regarding the tax consequences associated with daily fantasy sports, please contact Jared Duncan at (317) 613-7848 or [email protected].