What do you get when you combine 1099s, tax deductions, and the IRS with daily news about fantasy football leagues closing down, and the hopes and dreams associated with Superb Owl squares and March Madness brackets?
Tax advice! Seriously. If you play online, or have an office game running, this information is for you. Especially if you’re a winner.
The first thing you need to know is that if you run an office fantasy sports league, it’s probably illegal.
The second thing you need to know is that the IRS requires people to report gains from illegal activities. It may seem like small potatoes, but remember, that they got Al Capone on tax evasion.
Here are a few snippets from IRS Publication 17:
Gambling winnings. You must include your gambling winnings in income on Form 1040, line 21. If you itemize your deductions on Schedule A (Form 1040), you can deduct gambling losses you had during the year, but only up to the amount of your winnings. If you are in the trade or business of gambling, use Schedule C.
Illegal activities. Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity.
Winnings will probably be reported to the winner on Form 1099-MISC in Box 3 (Other income). If winnings are paid out through PayPal or a similar service, there may be 1099-K on the way to you, too.
Losses, entry fees, and Fantasy Sport related expenses may be deductible. If you can prove your Fantasy Sports aren’t a hobby (or that the hobby is really expensive) and that you’re self-employed playing Fantasy Sports, you could file with a Schedule C. Be careful, though. Schedule C forms come packaged with self employment taxes and increased audit risk. And if your Fantasy Sports biz shows a loss three years in a row, it reverts back to a hobby. Talk to your tax accountant for more info.
This blog submission is only for purposes of disseminating information. It does not constitute legal or tax advice. No attorney-client relationship is formed by virtue of reading this blog entry or submitting a comment thereto. If you need legal advice, please hire a licensed attorney in your state.Read more on Uncategorized