With the Big Game taking place this weekend, we thought it would be a great time to discuss the possible tax implications of your fantasy football winnings.
In 2015, over $119 million dollars was wagered on the last football game of the year and while winning bets in this case are certainly gambling and fall under those rules, fantasy football winnings fall into a bit of a grey area. The Fantasy Sports Trade Association reported that approximately 56.8 million people in the United States and Canada participated in fantasy sports. With statistics such as these, it raises the question of how winnings or losses are reported to the Internal Revenue Service.
While the IRS has not ruled on the treatment of fantasy sports income and losses, there is little if any authority for the proper reporting on tax returns. The only guidance the IRS has offered for this issue is in IRS Letter Ruling 200532025, which discusses the various methods of reporting the winnings or losses by a tax payer. To summarize, the three different methods of reporting are:
- The gross method: If placing the bet online, the site operator reports the total of all winnings for the year on Form 1099-MISC if the player wins $600 or more.
- The net method: The site operator reports the total of all winnings for the year and subtracts the entrance fees from winning individuals only. These would also be reported on Form 1099-MISC, again, assuming the net amount the player wins is above $600.
- The cumulative net method: The site operator reports the player’s totally winnings less all entry fees for the year, regardless if the player received a prize.
Aside from the reporting methods, there are several ways a fantasy sports activity can be characterized. Determining how your activity should be characterized largely depends on the facts about the you and your individual circumstances.
We would have to determine whether the activity constitutes gambling. The question then, becomes whether the activity is not engaged in for profit (classified as a Hobby Activity or a Casual Gambling Activity) or if the activity rises to the level of being a trade or business (Non-Gambling activity or a Professional Gambling Activity).
Because this is still an emerging issue, many states are still working to find a solution and the states that have come to a resolution have focused on the operators and not the individual players.
Whatever situation you’re finding yourself in, Fair, Anderson and Langerman is here to help in finding a solution that will work for you. Give us a call today 702-870-7999.