Daily Fantasy Sports Tax Reporting

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Hello RotoGrinders Community,

We hope 2017 treated you well. For those who had winnings from DFS, you will have to pay special attention to your taxes, as there was an unprecedented tax haul signed this past December. Keep in mind these tax changes will affect 2018 and beyond. For the upcoming tax season (2017 taxes), it is still standard operating procedure. In this article, we will touch on various issues that may affect your tax return. It is important to be proactive with your taxes, and it is advantageous to properly plan and understand your tax situation. If after this article you believe your tax situation is more complicated than you thought, please feel free to reach out to us for a free consultation.

At the onset of Daily Fantasy Sports, there was much debate as to what type of “activity” individuals are engaging in. The IRS determined that playing DFS was a game of skill and technical ability. Players had to develop a strategy, research athletes, and build a team that will gain the most points possible in order to win a “set prize.” Compared to gambling activities, where the IRS views those activities as a game of “luck,” winning an undeterminable amount (the professional gamblers in the community would disagree). This distinction caused DraftKings and FanDuel to mail out Form 1099-Misc to their participants. This opens up DFS income into a grey area of taxation. Is your playing style a hobby or full-time job/business? We will discuss further.

Head over to DFS Accounting today for a free consultation!

Note: You cannot write off gambling losses against your DFS income. They are two different activities with different tax rules. Sorry!

If you have winnings of over $600 from any daily fantasy sports site, such as FanDuel or DraftKings, you will likely receive a Form 1099-MISC with the amount shown on Box 3. It is advised that you report all earnings on your income tax return and not just earnings reported to you on a 1099-MISC or other tax forms.

Your winnings will be reported on Line 21 of your 1040 tax form as Other Income. This type of reporting is commonly referred to as hobby income. DFS players classifying their income as hobby income are not allowed to reduce their income/winning for expenses incurred or losses from one daily fantasy site to another. This type of reporting is typical for the casual DFS player. Expenses and/or losses are deducted on your Schedule A – Itemized Deductions and they are considered 2% miscellaneous expenses. You can deduct hobby expenses/losses up to your DFS income. Starting 2018, you will not be able to deduct hobby expenses.

Individuals who spend more time than the casual DFS player or who play professionally for a living typically report their DFS activities on Schedule C – Profit or Loss from a Business. This type of reporting allows the DFS player/business owner to reduce the income earned by expenses incurred or losses from one daily fantasy site while another daily fantasy site had winning/income.

So, how do you know which reporting is best/right for you? The IRS has several criteria under the Internal Revenue Code that helps distinguish the casual player/hobby from the professional player/business owner. We have developed a Tax Determination Questionnaire that will assist you in making this decision. Selecting the correct tax position is critical. Miss-steps could result in higher taxes, IRS tax notices and significant interest and penalties.

We believe that determining the proper tax position (casual vs. professional) is important but not as important as proactively tax planning throughout the year. Proper tax planning will lessen your tax burden and reduce your stress come tax time.

The new tax legislation will be beneficial to DFS players considered as businesses and detrimental for DFS players who consider their winnings as hobby. The below list is not an all-inclusive list of changes to the tax law; however, these are some of the biggest changes affecting personal income taxes:

NOTE: These changes will not go into effect until 2018’s tax season (filed in 2019).

1) Tax brackets – the top tax bracket was reduced from 39.6% to 37%

2) Standard deduction – has increased to $12,000, $18,000 and $24,000 for single, head-of-household and married filing jointly taxpayers

3) Personal exemptions – has been repealed/is no longer available. Taxpayers are historically used to getting a $4,150 reduction to their income for themselves along with spouses and children.

4) Child tax credit – has increased to $2,000 per qualifying child. The income phrase out has also been increased from $75,000 and $110,000, for single and married filing jointly taxpayers to $200,000 & $400,000.

5) Medical/dental expenses – remain the same for 2017/2018 as expenses paid in excess of 7.50% of AGI (adjusted gross income). The AGI percentage is increased to 10% in 2019 and years after.

6) State, local and real estate taxes – The deduction is limited to $10,000 in 2018. This change will most likely affect a significant number of taxpayers. We expect to see taxpayers who normally itemized their tax return to potentially take the standard deduction.

7) Home mortgage interest – deduction is reduced/limited to debt/mortgages of $750,000 or less. Prior to 2018, the amount was $1,000,000. The deduction for home equity interest has been repealed/is no longer available.

8) Miscellaneous itemized deductions subject to 2% AGI – has been repealed/is no longer available. This eliminates hobby expenses used by part-time DFS players.

9) 20% Qualified business deduction – this new deduction could prove to be extremely beneficial for DFS players who are considered professionals/business owner. The taxpayer is able to deduct 20% of the qualified business income, with certain limitations based on overall income

Whether you are a casual DFS player or a professional, keeping support for your expenses and amounts reported on your tax return is vital. In addition, the new tax legislation will affect all taxpayers and it is important to plan accordingly. The time is now to plan for the 2018 tax year.

Reach out to us today through our free consultation.

About the Author

  • DFS Accounting Services, LLC. (DFSAccounting)

  • DFS Accounting is a consulting and advisory firm with 30+ years of collective accounting experience and a registered and licensed CPA firm with the IL CPA Society. Our focus is on providing unparalleled tax and consulting services to the casual and professional Daily Fantasy Sports (DFS) Player. We also offer free tax consultation on your DFS activities via our website: dfsaccounting.com.

Comments

  • btulloch10

    This is a really helpful article – thanks for posting!

  • Stewburtx8

    • 2012 FanDuel WFBC Finalist

    I would suggest putting a huge disclaimer before the section on the new tax legislation that it does not go into effect until 2018 taxes (filed in 2019).

  • garb99

    The AICPA isn’t a licensing body.

  • brulon19

    Does dk/fan duel report the amounts on line 3 or 7 on 1099 misc?

  • ChicagoBoxers

    I won $30,000 plus a trip from DK from the King of The Bay in the 2017 calendar year. I lost almost all back. Will DK send tax form with the difference of winnings and losses. So it’s a true total winnings. For instance if I lost back $28,000 would I get tax form for the $2,000 profit. I’m also disabled is this going to affect my disability income.

  • jcottenttu

    similar Q: does the 1099-MISC include gross winnings or net income? e.g. $1000 paid in entry fees, $1,200 in gross winnings, for net income of $200 – does this person receive a 1099 for the $1,200? or does this person not receive a 1099 for falling below the $600 threshold. (Example assumes amounts paid & won are all from the same DFS site, as it can be inferred from the info above that this analysis is site-by-site, unless one is a professional/business DFS player.)

  • Stewburtx8

    • 2012 FanDuel WFBC Finalist

    The 1099 should only show net income. I will be in box 3 of the 1099-MISC

  • DFSAccounting

    @btulloch10 said...

    This is a really helpful article – thanks for posting!

    No problem.

    Feel free to reach out anytime. we are here to help.

    https://dfsaccounting.com/contact-us/

  • DFSAccounting

    @Stewburtx8 said...

    I would suggest putting a huge disclaimer before the section on the new tax legislation that it does not go into effect until 2018 taxes (filed in 2019).

    Hey stew,

    we appreciate the heads up. You’re right about the new tax legislation. The tax laws have changed dramatically and tax planning for tax year 2017(paid and filed in 2018) is completely different from 2018 (paid and filed in 2019). We will look into the disclaimer.

  • DFSAccounting

    @brulon19 said...

    Does dk/fan duel report the amounts on line 3 or 7 on 1099 misc?

    The amount will be reported on line 3 “other income.”

  • DFSAccounting

    @ChicagoBoxers said...

    I won $30,000 plus a trip from DK from the King of The Bay in the 2017 calendar year. I lost almost all back. Will DK send tax form with the difference of winnings and losses. So it’s a true total winnings. For instance if I lost back $28,000 would I get tax form for the $2,000 profit. I’m also disabled is this going to affect my disability income.

    This is a great question. The amount reported on your 1099-misc basically are winnings netted against your entry fees. So yes, you should get a tax form that shows $2k.

    your disability income is not taxable unless you have other income that puts you above a certain threshold. When you hit this threshold, your disability income slowly becomes taxable and can be fully taxed if you have a lot of “other” income. This is a unique tax situation and can be complicated.

    We can discuss in more detail. Below is our contact form.

    https://dfsaccounting.com/contact-us/

  • DFSAccounting

    @Stewburtx8 said...

    The 1099 should only show net income. I will be in box 3 of the 1099-MISC

    correct stew. and @ jcottenttu, to follow up, if your net winnings is below $600 you should not get a 1099-misc. At that point its on the taxpayer to show their income up to $600. If you do get a 1099-misc that has an amount lower than $600, i suggest you report it on your tax return. Some of our clients, like to send out 1099-misc, even though the amount is below $600. Just a heads up.

  • dmoney361

    • 167

      RG Overall Ranking

    • 2018 DraftKings FBWC Finalist

    • 2018 DraftKings FBBWC Champion

    .

  • DFSAccounting

    @ptstud364 said...

    I had winnings on one site (draftkings) but lost on fanduel. I understand I will only recieve one 1099 for draftkings. Am I able to write off the losses of fanduel against my winnings?

    You can write off your losses against winnings if you are considered a business. You can deduct your losses up to your winnings if you consider playing DFS a hobby. If its a hobby, then you deduct it on your schedule A.

  • znvought

    This only applies if you have withdrawn winnings correct?

  • DFSAccounting

    @znvought said...

    This only applies if you have withdrawn winnings correct?

    the withdrawal of winnings doesn’t matter. Its your net activity through out the year. The dfs sites keep track of your activity and if you have net winnings more than $600, then you will receive a 1099-misc. Transferring your money to and from DK or FD accounts does not matter.

  • Papas1175

    If you have loses over 10,000 for 2017 can you put that on your taxes as a business and get money back ?

    It kills me that your profitable 2 years and have to pay taxes then have a bad year and get nothing back.

  • DFSAccounting

    @Papas1175 said...

    If you have loses over 10,000 for 2017 can you put that on your taxes as a business and get money back ?

    It kills me that your profitable 2 years and have to pay taxes then have a bad year and get nothing back.

    you can report that loss on your 2017 tax return, but that is a very aggressive position to take. Specially, if you have not historically shown your DFS income as a business. With taxes, you have to paint a picture over time. If you report DFS income one way and then a year later report it another way, it throws up red flags. That’s why we suggest working with a tax professional. For when you have a loss year, we have already put you in a position and “painted a picture” to take that loss and not get harassed by the irs.

  • Capri

    • 931

      RG Overall Ranking

    If I consider DFS a hobby and write off some losses from one site (and report gains from another site), can I lump DFS subscriptions in with the losses? Or are the subscriptions separate and subject to their own 2% of AGI rule?

  • santhos

    Hi there, I fall into the single-unmarried category of the bracket. Lets say I make $25k from my job and my net profit from DFS this year was $10k on FD and DK. I would fall into the 12% tax bracket correct? (single, 25k from job), meaning the feds would take 12% of my 10k in net winnings? Also, if known, what percent would California want of that 10k? Thank you! Been stressing out over the total of what I need to save.

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