INDUSTRY FORUM

  • Sports_Quant

    Hello – i need a tax pro well versed in DFS. Does anyone know of any?
    Thanks

  • pmsimkins

    • 2014 FanDuel WFBC Finalist

    • 2015 FanDuel WFBBC Finalist

    @Sports_Quant said...

    Gross losses can be booked on Schedule A as an amateur, or Sch C as a pro. So that’s not the issue. For the medium to high volume player who files this as skill game income, you want this to be filed as a pro, because gross losses for the non-pro, while they can be shown on Sch A, are not deductible under the AMT. So for example, if you have $1m in gross wins, and $900k in gross losses, if you file this as skill game income, as a non-pro, you will owe $250k in taxes (Federal), on only $100k of net profit (!!!) because of the AMT. If you file as a pro, you only owe about $35k in taxes (Federal). That’s an extreme example of a high volume player, but the AMT can still hit a player who has lower volumes.

    I completely understand what you’re saying here, but the pro thing wasn’t my point.

    Right now the established procedure in the industry is to figure your net and report it on box 3 “other income” of your 1099-misc. Basically calling the net a “prize winning”. Doing it this way results in not having to pay SE tax (like 13.5% give or take) and AMT is irrelavent. If you you put it on schedule A and show a profit you’re now paying SE tax. Why in the world would you want to do this unless you’re hoping to book a net loss on one site versus winnings on another. Or maybe game the AMT, if they don’t prevent that somehow.

  • Sports_Quant

    @pmsimkins said...

    I completely understand what you’re saying here, but the pro thing wasn’t my point.

    Right now the established procedure in the industry is to figure your net and report it on box 3 “other income” of your 1099-misc. Basically calling the net a “prize winning”. Doing it this way results in not having to pay SE tax (like 13.5% give or take) and AMT is irrelavent. If you you put it on schedule A and show a profit you’re now paying SE tax. Why in the world would you want to do this unless you’re hoping to book a net loss on one site versus winnings on another. Or maybe game the AMT, if they don’t prevent that somehow.

    Oh ok, i see what you’re getting at. On that point, i disagree with how the industry is doing it. The 1099-MISC shows net which is not allowed. Gross total winning days (by day, from ALL sites combined) go on the 1040, and gross total losing days (by day, from all sites combined) go on Schedule A….. which triggers AMT for the skill-game non-pro. For small players, this is not a material issue. But the first medium to large DFS player who gets audited by a knowledgeable IRS agent, is going to be in for a rude surprise. For the pro (or the non-pro who claims this as gambling income), there is no AMT issue. This is crucial for me – there’s no way i’m going to sweat an audit (which would lead to a surprise huge tax bill) for the next 10 years when i get my mail every day – i am doing this 100% to the letter of the law.

  • pmsimkins

    • 2014 FanDuel WFBC Finalist

    • 2015 FanDuel WFBBC Finalist

    @Sports_Quant said...

    Oh ok, i see what you’re getting at. On that point, i disagree with how the industry is doing it. The 1099-MISC shows net which is not allowed. Gross total winning days (by day, from ALL sites combined) go on the 1040, and gross total losing days (by day, from all sites combined) go on Schedule A….. which triggers AMT for the skill-game non-pro. For small players, this is not a material issue. But the first medium to large DFS player who gets audited by a knowledgeable IRS agent, is going to be in for a rude surprise. For the pro (or the non-pro who claims this as gambling income), there is no AMT issue.

    I guess I choose to believe that a several hundred million dollar industry has done their research and established a lawful procedure. Especially considering the continued existence entirely hinges on the government getting their fair share.

    Besides isn’t there a plausible scenario where you use DFS losses to purposely push yourself into the AMT so you can pay 28% instead of 36+? This would use what you’re calling “right” to actually screw the government.

  • jjarrad

    Which one of these things would a player expect to receive to even trigger them to think about the AMT?

    http://apps.irs.gov/app/amt2013/assistant/process?execution=e1s1

    I ask because the only one I think would apply is net operating loss. I also must say I don’t know ish about taxes.

  • Sports_Quant

    @pmsimkins said...

    I guess I choose to believe that a several hundred million dollar industry has done their research and established a lawful procedure. Especially considering the continued existence entirely hinges on the government getting their fair share.

    Besides isn’t there a plausible scenario where you use DFS losses to purposely push yourself into the AMT so you can pay 28% instead of 36+? This would use what you’re calling “right” to actually screw the government.

    I know, it seems like it should be that way, i agree. But I’ve researched this to death – i’ve looked at examples from all other skill games (game shows, sweepstakes, chess, etc) and every court case on hobby/skill income makes the same point – you cannot net losses against wins on your tax return….therefore, 1099s cant do it either. 1099’s must show gross amounts, then it’s the player’s problem to deduct gross losses on Schedule A.

    I dont think you understand how AMT works – the effective AMT rate is way higher than 28%. In the example i gave above, the AMT rate on net win is 250% (tax divided by net win).

  • Sports_Quant

    @jjarrad said...

    Which one of these things would a player expect to receive to even trigger them to think about the AMT?

    http://apps.irs.gov/app/amt2013/assistant/process?execution=e1s1

    I ask because the only one I think would apply is net operating loss. I also must say I don’t know ish about taxes.

    None of those will apply to most DFS players. However, when you proceed to the later pages of that calculator, you make entries from Schedule A. That’s what will show that you owe AMT, assuming you claim total gross DFS daily losses on Sch A.

  • lionssuck

    http://www.taxabletalk.com/2014/02/23/taxes-and-daily-fantasy-sports-the-duck-tes/

    Came across this article while researching this myself

  • Sports_Quant

    @lionssuck said...

    http://www.taxabletalk.com/2014/02/23/taxes-and-daily-fantasy-sports-the-duck-tes/

    Came across this article while researching this myself

    Yes. Russ is one of the nation’s top gambling tax experts. I agree with his position. Which is actually good for DFS players, because there are no AMT issues for the non-pro gambler.

  • ebsteelers

    lot of information in here. you’d think the govt. would make clear tax information on this.. it almost seems like as of now, it’ll depend on who your accountant.

    i can see to an extend why players would choose to take their chances betting off shore over dfs. seems like you could win 10k at draft kings, lose 15 k at fan duel.. and be stuck paying tax on 10k when your really down if i am understanding some of this correctly.

    seems like all action should be moved on to one site in the next calendar year

  • Sports_Quant

    @ebsteelers said...

    lot of information in here. you’d think the govt. would make clear tax information on this.. it almost seems like as of now, it’ll depend on who your accountant.

    i can see to an extend why players would choose to take their chances betting off shore over dfs. seems like you could win 10k at draft kings, lose 15 k at fan duel.. and be stuck paying tax on 10k when your really down if i am understanding some of this correctly.

    seems like all action should be moved on to one site in the next calendar year

    Yes, i am sure many accountants will do this different ways, but in the eyes of the IRS, there is only one way. You are correct about paying tax when you’re down (although claiming it as gambling income solves that problem)….. but moving all your action to one site doesnt make a difference.

  • lionssuck

    The one thing that would make the whole tax situation a lot easier would be for sites to issue a W-2G instead of a 1099….of course I doubt the sites would do this due to the fact that they don’t want to be associated with gambling.

  • xandamere

    They probably don’t want to do that, since don’t they try to slide around the anti-gambling legislation? It’s a pretty grey area right now, or at least that’s my understanding, and if they started issuing W-2Gs that would make them stand out and they could be potentially identified (and banned/blocked on a state-by-state basis) as gambling sites.

  • pmsimkins

    • 2014 FanDuel WFBC Finalist

    • 2015 FanDuel WFBBC Finalist

    @Sports_Quant said...

    I dont think you understand how AMT works – the effective AMT rate is way higher than 28%. In the example i gave above, the AMT rate on net win is 250% (tax divided by net win).

    You’re example is about the pro versus hobbyist write off. AMT is basically flat tax at either 26% or 28% depending. I’m not sure you understand any of this nearly as well as you represent. I think you’re worrying yourself and others over a non-issue. By all means feel free to donate to the government if it makes you feel better.

  • ebsteelers

    @Sports_Quant said...

    Yes, i am sure many accountants will do this different ways, but in the eyes of the IRS, there is only one way. You are correct about paying tax when you’re down (although claiming it as gambling income solves that problem)….. but moving all your action to one site doesnt make a difference.

    the reason i mention about moving it to one site is as much to keep yourself organized .

    as mentioned it seems like there is a lot of gray area for anyone that wins.. cause if you write if off as gambling then its w-2g etc.

  • ebsteelers

    @lionssuck said...

    The one thing that would make the whole tax situation a lot easier would be for sites to issue a W-2G instead of a 1099….of course I doubt the sites would do this due to the fact that they don’t want to be associated with gambling.

    I noticed in looking at the w-2g. it also mentions gross winnings and not net winnings. is that were the 1040 comes in where you can make the deductions?

  • Sports_Quant

    @lionssuck said...

    The one thing that would make the whole tax situation a lot easier would be for sites to issue a W-2G instead of a 1099….of course I doubt the sites would do this due to the fact that they don’t want to be associated with gambling.

    For political reasons, they wont do that. But technically, they would be fine doing this. The IRS definition of gambling is different than UIGEA’s definition. The IRS’s definition is also different than state law definition in the 45 states where DFS is a skill game.

  • Sports_Quant

    @xandamere said...

    They probably don’t want to do that, since don’t they try to slide around the anti-gambling legislation? It’s a pretty grey area right now, or at least that’s my understanding, and if they started issuing W-2Gs that would make them stand out and they could be potentially identified (and banned/blocked on a state-by-state basis) as gambling sites.

    Bingo! you nailed it – an AG could (even though he might be technically wrong) bring a good-faith case against the sites if they started issuing W2G’s, for online sports gambling. Even though the AG might have no case (because DFS is a skill-game, and not gambling, at the state-law level), it would then draw bad attention to DFS at a state-law level. DFS sites need to get things legalized “officially” like they’ve done in Maryland, in all 45 states that they serve (and hopefully the other 5 too), before this IRS issue comes to a head, which it will when the first big player gets audited.

  • lionssuck

    @ebsteelers said...

    I noticed in looking at the w-2g. it also mentions gross winnings and not net winnings. is that were the 1040 comes in where you can make the deductions?

    With a W-2G you can deduct losses, provided you itemize deductions, on schedule A. The problem with this is if you normally wouldn’t itemize, you lose your personal exemption. So in that case you aren’t really getting the full benefit of deducting your losses.

  • Sports_Quant

    @pmsimkins said...

    You’re example is about the pro versus hobbyist write off. AMT is basically flat tax at either 26% or 28% depending. I’m not sure you understand any of this nearly as well as you represent. I think you’re worrying yourself and others over a non-issue. By all means feel free to donate to the government if it makes you feel better.

    Ugh. Sorry, but you just have no idea what you’re talking about. I understand this at an expert level. If you dont believe me, go to a free online tax software, and run that scenario. Put $1m in gross hobby skill-game winnings on Line 21 of the 1040, and put $900k in gross hobby expenses on Line 23 of Schedule A. Your tax bill will be $275,000, which is an effective rate of 275% (and not 26 or 28%) on 100k of net income. You’re confusing nominal AMT rates (28%) with effective rates – two totally unrelated things. This is a major issue for any DFS player who wants to file their taxes correctly.

  • Sports_Quant

    @ebsteelers said...

    the reason i mention about moving it to one site is as much to keep yourself organized .

    as mentioned it seems like there is a lot of gray area for anyone that wins.. cause if you write if off as gambling then its w-2g etc.

    Oh, fair enough, I didnt know that was your reason. Then yes, that makes sense.

  • Sports_Quant

    @ebsteelers said...

    I noticed in looking at the w-2g. it also mentions gross winnings and not net winnings. is that were the 1040 comes in where you can make the deductions?

    Exactly. The W2G payors are doing it right. Then you just deduct your gross losses on Line 28 of Sch A.

  • Sports_Quant

    @lionssuck said...

    With a W-2G you can deduct losses, provided you itemize deductions, on schedule A. The problem with this is if you normally wouldn’t itemize, you lose your personal exemption. So in that case you aren’t really getting the full benefit of deducting your losses.

    Exactly right. This is a “hidden tax” of about $2k on casual gamblers (standard deduction times your tax rate). There are also other impacts (e.g. phaseouts), but those kick in at higher levels that most casual players wont hit.

  • blaze1

    @Sports_Quant, I really feel like you’re going off on tangents regarding this thread.

    You ask for a tax pro, but then proceed to give advice like you are one.

    The bottom line is you need to consult (not on RG), a professional regarding your own situation.

    Most of us who have been 1099’d know how to deal w/ it.

  • Sports_Quant

    @blaze1 said...

    @Sports_Quant, I really feel like you’re going off on tangents regarding this thread.

    You ask for a tax pro, but then proceed to give advice like you are one.

    The bottom line is you need to consult (not on RG), a professional regarding your own situation.

    Most of us who have been 1099’d know how to deal w/ it.

    Incorrect. Apparently you didnt read the thread. As i said before, i only need a tax pro for the pro vs amateur issue. The rest of this thread was a discussion on other tax issues, and your post, which was the first response in this thread, is what started the thread going off on tangents. You’re just annoyed because i’m explaining how DFS taxes work in the eyes of the IRS – hobby expenses cannot be netted against hobby income to produce a 1099-MISC, this is well settled in the tax courts. If you have other tax law that contradicts that, please tell us.

  • blaze1

    Get in touch with a tax professional, quit trolling your own thread.

    ********END OF THREAD**********

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