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  • DFSAccounting

    Hello Grinders!

    As the Official DFS Tax Partners of RotoGrinders , we here at DFS Accounting Services, LLC would like to take a moment to introduce ourselves. We are a consulting and advisory firm with 30+ years of collective accounting experience and are also a registered and licensed CPA firm with the AICPA and 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.”: dfsaccounting.com

    We aim to provide the RG Community with top-notch service for a 2nd year in a row!

    DFS is an exciting and competitive industry that offers big payouts and we understand the allure of playing DFS because we play it ourselves! With big winnings comes big tax responsibilities, and that’s where we come in!

    Now with that said, let’s get the DFS Tax Q&A going… please ask away!

    DFSAS Disclaimer: We are Certified Public Accountants licensed by the AICPA and State of Illinois. Any information provided is for informational purposes only and is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant, CPA, lawyer or other competent financial professional. Information posted by us on RotoGrinders or any other media forum does not constitute an accountant-client relationship. At your request, we can send an engagement letter, which outlines our responsibilities provided under our engagements.

  • mambaland

    i got these from my cpa and would appreciate feedback…a few different scenarios

    Here is a link to an article in the AICPA’s Journal of Accountancy that analyzed Fantasy Football tax implications back in 2016 before the tax rule changed on hobby loss deductions. Some of the methodology is explained well on how to analyze the activity and is still relevant.

    https://www.journalofaccountancy.com/newsletters/2016/feb/how-to-report-fantasy-football-winnings.html

    So the new tax law that went into effect for 2018 will affect Hobby Income/Losses in a huge way.

    Pre 2018, you were able to claim the 1099 M income on Line 21 as other income from Hobby. You were then also allowed to take all hobby expenses up to the amount of income on Schedule A as a miscellaneous deduction subject to the 2% floor. Starting in 2018, all miscellaneous deductions were suspended until 2025 as part of the new tax changes.

    If you run your activity as a business, you can deduct the expenses related to the activity as well as the losses from the activity. There is an additional self-employment tax (15.3%) on the net profit of the business. You will be able to see the effect on the different treatments below in 2 scenarios.

    The IRS states the following to determine whether the activity is a hobby or a business:

    In making the distinction between a hobby or business activity, take into account all facts and circumstances with respect to the activity. No one factor alone is decisive. You must generally consider these factors in determining whether an activity is a business engaged in making a profit:

    -Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.

    -Whether the time and effort you put into the activity indicate you intend to make it profitable.

    -Whether you depend on income from the activity for your livelihood.

    -Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).

    -Whether you change your methods of operation in an attempt to improve profitability.

    -Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.

    -Whether you were successful in making a profit in similar activities in the past.

    -Whether the activity makes a profit in some years and how much profit it makes.

    -Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

    .Here is another article about the change in gambling loss deductions which you may also consider relevant if you think the activity is gambling which the IRS would also allow.

    https://www.accountingweb.com/tax/individuals/gambling-loss-deductions-broadened-under-new-tax-law

  • v_dinunno

    I see alot about losses here, but for those lucky or skilled enough to have a good year how does this get handled? I have won before, but not to the extremes of this year. I know the top guys on the RG standings are making way more than me, but do they get a 1099 from DK with a profit in the hundreds of thousands or more and nd up paying 35-40% taxes? Can this be called a business to have deductions or are you better off just putting money away and paying the tax?

  • stv1313

    • Ranked #73

      RG Tiered Ranking

    If feasible, I’d like to take advantage of the 20% pass-through deduction that becomes effective in 2018. This can be applicable for profitable DFS players, correct? To do this, I probably need to create a sole proprietorship, right? Is this a big deal? Is it something that can be done this late in the year? In prior years, I have simply completed Schedule A, paid my self-employment tax, and moved on with my life. I feel like I’ll be flushing money down the drain if I continue this method, though. Am I right?

  • DFSAccounting

    @mambaland said...

    i got these from my cpa and would appreciate feedback…a few different scenarios

    Here is a link to an article in the AICPA’s Journal of Accountancy that analyzed Fantasy Football tax implications back in 2016 before the tax rule changed on hobby loss deductions. Some of the methodology is explained well on how to analyze the activity and is still relevant.

    https://www.journalofaccountancy.com/newsletters/2016/feb/how-to-report-fantasy-football-winnings.html

    So the new tax law that went into effect for 2018 will affect Hobby Income/Losses in a huge way.

    Pre 2018, you were able to claim the 1099 M income on Line 21 as other income from Hobby. You were then also allowed to take all hobby expenses up to the amount of income on Schedule A as a miscellaneous deduction subject to the 2% floor. Starting in 2018, all miscellaneous deductions were suspended until 2025 as part of the new tax changes.

    If you run your activity as a business, you can deduct the expenses related to the activity as well as the losses from the activity. There is an additional self-employment tax (15.3%) on the net profit of the business. You will be able to see the effect on the different treatments below in 2 scenarios.

    The IRS states the following to determine whether the activity is a hobby or a business:

    In making the distinction between a hobby or business activity, take into account all facts and circumstances with respect to the activity. No one factor alone is decisive. You must generally consider these factors in determining whether an activity is a business engaged in making a profit:

    -Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.

    -Whether the time and effort you put into the activity indicate you intend to make it profitable.

    -Whether you depend on income from the activity for your livelihood.

    -Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).

    -Whether you change your methods of operation in an attempt to improve profitability.

    -Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.

    -Whether you were successful in making a profit in similar activities in the past.

    -Whether the activity makes a profit in some years and how much profit it makes.

    -Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

    .Here is another article about the change in gambling loss deductions which you may also consider relevant if you think the activity is gambling which the IRS would also allow.

    https://www.accountingweb.com/tax/individuals/gambling-loss-deductions-broadened-under-new-tax-law

    Your CPA gave you the right information and the information you posted is correct. The Tax Cuts and Jobs Act (TCJA) eliminated the 2% misc itemized deduction, which housed hobby loss/expense. This is detrimental for the typical dfs player who plays for fun, as you can no longer report your losses or expenses tied to that activity. Now the goal, is to determine if your playing style meets the requirement for a business. As you detailed in your post, the IRS has several identifiers that makes the distinction between a hobby or business activity. We reviewed all those and created a tax determination letter to determine how to report our client’s dfs activity. If you do qualify as a business, you will have to take into account the self-employment tax of 15.3%. At the end of the day, each taxpayer will have their own unique situation. We believe it is imperative to take into account all aspects of our client’s situation when advising them. Also, IRS deemed DFS and regular fantasy as a game of skill and not luck. We do not advise mixing gambling activities with DFS activities, as the IRS has separate rules for each.

  • DFSAccounting

    @v_dinunno said...

    I see alot about losses here, but for those lucky or skilled enough to have a good year how does this get handled? I have won before, but not to the extremes of this year. I know the top guys on the RG standings are making way more than me, but do they get a 1099 from DK with a profit in the hundreds of thousands or more and nd up paying 35-40% taxes? Can this be called a business to have deductions or are you better off just putting money away and paying the tax?

    You pose a good question. Yes, people do receive a 1099-misc with $100k+ in winnings. If you are in that group, then I suggest you do some tax planning ASAP and not wait for April 2019. Your DFS activity can be considered an business activity, but you have to meet several identifiers the IRS has a laid out. We prepared a tax determination letter that determines how to report your DFS playing style. you can view that @ www.dfsaccounting.com.

    The IRS does scrutinize this area of income. If you don’t qualify to be a business, we would report it as hobby income on line 21 “other income”. The next step would be to cashflow plan or take a look at your taxes as a whole and see what deductions you can take.

  • DFSAccounting

    @stv1313 said...

    If feasible, I’d like to take advantage of the 20% pass-through deduction that becomes effective in 2018. This can be applicable for profitable DFS players, correct? To do this, I probably need to create a sole proprietorship, right? Is this a big deal? Is it something that can be done this late in the year? In prior years, I have simply completed Schedule A, paid my self-employment tax, and moved on with my life. I feel like I’ll be flushing money down the drain if I continue this method, though. Am I right?

    The 20% QBI deduction is applicable for a DFS player that is considered a business. Creating a Sole prop is possible and something we may suggest after we review your whole tax situation. If it is a business, you would report this activity on your Schedule C whether or not you create the sole prop or LLC this late in the year.

    I believe in your post you meant to say schedule C and not schedule A? Seems like you reported yourself as a business in prior years. If this is correct, what you did before will be the same thing you would do now, the only difference is the new 20% QBI deduction that came into effect in 2018.

  • mambaland

    @v_dinunno said...

    know the top guys on the RG standings are making way more than me

    how do you know this? you can win a lot and lose a lot more in same year

  • mambaland

    @DFSAccounting said...

    he 20% QBI deduction is applicable for a DFS player that is considered a business. Creating a Sole prop is possible and something we may suggest after we review your whole tax situation. If it is a business, you would report this activity on your Schedule C whether or not you create the sole prop or LLC this late in the year.

    how much work involved in creating a sole prop llc? is it worth it ? can you create it and then deduct losses in the next year if you have a bad year after a good or can you go back and deduct last year or further if you lost

  • DFSAccounting

    @mambaland said...

    how much work involved in creating a sole prop llc? is it worth it ? can you create it and then deduct losses in the next year if you have a bad year after a good or can you go back and deduct last year or further if you lost

    creating an entity would involve registering with the applicable taxing agencies. “ Is it worth is?’ – depends on each client’s situation. Losses are deducted in the year they are incurred. If applicable, you can have a Net Operating Loss or NOL, which would carry forward to the next year. if you have further questions, reach out to us infodfsaccounting.com

  • stv1313

    • Ranked #73

      RG Tiered Ranking

    A friend of mine plays pretty regularly but has always declared his DFS income as hobby income on his tax return. This year, he is on track to make $5k on one site but is going to lose $5k on another site. He thinks that he’ll be able to simply declare $0 hobby income on his tax return, but I don’t believe that’s correct. He’s going to receive a 1099 for $5k and won’t be able to show the $5k of losses if he continues to declare his income as a hobby. Correct?

  • mambaland

    @stv1313 said...

    He’s going to receive a 1099 for $5k and won’t be able to show the $5k of losses if he continues to declare his income as a hobby. Correct?

    i have done that..you just have to have paperwork to back it up…this year i am up on both so no such luck

  • DFSAccounting

    @mambaland said...

    i have done that..you just have to have paperwork to back it up…this year i am up on both so no such luck

    Mambaland, unfortunately this is not the case anymore. The Tax Cuts and Jobs Act REPEALED the 2% miscellaneous deduction on the Schedule A which housed the Hobby loss deduction. Thus, you can no longer deduct hobby losses/expenses for 2018 and beyond.

  • DFSAccounting

    @stv1313 said...

    A friend of mine plays pretty regularly but has always declared his DFS income as hobby income on his tax return. This year, he is on track to make $5k on one site but is going to lose $5k on another site. He thinks that he’ll be able to simply declare $0 hobby income on his tax return, but I don’t believe that’s correct. He’s going to receive a 1099 for $5k and won’t be able to show the $5k of losses if he continues to declare his income as a hobby. Correct?

    Your friend will have to report his dfs winnings on his tax return. You can no longer deduct hobby losses/expenses due to the Tax Cuts and Jobs Act (TCJA).

  • stv1313

    • Ranked #73

      RG Tiered Ranking

    Rhetorical Question: Is it really possible for someone to rely exclusively on DFS income for an extended period of time?

    Even if you’re skilled enough to consistently beat your opponents at a rate like 65%, you hafta pay 15% rake to sites like FD and DK. Then you gotta give 25% to the feds. Then you gotta give 4-9% to the state. Then you gotta pay another 15% for self-employment tax. After making all these payments, there isn’t much left to live off of.

    It’s an uphill climb that seems insurmountable. If you suffer any sort of extended losing streak, it’s nearly impossible to come back without a miracle big score. Admittedly, I don’t do too bad playing DFS, but I can’t imagine quitting my “real” job and trying to live off DFS income.

  • mambaland

    @DFSAccounting said...

    Mambaland, unfortunately this is not the case anymore. The Tax Cuts and Jobs Act REPEALED the 2% miscellaneous deduction on the Schedule A which housed the Hobby loss deduction. Thus, you can no longer deduct hobby losses/expenses for 2018 and beyond.

    damn them LOL so if i win 20k on FD and lose 20k on DK it is no longer a wash? i owe on the winnings from the site i get a 1099 on?

  • DFSAccounting

    @mambaland said...

    damn them LOL so if i win 20k on FD and lose 20k on DK it is no longer a wash? i owe on the winnings from the site i get a 1099 on?

    If you report the DFS playing activity as a hobby vs a business, yes you are correct. You will receive a 1099 for the $20K. The TCJA has repealed the 2% misc deduction.

  • walleye734

    Seems really dumb that you get your losses netted against winnings but only when they do it for you on each specific site before they issue a 1099

  • v_dinunno

    The key question when seeing if you are allowed to call yourself a business and qualify for the 20% pass through deduction is that there are exceptions to the business being a qualified trade or business and this exception is the concern. “The specified service trade or business, which included a trade or business involving the performance of services in the field of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading, dealing in certain assets or any trade or business where the principal asset is the reputation or skill of one or more of its employees. This exception only applies if a taxpayer’s taxable income exceeds $315,000 for married couple filing a joint return, or $157,000 for all other taxpayers.” – So the question in short this means if you make less than $315 you can call yourself a business, no matter the industry, and get the pass through deduction?

  • mambaland

    @DFSAccounting said...

    If you report the DFS playing activity as a hobby vs a business, yes you are correct. You will receive a 1099 for the $20K. The TCJA has repealed the 2% misc deduction.

    i realize i would get one but you used to be able to deduct the losses from the other site…oh well…death and taxes are hard to work around

  • DFSAccounting

    @v_dinunno said...

    The key question when seeing if you are allowed to call yourself a business and qualify for the 20% pass through deduction is that there are exceptions to the business being a qualified trade or business and this exception is the concern. “The specified service trade or business, which included a trade or business involving the performance of services in the field of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading, dealing in certain assets or any trade or business where the principal asset is the reputation or skill of one or more of its employees. This exception only applies if a taxpayer’s taxable income exceeds $315,000 for married couple filing a joint return, or $157,000 for all other taxpayers.” – So the question in short this means if you make less than $315 you can call yourself a business, no matter the industry, and get the pass through deduction?

    This is our understanding of the tax law as it is currently written/drafted, yes.

  • Baseballshark2019

    Hello we just had a very concerning issue at Draft Kings. We formed a LLC over two years ago and fill out the appropriate W-9 and have filed this on our LLC returns accordingly and annualy for 2016 and 2017.. Earlier this month when withdrawing from draft kings they asked for our information again not through a official W-9 rather information boxes where only individual information could be given we wrote support and they said you can no longer be a LLC and have a drafkings account and that a SSN not a FEIN number was required for all account. How can they change this mid stream and Is it even legal for them to not present a W-9 and only give you information boxes that don’t allow a LLC filing properly for a w-9. Anybody have this problem in the last couple of days and is there somebody at DK that understands this to speak with. Got the feeling the person we spoke with doesn’t understand accounting. No problems at FD, FFPC, NFFC.

  • mtdurham

    @Baseballshark2019 said...

    Hello we just had a very concerning issue at Draft Kings. We formed a LLC over two years ago and fill out the appropriate W-9 and have filed this on our LLC returns accordingly and annualy for 2016 and 2017.. Earlier this month when withdrawing from draft kings they asked for our information again not through a official W-9 rather information boxes where only individual information could be given we wrote support and they said you can no longer be a LLC and have a drafkings account and that a SSN not a FEIN number was required for all account. How can they change this mid stream and Is it even legal for them to not present a W-9 and only give you information boxes that don’t allow a LLC filing properly for a w-9. Anybody have this problem in the last couple of days and is there somebody at DK that understands this to speak with. Got the feeling the person we spoke with doesn’t understand accounting. No problems at FD, FFPC, NFFC.

    Wow.. would love to hear where this goes…. unreal….

    As a side topic it’s a genuinely good idea to save your crowns each year until December. Towards the end of the year if you have net losses for the year spend all your crowns buying into tournaments to try to win money against your embedded losses.

    On the other hand, If you have net winnings at the end of the year you should roll these crowns over into the following tax year rather than potentially increasing your tax liability this year.

    Doing so could potentially save you tens of thousands of dollars one day.

  • mambaland

    @mtdurham said...

    As a side topic it’s a genuinely good idea to save your crowns each year until December. Towards the end of the year if you have net losses for the year spend all your crowns buying into tournaments to try to win money against your embedded losses.

    On the other hand, If you have net winnings at the end of the year you should roll these crowns over into the following tax year rather than potentially increasing your tax liability this year.

    Doing so could potentially save you tens of thousands of dollars one day.

    your assuming you would win..LOL its possible if you have NET plus to spend you should play lots of GPP and if you win then great you use that to pay taxes…if you lose..well then you have reduced your taxable amount..

    .i was once up about $645 late in December and lost a $50 to get under. just to avoid any paperwork

  • DFSAccounting

    @Baseballshark2019 said...

    Hello we just had a very concerning issue at Draft Kings. We formed a LLC over two years ago and fill out the appropriate W-9 and have filed this on our LLC returns accordingly and annualy for 2016 and 2017.. Earlier this month when withdrawing from draft kings they asked for our information again not through a official W-9 rather information boxes where only individual information could be given we wrote support and they said you can no longer be a LLC and have a drafkings account and that a SSN not a FEIN number was required for all account. How can they change this mid stream and Is it even legal for them to not present a W-9 and only give you information boxes that don’t allow a LLC filing properly for a w-9. Anybody have this problem in the last couple of days and is there somebody at DK that understands this to speak with. Got the feeling the person we spoke with doesn’t understand accounting. No problems at FD, FFPC, NFFC.

    That is a concerning issue and I agree its not right to change it mid stream. If possible, I would leave your business bank account the same so activity can flow through the LLC. The 1099-misc will be sent to the individual who’s social you used tp fill out the W-9. I’ve seen this issue with other clients, 1099-misc being sent to the individual and not the business. We write a note on the client’s individual return and report the income on the business tax return. This notifies IRS that the 1099-misc was erroneously sent to the individual but is business income. We’ve never had an issue. At the end of the day, you will be able to report your income from DK in your LLC, it just requires a couple more steps.

  • Mwward21

    How do you report your winnings on the 2018 as hobby income? Also do u use the cumulative net method to report winnings for each site (prizes won – total entry fees)
    For example if I won $2,000 dollar in prizes during the year and had $1,500 in entry fees during the year in yahoo would I report $500.
    For e

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