Football Season Betting and Tax Law Changes

Football Season Betting and Tax Law Changes

You’ve waited all year, finally got your team drafted and now, game on!  But, leave it to the IRS to collect a share of your team’s earnings.  This year, certainly, you have the winningest team, but how are those taxes going to play out? Your tax preparer may have some news for you, and it’s better to know sooner than later.

Furthermore, given recent legalization efforts of the American Gaming Association, you may have advanced your gambling strategy beyond Fantasy Football or your other favorite fantasy sport.  Since the U.S. Supreme Court’s Murphy v. NCAA ruling in May of this year, power has been passed back to the states to allow or disallow gambling on your favorite professional or amateur sports leagues.  Though, let it be known that regardless of the positive impact on the states, that money will not go untaxed by you.

Since that time, Delaware, Mississippi, Nevada, New Jersey, and West Virginia have made sports betting legal in order to bring new avenues of revenue to their state.   New York, Pennsylvania, and Rhode Island are following close at their heels.  If you happen to reside in a state where legalization has gone into full effect, what will be the result of this tax measure be on you, personally?  

First things first, if you happen to be experiencing a losing streak, your tax preparer has good news to help minimize your bad luck. Gambling loss deductions are still allowed under the recent tax changes, so thankfully, in most cases, you can benefit from some savings that will offset a bit of that bad luck. 

If the opposite is true in your case, if you’ve been on a winning streak, it will be particularly important to consult with your tax preparer regarding proper reporting of those winnings.  Even fantasy sports winnings will need to be reported on your tax return. Fortunately, there is a slight variation in how the IRS looks at fantasy sports. At present, they are considered “games of skill,“ meaning, the tax treatment and impact is somewhat different than other sports’ gambling earnings.  Generally speaking, if you won money in your fantasy league, you will likely receive a 1099–MISC form for Miscellaneous Income.  On the other hand, more involved “gaming” should result in receipt of a W-2G which is for Certain Gambling Winnings.  The W–2G form is generally issued when earnings equal or exceed $600 and are at least 300 times the amount of the betting wager.  If you’re subject to withholding or back-witholding, you should also expect this form, but realize that whether you receive the form or not, your winnings may be  reportable - a conversation worth having with your tax preparer.

And, how high are your earnings, anyway?  If you’re a gambler that tends to indicate your earnings on Form 1040 Line 21, the IRS probably considers you to be a “casual gambler” or someone who is not active in the “trade or business of gambling.”  If your activity seems suspicious to the IRS, as it pertains to time involved in gambling activities, whether you won substantially or not, the IRS is watching, and if they deem otherwise, you may need to justify your role in this arena.

While deduction amounts increased, you may wish to ask your tax preparer about TCJA (Tax Cuts and Jobs Act) which affects all gamblers, whether professional or not.  If you’re a casual gambler, in particular, your losses can only be deducted as an itemization on Schedule A, which could impact your deduction amount.   Since the standard deduction has increased for 2018, it’s possible that unless you have enough deductions to merit use of Schedule A, you may opt for the standard deduction, which indirectly, would negate your ability to deduct gambling losses.

If you happen to be in the gambling business, as defined by the IRS, then expect to report your income and expenses on a Schedule C, presumably, instead of itemizing your losses.  This year, the definition of “gambling losses” will likely negatively impact those that are in the business of gambling, as it omits traveling and other non-wagering expenses.  If planning to deduct for gambling expenses, documentation will be crucial.  Ask you tax preparer for their recommendations on what to document, as well as when and how to minimize your risk in football and other sports betting.

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