With the 2014 IRS tax filing deadline or “Tax Day” looming on the horizon, questions regarding which items can be considered tax-deductible start to arise. What some people may not know is that winnings from gambling, such as fantasy sports, can count as one of those deductibles.
Fantasy sports, or games where participants build a fantasy team using real-life players (collegiate or professional) and compete against each other based on real-life statistics, are a continually growing hobby for sports enthusiasts.
According to the Fantasy Sports Trade Association demographic research, there were more than 33.5 million Americans and 3.1 million Canadians participating in fantasy sports, in 2013. Of these, 80 percent of participants are male, with about 78 percent of all participants holding a college degree or better.
FSTA data states, on average over a 12 month period, fantasy sports players spend about $111 on league related costs, single player challenge games and league related materials. Of these costs, players pay about $52 on league fees alone.
Winners of a fantasy league cash prize will have to deal with tax side of the hobby, especially if the prize is disbursed through a legitimate fantasy sports provider. Fantasy football winnings are considered regular income and taxes are owed on all winnings. Most winning participants will simply input their winnings on their 1040 tax forms under the “other income” line. Gaming institutions aren’t required to report that income unless the participant’s net income (total winnings minus entry fees) meets or exceeds $600. It is important to note these deductions cannot exceed the amount of a participant’s winnings and expenses must be directly related. For example, a book about fantasy football strategy may be deductible, since it pertains to the hobby, but a subscription to televised NFL games would likely not qualify, since the subscription benefits the participant beyond simple research.
In cases where a participant wins $600 or more, the payer is required by the IRS to report the earnings, which generally results in a 1099 miscellaneous form being sent to the participant, to be filed. From there, the participant will be asked for their name, address and Social Security number.
Things to keep in mind before filing
- Keep a file of all fantasy sports wins and losses in case the IRS chooses to audit you.
- Gambling winnings are reported as “other income,” regardless if the participant itemizes deductions or not.
- $600 or more in winnings = 1099 miscellaneous tax form
- Less than $600 in winnings = 1040 tax form