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Tax Implications of Fantasy Football

  • 24 August 2016
  • Author: Alexander Carr
  • Number of views: 2857
Tax Implications of Fantasy Football

he NFL regular season kicks off September 8 and, with it, millions of football fans will be participating in fantasy football leagues (more than 50 million, in fact). The rise of daily fantasy games (DFGs) like those offered through FanDuel and DraftKings are fueling the trend. But how do fantasy football winnings (or losings) affect taxes?

First, let’s answer this question: Are DFGs that offer fantasy football leagues legal? They are at the federal level. While we are not lawyers and are not offering an opinion, our information seems to indicate that these sites are legal (as  an exception to the Unlawful Gambling Enforcement Act of 2006, P.L. 109-347, which specifically excluded fantasy sports from the general prohibition of using the internet to accept  wagers.) However, this year alone, six states passed laws regulating the sites, with more than 20 states considering legislation in the near future.  According to Legal Sports Report, only about 20 percent of states have officially legalized DFGs and the issue remains unclear in many other states.

Earlier this year, Texas Attorney General Ken Paxton issued an advisory statement (not an official ruling) declaring DFGs—which allow daily changes—illegal while traditional, season-long fantasy leagues are legal. It comes down to an opinion on whether those participating on sites like FanDuel and DraftKings rely on skill or luck to win.

When it comes to reporting to the IRS income and losses from fantasy football, the same question applies. As the Journal of Accountancy reports, the IRS has not ruled on the treatment of fantasy sports income and losses, and there is little if any authority for the proper reporting on tax returns. It’s therefore important to enlist the help of a tax professional to assess which tax laws may or may not apply.

The Journal of Accountancy points out that how a taxpayer declares fantasy football activities to the IRS depends on whether the activity is considered:

     A. A hobby.

     B. A non-gambling business activity.

     C. Casual gambling.

     D. Professional gambling.

These determinations are just the tip of the iceberg when it comes to deciding exactly how to declare winnings or losses—whether on a Form 1040, as part of Schedule C—and even whether it is subject to a possible alternative minimum tax (AMT). And with many states (including Texas) remaining unsure how to handle the legality of these sites (much less the state taxes), seeking the advice of a tax professional is a good idea to help handle both federal and state tax issues that may arise. For more information, contact us.

Image Copyright:  rawpixel / 123RF Stock Photo

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