It’s tax season again and perhaps you’ve been wondering if you need to report the pile of money you’re sitting on after reigning supreme in your fantasy football leagues. In plain English, yes. Your fantasy football winnings can be taxable, but they can also be tax deductible. Here is a quick foray into the world of fantasy football and taxes, from one Joker to another.
There is nothing like winning a fantasy football championship. Many leagues play simply for pride, love of the game, or small pots that don’t really move the needle. However, if you are playing fantasy football for large amounts of winnings, or more importantly, you are playing fantasy football with professional aims, you may be liable for reporting your fantasy football winnings the next time you file your taxes.
Fantasy football winnings constitute taxable income when they are greater than $20,000 in most states. However, new delayed legislation could push that number down as low as $600. If you’re playing on sites such as DraftKings or FanDuel, they are legally required to send you and the IRS a Form W2-G or a Form 1099-Misc. If you receive your winnings through PayPal or another third party site, they may send a 1099-K instead. The 1099 form reports your winnings to the IRS. Even if you don’t receive a form, you’re responsible for reporting all of your income on your federal and state tax returns.
The IRS planned to implement changes to the 1099-K reporting requirement for the 2023 tax year, luckily, they delayed the implementation of the new $600 reporting threshold. However, some states like Maryland, Massachusetts, Vermont, Virginia and D.C. have implemented the threshold anyways. Fantasy Sports organizers are responsible for identifying players’ net profits in order to determine who needs 1099 forms. They often use a predetermined formula which is basically the total prize amount minus your entry fees and any bonuses.
So far, all we’ve covered is boring responsibility. How do we take advantage of this? Well, it turns out that if you are truly a fantasy football degenerate, you may be able to establish that you play fantasy sports as a business. Even if you’re able to prove it as a secondary business, you may be able to report your net profit as business income on Schedule C. What’s even better though is you can cover your losses.
That’s right! The good ol’ IRS will help mitigate the bad years, because if you have a net loss for the year, you can use that loss to reduce taxable income from jobs you hold or other businesses you run. You just have to convince the IRS that for you, fantasy football isn’t just a hobby. The main requirements are that you engage in fantasy sports regularly and treat it as a business activity with the intention of earning a profit. The IRS may also consider an activity to be a business if it earns a profit at least three out of the last five years. So if your ROI sucks, maybe stick to the hobby route.
As the Joker once said, “I’m crazy enough to take on Batman, but the IRS, no thank you!” Although fantasy football is mostly about fun, make sure the taxman doesn’t come knocking down your door one day because you forgot to report your fantasy football riches. Or you could always move up to Canada, where if the income is considered as gambling winnings, it is not taxable.
