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The playbook for fantasy football and your taxes

The playbook for fantasy football and your taxes – TaxAct Blog

Week one of the 2016 NFL season officially kicked off this past Sunday, but preparation for game day started quite a while ago.

And I’m not just talking about those who strap on a helmet and rush the field each week. I’m talking about the millions of Americans who spent the past month relentlessly mulling over their fantasy teams.

The number of people playing fantasy sports these days is tremendous. Already this year, 57.4 million people have participated in a fantasy league across the United States and Canada.

Many participate for the comradery among friends, some join their office league for a little friendly competition and others – aka the girls – form a team so they can brag when their strategy to build a killer team roster proves superior to that of their male counterparts.

But, there’s always that group of people who are in it for one reason only – the money.

If you’re playing for a cash prize or to win a dream vacation this year, there are a couple of things to pay attention to in addition to total rushing yards, completed passes and who’s on the injured player list.

Here’s a breakdown of what fantasy football and your taxes really means.

Participating in most pay-to-play fantasy football leagues is not considered gambling.

Money or prizes (tickets to the big game anyone?) from fantasy football come with a few tax consequences, however the earnings are typically treated as hobby income.

This is because fantasy leagues are not based on an actual team and winnings are not dependent upon the scores or performance of a real team.

For tax purposes, fantasy sports are considered a recreation activity.

Even if playing consumes all of your free time (and let’s be honest, maybe some work time), your main goal is probably not to earn a living from it.

Therefore, in the eyes of the IRS, participation in fantasy sports leagues isn’t considered a business and is not subject to more rigorous gambling taxes.

However, you still have to report the winnings on your Federal tax return. And, you are subject to income taxes.

If you earn over $600, you’ll receive Form 1099-MISC in the mail. This form reports your winnings over that amount.

Hobby expenses can be deducted, but it’s complicated.

As a hobbyist, you can deduct your expenses up to the amount of income you receive from participation.

All income or prizes won can be directly reduced by any fantasy expenses, such as an entrance fee.

For example, if you paid $200 to enter a fantasy league, and won $1,000, you would report the net amount of $800 as hobby income on your tax return.

That seems simple, right? Well, this is where it gets tricky.

While you can use those expenses as deductions, you must itemize those deductions, which can be time-consuming and difficult to track.

Plus, hobby expenses can only be claimed as itemized deductions over 2 percent of your Adjusted Gross Income (AGI).

If you aren’t sure what that means, AGI is your total income minus certain expenses. Common expenses for the average American include items such as student loan interest, moving expenses and self-employed health and retirement expenses.

So, for example, if your AGI is $50,000, 2 percent of $50,000 is $1,000. That means you would need other fantasy expenses to be over $1,000 if you wanted to deduct them.

If you plan to take the standard deduction this year, meaning you‘ll take a straight-up deduction as outlined by the IRS, tracking those expenses may not be worth your while. You’re better off spending that time figuring out who will play in your flex spot.

But remember, that doesn’t let you off the hook for reporting that income!

DraftKings and FanDuel throw a wrench in things.

State law regarding contests through pay-to-play fantasy games, like DraftKings and FanDuel, vary by state.

Last year, judgments by the states of New York and Massachusetts determined this style of fantasy sports to be a form of gambling.

While some states have concrete laws in place, other legislators are still actively debating the legality of these systems.

Because of the uncertainty regarding the laws and regulations, it’s always a good idea to double check your state’s stance before participating.

TaxAct makes preparing and filing your taxes quick, easy and affordable so you get your maximum refund. It’s the best deal in tax. Start free now or sign into your TaxAct Account.
About Andrew O.

Andrew is a certified public accountant and a tax analyst at TaxAct.

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