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When is your fantasy taxable?

When you win playing daily fantasy sports (“DFS”), such as in Draft Kings or Fan Duel.

A basic rule of tax law is all sources of income are taxable unless there is an exemption. There are no exemptions for winnings from DFS. Defying logic, DFS is considered a “game of skill” and not gambling under the Internet Gambling Prohibition and Enforcement Act of 2006. Therefore, DFS players with net winnings of $600 or more will receive a Form 1099-MISC (for miscellaneous income) as opposed to a Form W-2G (for gambling winnings).

Most taxpayers will report these winnings as hobby income. Some will attempt to report DFS as a business, report the winnings on a Schedule C, and deduct all related expenses, such as an epic HD TV and a delightful man chair. Reporting on a Schedule C will likely reduce the tax owed to the IRS. The IRS will likely tolerate the reporting of the winnings as hobby income, but may challenge taxpayers who report DFS as a business.

Eventually, our politicians may take away this past time, and DFS will be treated like online poker, deemed illegal, and the tax consequences will change. But until this issue is clarified, if you have income from DFS, you should consult a tax professional.

Rosenberg Martin Greenberg

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Phone: 410-727-6600
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Rosenberg Martin Greenberg

705 Melvin Avenue Annapolis, MD 21401
Phone: 410-727-6600
Map & Directions