Like many others, I've been playing daily fantasy football. I've had a good bit of luck and have made a substantial portion of my income this year from these sites.

Now, I live in Massachusetts, which does not yet have a law or regulation that declares daily fantasy to be gambling. Given that daily fantasy isn't legally considered gambling (yet), how do I report income from daily fantasy winnings?

Do I report it as if it were gambling winnings or simply miscellaneous income? The few articles I've read on this are all from before the recent trend of states prohibiting daily fantasy sports as illegal gambling and suggest using 1099-MISC for miscellaneous income. I'm not sure, however, if the current climate changes that advice.

How should I report daily fantasy winnings as income?

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    Misc. or hobby income seems most likely to me right now, but I am neither lawyer nore accountant. As for whether recatagorization would be retroactive, that will depend on exactly how the ruling or law is written. – keshlam Dec 25 '15 at 22:19
  • I would add that income, regardless of whether it is made legally or not, is subject to income tax. The IRS doesn't care if MA thinks its illegal or not. – Eric Dec 25 '15 at 22:41
  • @keshlam Yea, the retroactive question does seem like it will depend on the details of the ruling/law. I'll remove that since it's likely (currently) unanswerable. – Dennis Dec 25 '15 at 22:54
  • @radpin Indeed, just ask Al Capone! – Dennis Dec 25 '15 at 22:54
  • If there's to be a 1099-MISC, it would come from the entity paying. You won't generate that for income that you received. – user32479 Dec 25 '15 at 23:57

I don't think the choice of how you report it is going to be up to you. If you won more than $600 from a DFS site then you will be receiving a form from them in January, and that form will dictate how you report it. The form will likely be a 1099-MISC which means you will report it as such. The good news is that with a 1099-MISC they should automatically deduct your entry fees, so for example if you paid $1000 to play throughout the year, and won $5000 that year, your 1099-MISC should be for $4000.

If you were to receive a W-2G form (Gambling winnings), typically this would be for only your winnings, so from the previous example it would be for $5000 rather than $4000, and you would have to deduct your $1000 yourself. The caveat though is you can only deduct your gambling losses if you itemize (as opposed to taking the standard deduction). If you do itemize, a W-2G is probably preferred because not only can you deduct your losses from DFS, but you would also be able to deduct any other losses you had such as lottery tickets, casino play, etc.

Lastly, if certain conditions are met, (for example if you use PayPal to get your money and you have more than 200 transactions in a year and you had more than 20K in winnings), you could receive a 1099-K form. If you receive this form I'd recommend discussing with an accountant to help you maximize your deductions as it's very likely they'll save you much more than their fee.

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  • That is incorrect. They choice is not up to the OP, but it is definitely not because of how it will be reported to him. The fact that something is reported as X even though in reality it is Y doesn't mean it is now OK to report it as X on your tax return. You can ask for corrected 1099 if it is incorrect, or report it properly and attach a statement to explain the mismatch, but you never carry on incorrect/misleading reporting just because someone made a mistake up the chain. – littleadv Dec 29 '15 at 8:27
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    @littleadv - I can't tell if you mean X and Y are different amounts of money, or different types of income. If you believe the amount of income reported is incorrect, then I agree with you, but that doesn't make my answer incorrect- of course you shouldn't blindly put the wrong amount on your return - I never said you should do that. But if you're suggesting that a billion dollar company is sending the wrong form and you can simply report it as a different type of income, then that's opening a can of worms I wouldn't suggest to anyone. – TTT Dec 29 '15 at 16:14
  • it doesn't matter. If someone reports something wrongly, and you carry it forward to your tax return - the wrong reporting becomes yours. You take ownership, and responsibility, over someone else's mistake. It doesn't matter if X and Y are types of income or amounts, at all. But if you're suggesting - yes, that is exactly what I'm suggesting. What cans of what worms it will open - not your concern. It will be that company's worms, not yours. As long as you report on your tax return correctly - you're good to go. – littleadv Dec 30 '15 at 5:56
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    In theory, I agree with you. But practically, if someone receives a 1099-Misc, I don't like the idea of advising them to report it as if they received a W-2G, just because they think that's what it should have been. In an audit, who ends up being right is going to come down to what the IRS thinks, not the taxpayer or the issuing company. If the IRS decides that you reported it incorrectly, (I hope) they would not charge penalties and fees to the person who reported it based on the form they received, but I can see them charging penalties and fees to the person who deliberately changed it. – TTT Dec 30 '15 at 15:47
  • That being said, I know you are right in general. I'm just not convinced that in this scenario it is wise to report something differently. Especially since the jury is still out whether or not DFS is even considered gambling in the first place. – TTT Dec 30 '15 at 15:50

The fact that the action may be illegal doesn't mean you pay no taxes on the gains. Ask Al Capone, he learned that the hard way.

I suggest you report it is gambling winnings, and enter in the same way as you would enter W2-G amounts. Usually it ends up being on line 21 (misc. income) of your tax return.

If you actually get the 1099-MISC or W2-G for the amounts - use the instructions for how to enter the amounts as reported on these forms. If you receive 1099-MISC - make sure to attach a statement to your tax return to explain why this is not self-employment income, since otherwise you'd be liable for additional taxes.

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  • I'd appreciate whoever downvoted to explain why. – littleadv Dec 26 '15 at 6:21
  • I didn't downvote, but the first para of your answer seems to be a bit pointless since the OP seems to be clearly aware of that already (both in the question and the comments). – GS - Apologise to Monica Dec 26 '15 at 14:57
  • I'm not the DV either. Your first line seems out of place. It's not illegal in Massachusetts, just not yet ruled on. NY declared it gambling. I agree with that, which would make it illegal and shut it down, state by state. – JTP - Apologise to Monica Dec 27 '15 at 19:14
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    @Joe the point is that it is irrelevant. I suspect the DV would be one of these pro-republican nutheads who routinely downvote me because I think that they are idiots. – littleadv Dec 29 '15 at 8:26
  • @littleadv - Hah! I almost spilled my coffee when I read your last comment. – TTT Dec 29 '15 at 15:11

I've had a good bit of luck and have made a substantial portion of my income this year from these sites.

That statement means that you may have an issue to deal with. If no money was withheld by the daily fantasy site, and you have not been filing estimated taxes this year, you could have a major tax issue.

US tax law expects that you will periodically pay estimated taxes throughout the year. When an employer withholds federal and state taxes from each paycheck and sends them to the IRS and the state government, most employees are considered in compliance. Self employed individuals have to do this withholding and submitting on their own. Those who have both paycheck income, and other income need to see if they also need to send in estimated taxes to meet the requirements in the tax laws.

Without knowing the size and ratio of the outside income, or knowing your tax situation from the year before, it is impossible for us to give you a number. You should take some time in the last week of the year to see if you have a potential problem. The estimated tax payment for the 4th quarter is due January 15th.

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  • That demands on the amount but he may also be required to pay estimated taxes next year as well – draksia Dec 31 '15 at 21:18

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