TAX QUESTION (where to deduct entry fee)

bill · Post by **bill** » Wed Dec 16, 2009 5:19 am

I am hoping to get some tax advice from someone regarding how to handle winnings and the entry fees for fantasy football and baseball.

I just read an article that made this main point:
We would also like to point out – in our professional capacity as fantasy gurus, not as legal advisors – that laws have been passed which define the terms "bet" and "wager," and fantasy participation has been excluded.

The above quote came from an article at Yahoo Sports where Fidelity fired 4 employees for using work computers to "gamble". The employees were in a fantasy football league.

So participating in fantasy leagues is not defined as a bet or wager.

Let's say I join 2 leagues, each with a $500 entry. I win $2000 in one league. So I have $2000 in winnings and $1000 in entry fees. A net gain of $1000. I report the $2000 in winnings, where do I deduct the $1000 in entry fees??

I read the IRS gambling tax laws. It said I could only deduct gambling losses against winnings and could only do it if I itemized. But, if fantasy leagues are not considered to be gambling, how are we supposed to handle our winnings and our entry fees???

Any suggestions would be greatly appreciated.

kjduke · Post by **kjduke** » Wed Dec 16, 2009 5:46 am

The two options seem to be reporting winnings as either (a) hobby income, or (b) business income.
Business income has more favorable treatment under certain circumstances.

I have yet to see anything definitive in the IRS code that defines how winnings should be reported, so I suppose it's up to you or your tax attorney to interpret what is proper.

bill · Post by **bill** » Wed Dec 16, 2009 10:44 am

I spent about an hour today speaking with 3 different IRS agents. And another hour reading through IRS publications.

Here is what I have learned.

Fantasy league winnings are not considered to be gambling winnings. Fantasy winnings would come under prizes and awards in the IRS code OR as hobby income OR as business income if you meet the many requirements to qualify as a professional fantasy league player. The requirements to qualify as a business are in IRS Publication 535 on the left hand side of page 5 (GO TO IRS.GOV).

If your entry fee is $500 and you win $2000 you have to report that you won $2000 even though you really had a profit of $1500. You can deduct the $500 entry fee only if you itemize your deductions or qualify as a business.

If it does not make sense for you to itemize, you are basically being cheated by the IRS. If you have $3000 in entry fees and "win" $2000, you have to report $2000 in income even though you actually lost $1000 in this example.

With the standard deduction at $5700 for an individual, if you do not have mortgage interest it does not make sense for a lot of people to itemize and lose the standard deduction.

If you meet the qualifications for your participation in fantasy leagues to be a business, you can deduct your entry fees and other related expenses even if you do not itemize.
One of the requirements is that you have profits in 3 of 5 years.

Here is the bottomline for me. For 2009 I have $3200 in entry fees and $6800 in fantasy baseball and football winnings. It does not make sense for me to itemize and lose my $5700 standard deduction. So, I have to report $6800 in winnings even though I really made $3600. OUCH!!!!

CC's Desperados · Post by **CC's Desperados** » Thu Dec 17, 2009 10:18 am

Bill-

It is on a schedule C not schedule A.

It's pretty simple.

You have to start somewhere with your taxes. You have a profit year one. If you have a loss the next couple of years, I would break even on my taxes.

I would save my loss for year after a big win such as Lindy in baseball this year. He will a huge tax bill this year. If he took a loss next year, I would not fear reporting it.

[ December 17, 2009, 09:47 PM: Message edited by: CC's Desperados ]

sportsbettingman · Post by **sportsbettingman** » Thu Dec 17, 2009 10:26 am

Originally posted by bill:
I spent about an hour today speaking with 3 different IRS agents.

...OUCH!!!!

I'd expect no other scenario then you got what you asked for when taking this to an IRS agent.

It's THEIR JOB to take YOUR MONEY!

russ0811 · Post by **russ0811** » Sat Dec 19, 2009 9:09 am

SO WITH TAXES AND ALL DO WE EVEN WIN ANYTHING ON HERE?

Raiders · Post by **Raiders** » Sat Jan 16, 2010 1:27 am

Everything is a write off. Time spent working on your drafts,ww,wdis and player news.

Money spent at draft getting to draft, meals,rooms and parking.

Computer and printer.

The nice thing is getting back your money this year should be in days and not weeks.

http://finance.yahoo.com/taxes/article/ ... xes-filing

John

[ January 16, 2010, 07:33 AM: Message edited by: Raiders ]

Old School · Post by **Old School** » Sun Jan 17, 2010 5:38 am

Originally posted by Raiders:
Everything is a write off. Time spent working on your drafts,ww,wdis and player news.

Money spent at draft getting to draft, meals,rooms and parking.

Computer and printer.

The nice thing is getting back your money this year should be in days and not weeks.

http://finance.yahoo.com/taxes/article/ ... xes-filing

John You cannot write-off your "time spent". And, NEVER talk to the IRS for any tax advice. Based on my 30 years as a CPA, they know the least about taxes