This morning, I was greeted on my laptop with two words: Draft Day? It seems that my brother is eager to get our fantasy football season going. He’s got a point since the National Football League (NFL) officially kicked off its season last night.
(A petty sister might note that his Patriots lost to her Eagles in the Super Bowl last year, but not me.)
Fantasy football is a big deal in my family. We only play for bragging rights, but many leagues around the country this season will play for money. Still, other sports fans will eschew the fantasy teams altogether and will bet directly on the games (Atlanta was the odds-on favorite last night against Philadelphia).
Just as with gambling, fantasy sports winnings are reportable on your taxes. But – at least for now – fantasy sports are considered games of skill. That means that fantasy winners are treated a little bit different for tax purposes. For example, a fantasy sports winner may receive a form 1099-MISC, Miscellaneous Income, while winners at a casino or gaming house may receive a form W-2G, Certain Gambling Winnings.
(You can read more about taxes and fantasy sports here.)
Of course, gambling winnings are reportable even if you don’t receive a federal form W-2G, Certain Gambling Winnings – either because of the amount or because it’s a friendly wager. A form W-2G is issued when winnings, after the cost of playing, are $600 or more and at least 300 times the amount of the wager; the form will also be issued if winnings are subject to federal income tax withholding, including backup withholding and regular gambling withholding. “Regular” gambling withholding is a flat 25% rate if your winnings from a gambling pool minus the cost of your wager are more than $5,000.
Those gamblers who play simply for fun include their winnings as income on line 21 of the form 1040. According to IRS (memo downloads as a pdf), those are casual gamblers who are “not engaged in the trade or business of gambling.” IRS goes on to note that “[l]ike any other taxpayer, a gambler has the burden of proving that his activities rise to the level of a trade or business.” And it’s time, not dollars, that tend to support the claim. Just as golfer John Daly whose gambling losses topped $90 million (more on his losses here).
The recent Tax Cuts and Jobs Act (TCJA) made changes that could impact both casual and professional gamblers. While all gamblers have to report their winnings, casual gamblers may only deduct their gambling losses as an itemized deduction on Schedule A. Big changes to Schedule A may impact that deduction.
To be clear, miscellaneous deductions which exceed 2% of your adjusted gross income (AGI) were eliminated (including deductions for unreimbursed employee expenses like unreimbursed travel and mileage, as well as the home office deduction). However, deductions for miscellaneous expenses not subject to the 2% threshold remain in place; that includes gambling losses, which you can deduct up to the amount of your winnings.
But even though the deduction remains in place, other changes may affect the ability of many taxpayers to claim gambling losses. Most notably, the standard deduction has significantly increased. For 2018, the standard deduction amounts were boosted from $6,500 for individuals, $9,550 for heads of households (HOH), and $13,000 for married couples filing jointly, to $12,000 for individuals, $18,000 for HOH, and $24,000 for married couples filing jointly. Additionally, restrictions on home mortgage interest (more on that here) and state and local tax deductions (more on those here), making it less likely that certain taxpayers will itemize. The result? Most taxpayers will claim the standard deduction. If you opt to claim the standard deduction rather than claiming the itemized deduction, then any casual gambling loss is, well, lost.
If gambling is your business, gambling-related income and expenses are reported on a Schedule C, which means that you do not have to itemize to claim your losses. However, the TCJA has modified the definition of “gambling losses” under section 165(d) of the Tax Code to include any deduction otherwise allowable in carrying on any wagering transaction. What that means is that taxpayers whose business is gambling can no longer deduct non-wagering expenses, such as travel to and from a casino, separately from losses. So, for example, a taxpayer with $10,000 in winnings may deduct up to that amount in combined losses and related expenses. This change applies to professional gamblers for the years 2018 through 2025. Before the TCJA, professional gamblers could deduct travel and other costs related to gambling without regard to wins and losses (that was the rule previously confirmed by the Tax Court in Mayo v. Commissioner).
If, after those changes, you’re still angling to claim a deduction for your gambling losses, you’ll want to keep excellent records. Those records should include the date and location where you were gambling, as well as the amounts and type of wager. That’s easy when you’re at, say, the SugarHouse Casino, but a little more difficult when you’re betting with friends or office workers at the local watering hole. Consider writing those down in a notebook or capturing them on your cell phone so that you can present your tax pro with proof come tax time. Remember: whether you’re rolling dice in Vegas or betting in your living room, when it comes to gambling, the tax rules are the same.