Fantasy sports leagues are booming, with an estimated 41 million players last year in the United States and Canada, according to the Fantasy Sports Trade Association.
The average U.S. fan of sports fantasy leagues spends about nine hours each week on his or her team. Fantasy sports players also spend an average of $111 in league related costs, the trade group says.
Football season is over, but if you were lucky, you might have walked away with a few hundred or even a few thousand dollars from your fantasy football league.
Does that mean you owe taxes on the money you’ve won?
How much tax you must pay on your fantasy football winnings
If you are just playing and having fun, and you are not winning money, there is no federal income to report. Without any income, there are no deductible expenses.
But even if you didn’t wind up ahead at the end of the season, you may have had winnings along the way—in specific games, for example—that you used to pay fees associated with the fantasy league. Be sure to print out your annual summary of winnings and fees from each site or club in which you participate. Those reports will show your expenditures, and you’ll be able to use those on your tax return when you file your taxes.
It’s likely that a 1099 MISC is will be issued for those (phantom) winnings. Report the income on line 21 of the long version of Form 1040.
What about the expenses associated with your fantasy league? You may be able to deduct them when you pay your taxes, but there are several limits:
- You must itemize your deductions in order to report your expenses at all (on Schedule A). They are reported as miscellaneous itemized deductions. If your standard deduction is higher than your itemized deductions, however, you get no benefit from your costs and outlays.
- You may only deduct the expenses up to the amount of your winnings.
- You must reduce your miscellaneous itemized deductions by 2 percent of your adjusted gross income (AGI). This is the number on the very bottom of page 1 of Form 1040.
What does that mean in numbers?
Let’s say, for example, that you’ve been playing all season, and your winnings are $1,200. You add that to your other income of $50,000, so your AGI is $51,200.
You own a home, so you have enough expenses to itemize. You spent about $1,500 during the year on a variety of fees, memberships, t-shirts, fan swag, etc. However, because you only won $1,200, that’s all you can deduct on Schedule A. Next, reduce your $1,200 allowable deduction by 2 percent of your AGI, or $51,200. That’s $1,024, bringing your net allowable itemized deduction to $176 ($1,200 – $1,024).
Even though you spent more than you won, you’re still going to pay tax on $1,024 worth of your winnings.
Before you sign up for your next fantasy sports league, be sure to check the rules in your state to find out how these sports are regulated. If you’re in the clear, keep a record of how much you spend and how much you win. This will make things easier come tax time.
Eva Rosenberg, EA is the publisher of TaxMama.com ®, where your tax questions are answered. She is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches terrific courses that might help individuals and small businesses at CPE Link.