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How to Actually Make Money in Daily Fantasy Sports

You probably don’t need any more proof that fantasy football is popular, but former Denver Broncos tight end Nate Jackson has some for you anyway: “I heard that during one game last year, Baltimore Ravens tight end Ben Watson was having a good day on the field, and one of the guys he was playing against congratulated him,” Jackson says. “The other guy had Watson on his fantasy squad that day.”

That pro baller was one of almost 60 million people in the U.S. and Canada who’ve plunged into what’s known as Daily Fantasy Sports, commonly called DFS. You’ve seen the ads, too: competing boasts of millionaire minting from two archrival startups, New York–based FanDuel and Boston-based DraftKings. Both run on the same premise—gamers compile a team within a certain salary budget, then pony up a few bucks to enter an online contest.

With DFS, though, gamers can break out of their sleepy office pool and test their skill against as many as hundreds or thousands of other lineups in one hypercompetitive (and potentially lucrative) fantasy free-for-all. Here’s how to start indulging your inner Bill Belichick—no cut-off sweatshirts required.

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Our guide to surviving the wild world of Daily Fantasy Sports—and maybe even making a cool million— without blitzing your bankroll.

Tax Considerations for Fantasy Sports Fans

Updated for Tax Year 2020

Fantasy sports leagues can yield hefty winnings if Lady Luck smiles on you. If you win big—or even not so big—you’ll need to save a portion of that money for the Internal Revenue Service (IRS). What many don’t realize, is that those net winnings constitute taxable income.

Fantasy sports winnings of at least $600 are reported to the IRS

If it turns out to be your lucky day and you take home a net profit of $600 or more for the year playing on websites such as DraftKings and FanDuel, the organizers have a legal obligation to send both you and the IRS a Form 1099-MISC. If you receive your winnings through PayPal, the reporting form may be a 1099-K.

The 1099 tax forms report your winnings to the taxing authorities and also gives you notice of the amount you must report on your taxes. Even if you don’t receive a 1099 form, you must still report the net profits on your federal and state income tax returns.

Organizers calculate players’ net profits using a formula

Fantasy sports organizers must figure out players’ net profits in order to determine who gets 1099 forms. They use a formula to determine when a player hits the $600 level: Prizes won minus entry fees plus bonuses = net profit.

Another way to calculate this is:

  • (Withdrawals + Year End Account Balance) – (Deposits – Beginning Year Account Balance) = net profits.

Reporting income or loss from fantasy sports on Form 1040

You must report all income earned from fantasy sports either as “other income” on Schedule 1 for Form 1040, or as business income on Schedule C. If you use the first approach, your fantasy sports is considered a hobby and you can’t deduct any of your expenses or losses.

Reporting income or losses from fantasy sports as business income

If you can establish that you play fantasy sports as a business, you can report your net profit as business income on Schedule C. The great advantage to this tax choice is that you can then report all losses as well. If you have a net loss for the year, you can use that loss to reduce taxable income from jobs you hold or other businesses you run.

The IRS allows you to claim fantasy sports as a business if you can convince them it is not a hobby and that:

  • You engage in fantasy sports regularly, and
  • Treat it as a business activity with the intention of earning a profit

The IRS may consider an activity to be a business if it earns a profit at least two years out of every five.

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    Fantasy sports leagues can yield hefty winnings if Lady Luck smiles on you. If you win big—or even not so big—you'll need to save a portion of that money for the Internal Revenue Service (IRS). What many don't realize, is that those net winnings constitute taxable income.