Well it’s that time of year again. Yes, it’s time to perfect your strategy, lock yourself in your office, “Hold all my calls” and get this work finished. No, I’m not talking about that tax return you extended in April or the TPS reports you have yet to complete; I’m talking about the final tweaks to your roster that will finally put you on top of your fantasy football league: can’t you visualize the Championship ring now?
Report your winnings
But, before you plan on how to spend your winnings, don’t forget about your silent partner. Yes, I am referring to the United States Treasury. The Internal Revenue Service considers all gambling winnings taxable income, whether you won at a table in Las Vegas, during your weekly poker game with your buddies, or because of your brilliant decision to draft Peyton Manning and LeSean McCoy onto your fantasy team. There is no minimum! So, regardless of the payout for your league, the IRS considers it taxable income; and as a result should be reported on your individual income tax return as “other income.”
Better yet; report your losses
So if this is finally your year to have bragging rights, you may have to report your winnings to the IRS as income. However, if this year is like every preceding year, and you finished 13th in a 12-team league; you may be entitled to claim your loss on your income tax return. Internal Revenue Code Section 165(d) allows a taxpayer who itemizes to deduct gambling losses to the extent of winnings earned during that same year.[i] Note, you cannot just count your losses. Instead, you can only count as much in losses as you have won. In other words, if you spend $100 on lottery tickets and you are lucky enough to win $75, you can only deduct $75.
So while you are choosing who to start on Sunday, don’t forget you are not just playing for that 55-inch television or a gift for that special person in your life, you are also playing for your favorite uncle -- Uncle Sam.
Finally, as with most areas of the law, this too is open to interpretation and is fact specific. So, as with any income tax planning, please consult your tax advisor to determine any actual impact on your individual income taxes or before making any tax-related decisions.
[i] Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions. IRC 165(d)
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Reed Spellman is an associate in the Estate and Trust, Taxation and Business Group. Reed counsels clients in all areas of estate planning, estate and trust administration, guardianship administration and taxation.