Daily Fantasy Sports Player...should I still be filing as Self-employed? Also, what about other gambling income?

[harrycaul]

This is a three part question.  

1. I have been filing as a self-employed daily fantasy sports player since 2013.  However, the past few years, my volume of play has fallen off steeply and I have ended up with a small loss each year ie less than $1,000 (I have not had 3 winning years out of the last 5, one of those years I lived in Vegas and could not play DFS).  I have been continuing to file as self employed, reporting my net losses.  I continue to keep track of my play on a daily basis with the intention of turning a profit.  I have no other income source. 

Can I (should I) continue to file as self-employed?

2. In 2021, I went to Vegas with full intention of playing poker for a month, keeping track of my wins/losses (3 years ago I had previously lived in Vegas and filed as a self-employed poker player).   I then turned to video poker, studying how to be a winning player with full intention of turning a profit.  I got a couple of wins that was past the threshold, and I had to fill out a form each time to make the IRS aware. 

a. I had a net loss playing poker.  Can I also include that on Schedule C?  If so, do i have to separate my gains from losses or can I just net it out and put it under losses? The reason I ask is because with daily fantasy sports when I had a winning year, I received a 1099-MISC which was my NET for the year, which I reported under income on schedule C and the wins/losses were not separated. I'd like to do the same with poker/video poker to keep things consistent.

b. I had a net gain playing video poker (and the IRS is aware of the gains because of my wins over the threshold for reporting).  Again, do I put my net amount won on Schedule C or do I separate the wins and losses on Schedule C.  My concern is because my net is going to be less than what was reported to the IRS with the two wins I had to fill out paperwork for that it might get flagged.

3. I had also a few blackjack sessions and sports bets.  Again with both of these endeavors, I studied and for sports betting did research, and kept track of my wins/losses.  Should I also include that in my self employed income?  

Whoever answers this, thank you so much for taking the time to read and answer my questions.  

[ThomasM125]

Because of your loss situation and lack of effort devoted to the fantasy sports play, that would more than likely be treated as a hobby in the eyes of the IRS, so those earnings should not be reported as business income.

With the rest of the activity, much of it would depend on your intent to make a profit and the amount of time and effort you put into it. If you would be relying on the profits for your lively hood, as opposed to a side activity, that may show a profit motive. Also, the amount of money you earn would be key.

The IRS offers many qualifications to treat an activity as a business, such as performing in a businesslike manner, keeping detailed records, spending most of your time on the activity, the knowledge you need to acquire to succeed, whether you have made a profit in the past on similar activities, what your future prospects are with the activity.

By default, the IRS would probably consider all of it a hobby, so  if you got audited, it would be up to you to prove otherwise.

Here is some information from the IRS:

Hobby vs Self-employed

[harrycaul]

Thank you for the reply.

My situation is this.  I am still putting in the time and effort, but have had net losses for the year for a few years.  However, I could very well make $100k tomorrow. Then what?  If I had filed for the past 7 years as self employed, then in 2021 file the daily fantasy sports losses as a hobby, what happens when it comes time to file taxes for 2022?  I still file it as hobby income even though it's my only source of income?  I'd imagine the IRS might look at my tax history and think I'm trying to avoid paying the self-employment tax.  Maybe I'm just complicating things but from my perspective, it's not that cut and dried.

[ColeenD3]

The IRS expects a gain for 3 out of every five years. If you do not meet this requirement, you are not considered to have a business. If you had losses for three years, your business defaults to being a hobby. While the intention to make a profit may be there, the IRS looks at results as well.

[harrycaul]

That makes sense.  So I'm assuming the IRS has zero problems with people switching back and forth between hobby/self-employment every 5 years?  What If I make $1 million 1 year, but lose money the other 4 years and that is my sole source of income?  Is that still considered a hobby?  Or if I have a "good" year, should I just automatically switch from hobby to self-employment.  

[ColeenD3]

Yes, you can switch. If it doesn't meet the requirements one year but does the next, then there is nothing wrong with this. I would be careful to not take accelerated depreciation. If you end up having a hobby one year instead of a business, the depreciation you took upfront, now has to be recaptured and is taxable.

[harrycaul]

Thanks that was helpful information.  I'll file all of what I mentioned in my original post as just regular gambling gains/losses.  I just wanted to make sure I was doing the right thing.

Asset depreciation does not apply in my case as a DFS player.  I have no business assets to speak of.

[ErnieS0]

The US Supreme Court in Commissioner v Groetzinger 480 US 23 defined a professional gambler as one who is "involved in the activity with continuity and regularity and that the taxpayer's primary purpose for engaging in the activity must be for income or profit. A sporadic activity, a hobby, or an amusement diversion does not qualify."

Additionally the Court said "if one's gambling activity is pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby, it is a trade or business within the meaning of the statutes with which we are here concerned."

Other factors may be considered. The Journal of Accountancy runs them down in Tax issues for professional gamblers.