PayPal 1099-k online Gambling Large Amount

[ncsd23]

I have received a 1099-K from PayPal in the amount of $121,060.27. I have never in my life sold any services or goods other than an occasional garage sale over the years. I am retired and live with my husband who is still employed. My husband and I had formed an online casino club with my sister and her husband over COVID and get together often to play online casinos together, I also play on my own. We use my PayPal as a money go through, the same money may play through over and over. For example my sister sends me $200 to my PayPal account I add $200, we play $400, take out the balance from the casino play (if any) put back into PayPal we split it and then try again next time, may be the next day. I did print a win/loss statement from my BetMGM account as we use this account most often and it shows a loss of $38052.19. While this is a substantial amount it does not account for the remaining $83008.08 that I know I did not win. I know this club and my online gambling has been a substantial loss as it shows in our finances, we chalked it up to expensive entertainment cutting out vacations, etc.! How do I explain this to the IRS? I don’t feel describing $121,000 as “erroneous income on 1099K” will be enough.

[Cynthiad66]

You just explained it good enough for the IRS, if the need arises.  However, as you explained, some of it is not for a business but personal stuff.  The Gambling transactions will need to be reported.  So, keep that beautifully written description of the items on the Form 1099-K and pull out all of the Gambling transactions from the form 1099-K so that you can properly report them.  You can report losses, as well but only up to income.

Yes, you need to report your 1099-K for your gambling winnings. Although usually gambling winnings are reported on the form W-2G, you received a form 1099-K for your winnings because they were made electronically.  Per our Expert, LenaH, you can follow these steps to report your Gambling winnings.

To report your gambling winnings on your tax return, complete the following steps in TurboTax:

1. Open your return.
2. Search for Other Income with the magnifying glass tool on the top of the page.
3. Select the Jump to Other Income link in the search results.
4. Select No to the question Did you get a 1099-MISC?
5. Scroll down to Gambling Winnings under Less Common Income.
6. Click Start next to Gambling Winnings. 
7. Choose Yes to the question Did you win money or prizes from gambling or lotteries during 2020?
8. Choose I did not receive a W-2G.
9. Follow the on-screen instructions to enter your data. 
10. After you enter your gambling or lottery winnings that weren't reported on W-2G, you can enter your Gambling Losses on the next screen. 

You are able to deduct gambling losses up to the amount of your gambling winnings. In addition, your gambling losses will only be able to be deducted on Schedule A if you itemize your deductions, as opposed to taking the standard deduction. For more information, please see Can You Claim Gambling Losses on Your Taxes?

Since the form you received has items listed on Form 1099-K for income that is not taxable income, the IRS provides information on how to report this amount. You can report the amount in Part 1, Line 8z, Other Income of Schedule 1, Addition Income and Adjustments to Income and also report the the non-taxable amount in Part 2, Line 24z, Other Adjustments of the same form. This process adds an amount to your income and then subtracts an amount from your income while at the same time accounting for the amount shown on the 1099-K on your tax return so that it matches the IRS records.