How do I offset 1099-K payments to me from gambling websites in TurboTax?

[PatriciaV]

Yes, you should enter your gambling income reported on Form 1099-K under Less Common Income >> Prizes, Awards, and Gambling Winnings. This topic will allow you to enter your gambling losses as well. If you are able to itemize your deductions, your gambling losses will be reported on Schedule A to offset your winnings.

Note: Form 1099-K is used by the IRS to track payments that you received from credit cards, debit cards, or electronic payment services (Square, PayPal, ePay, etc.). For 2022 the IRS does not require you to report these payments separately. TurboTax will not give you a separate field for the amounts reported on your 1099-K(s), which is why you need to report this income under the appropriate income topic.

TT Blog: Sports Betting Taxes Guide

[avimax]

Thank you for the response. Since this approach requires itemizing, I followed the method below instead (also from TurboTax Community). Is this another valid way to offset 1099-K gambling payments?

1. From the left menu, go to Federal and select the first tab, Wages & Income
2. Add more income by scrolling down to the last option, Less Common Income, and Show more
3. Scroll down to the last option, Miscellaneous Income, 1099-A, 1099-C and Start
4. Choose the last option, Other reportable income and Start and Yes
5. Enter the applicable description and amount and Continue
   • First, enter Form 1099-K as received. It is essential that the full amount be entered.
     • For a description, include Form 1099-K and Personal Property Sales
   • Next, enter an adjustment to reflect the cost of these items as an offsetting, negative amount up to the amount of the income.
     • For the cost description, include Form 1099-K and Cost of Personal Property 
     • In other words, if the goods cost you $100 and Form 1099-K was for $10 in sales, the maximum cost allowable would be $10.

[DianeW777]

No. You cannot use that method to offset the income by your gambling losses.  Entering a negative income is not correct or allowed.

Gambling losses are not allowed to offset the income on your tax return unless you can itemize deductions.  You enter the gambling losses in the same location you enter the gambling winnings.  Then TurboTax will follow tax law to report both.  

• IRS Topic 419 Gambling Income and Losses

[avimax]

Thanks for the response, but I do not want to itemize deductions because my standard deduction is much larger. I just want to offset Form 1099-K.

I am planning to put both the gambling payments TO me and FROM me into Schedule 1, Part 1, Line 8. I am not sure yet which specific lines within 8 to use for the payments in each direction. I am also not sure if that really matters. As long as the gambling payments are disclosed, I will hopefully avoid a surprise tax bill in the future.

[GeorgeM777]

We need more information from you regarding "gambling payments to me and from me."  Are you operating a business?  If so, what kind.  As a follow-up to @DianeW777, you have to include gambling winnings on your return regardless of gambling losses.  Gambling losses can only be itemized but you stated that you had "gambling payments."  

It would help us to better understand your tax situation if you could give us more information regarding the gambling payments.  

@avimax

[avimax]

I use PayPal (like many people) to deposit and withdraw money with legal gambling websites. PayPal is now reporting the withdrawals on 1099-K. These are not necessarily winnings. They are just withdrawals. You can deposit $100 to DraftKings through PayPal, and then immediately withdraw your $100 through PayPal. You don't even need to make a bet.

In the above example, the $100 withdrawal from PayPal is a payment to me, so it's included in 1099-K and shows up as additional income in my 1040. How do I offset that income?

[DianeW777 · Accepted solution]

Money you put into PayPal and then withdraw is not taxable income.  

You do not offset any gambling income. You must know the exact amount of any individual gambling winnings and losses.

The law is simple and complex for these third party money handlers.  If they receive deposits for you, and track your withdrawals then they must report to you the accumulated total.  It is up to you to prove what is taxable income and what is not.  

Personal withdrawals are not taxable.  Any activity in this account must be tracked so that you have proof of what is income and what is your own money being withdrawn.  It's up to you to report taxable income and be prepared to support your entries and decisions on the tax return.  This will be more important than ever for 2023.

[Marybeth32]

My question is this - I received my 1099-K from PayPal which I only used for gambling, I did win several jackpots and also received a W2-G for gambling winnings.  The amount on the W2-G is larger than the amount on 1099-K, I don't want to record the income in both places and get hit twice with paying taxes on this income.  Do I only enter the W2-G?  

[DawnC]

You should make sure that you enter all of your gambling income in the Less Common Income - Gambling Winnings section.  You can enter W-2G forms and there is a spot for gambling winnings not reported on W-2G.  But all of your gambling income should go in that section.   And keep detailed records of your winnings in case of any inquiries.    You'll be asked about losses when you enter your gambling income - you can deduct your losses, but only if you itemize.   This link has more information.  

If the 1099-K represents cash transfers for gambling income that you have reported elsewhere and you have detailed records of those winnings and transfers, you don't have to report the 1099-K; you can keep it with your detailed tax records.   You don't want to report the income twice.

However, since you have the form and the IRS gets a copy, you can report it in the Other Reportable Income section and then enter a negative number of the same amount in the same section which won't have any effect on your tax return.    If you enter the 1099-K in the 1099-K section and designate the reason as Other, it will go to the Other Reportable Income area, Line 8z of Schedule 1.    Then go back to the Less Common Income section >> Miscellaneous >> then Other Reportable Income, and enter the negative amount and a description (included with gambling income/non-taxable money transfers).   Either way, make sure ALL of your income is entered and keep detailed records.    @Marybeth32