Political predictions market

[imnion]

PredictIt is an online political prediction market. They issue a 1099-MISC (not W-2G) which calculates income as net profits minus their 10% fee on profits and minus their 5% fee to withdraw the profits. I expect my net profits this year to be roughly $7000. Minus those fees, the total comes to about $6200--which is what I expect PredictIt to report.

However, PredictIt charges a 5% fee on withdrawals for the principal as well as profits. While my $300 fee for withdrawing the profits will be included in the 1099, my additional $1500 to withdraw my principal will not be.

How can I deduct that additional $1500 from the 1099?

[tagteam · Accepted solution]

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@imnion wrote:

How can I deduct that additional $1500 from the 1099?

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You might want to pose this question to the firm. A fee to withdraw funds (principal) from your account that you deposited in order to enable you to trade shares? In addition to the other fees charged, that appears either incorrect or a simple money grab for doing essentially nothing.

Since even investment management fees are no longer deductible as miscellaneous itemized deductions (thanks to tax reform, the TCJA), it is unlikely this particular fee would be deductible either.

[Mike9241]

this website seems no different than websites where you gamble on the outcome of a sports game.  you are betting on the outcome of political events not buying and selling stocks.   I would call this a gambling website like Fantasy ....... if I'm correct and if you are not a professional gambler then the bad news is any gross winnings would be reported on page 1 of 1040 and any losses would be an itemized deduction.  gambling losses would only produce a tax benefit if you can itemize.  if gambling, the fees would also be an itemized deduction.  the amount of fees and losses that can be deducted are limited to your gambling winnings.

if you were actually trading stocks you would be getting a 1099-B not a 1099-MISC 

[tagteam]

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@Mike9241 wrote:

.....if I'm correct and if you are not a professional gambler then the bad news is any gross winnings would be reported on page 1 of 1040 and any losses would be an itemized deduction.  gambling losses would only produce a tax benefit if you can itemize.  if gambling, the fees would also be an itemized deduction.  the amount of fees and losses that can be deducted are limited to your gambling winnings.

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Except it is rather difficult to figure how what @imnion (the original poster) described could possibly be treated as a gambling loss. After all, it was a fee charged by the firm making the market, not an actual loss that resulted from a bet that went against the bettor.

[Hal_Al]

It seems like the 5% fee on the withdrawal of your principal is (mostly) unrelated to your taxable income.  It is just the fee for using the site and therefore not deductible. 

If you don't agree with that rationale,  the other  rationales, management fees, hobby expenses or gambling losses are also as undeductible (gambling losses are deductible, to the extent of winnings, but only as an itemized deduction). 

[imnion]

Thanks for your thoughts. To be clear, this is a political predictions website (basically, gambling, but I hesitate to use the word because it's regulated differently and doesn't issue W-2Gs), not investments. The fee structure I'm describing is most assuredly what they do and is not incorrect. It's a money grab because they have a monopoly. 

[imnion]

Would it be possible to report the fees as negative other income? An ordinary and necessary expense to receive the earnings from PredictIt?

[Hal_Al · Accepted solution]

Q. Would it be possible to report the fees as negative other income? An ordinary and necessary expense to receive the earnings from PredictIt?

A. No. The consensus, here,  is it's not deductible.  It's not "earnings".  Hobby expenses are not deductible. Investment expenses are not deductible. Gambling losses are only deductible to the extent of winnings and only as an itemized deduction.

That said, if you feel you have an erroneous 1099-Misc, 

You have several choices:

1. Ideally, you get a corrected 1099-misc from the payer
2. Don't report it on your return. Attach a copy of the 1099 and a statement explaining the circumstances. You can't e-file. From the IRS instructions for form 1099-Misc: Form 1099-MISC incorrect? If this form is incorrect or has been issued in error, contact the payer. If you cannot get this form corrected, attach an explanation to your tax return and report your income correctly.
3. Report the income as misc line 8, Schedule 1 income (enter in TurboTax at the 1099-Misc screen) .  Then enter a line 8 deduction, for the adjustment amount.  In TurboTax (TT), enter at:
   - Federal Taxes tab
    - Wages & Income
   Scroll down to:
   -Less Common Income
         -Misc Income, 1099-A, 1099-C
          - On the next screen, choose – Other reportable income -  Answer yes to Any other Taxable Income -On the next screen, Enter the number with a minus sign (-) in front.  Briefly explain at description.
4. Report only the net income and hope you can explain it away when & if the IRS contacts you

[imnion]

Thanks for going through that in such detail. It's greatly appreciated.