1099-K for Gambling

[jamesneedsanswers]

Hi all,

I am mentally preparing for the 1099-K I found out I would be receiving for using PayPal as my main way of withdrawing and deposit. Since I like to withdraw and deposit on a daily basis - I will have a good amount of money on my 1099-K. Overall though - my deposits into the Sportsbook is WAY more than my withdrawals. Is there anyway to proactively enter this on my tax returns with evidence so I don't get audited? This is having me really concerned with these changes.

I know the 1099-K is really just a list of incoming transactions (money received) - I assume it's going to trigger something if that number is fairly high. I have also stopped using PayPal and honestly will never use it again. I already closed my Venmo account. I am not trying to avoid paying taxes at all as I've won and paid taxes on gambling in the past but the HEADACHE that is caused by these papers aren't worth the mental health.

Thank you for all your help,
James

[Bsch4477]

The 1099-k will reflect what has been paid to you. If all that is gambling income you report that on your return just as you always have and deduct any documented losses but not more than your winnings on Sch A if you itemize. Nothing has changed except the threshold for 1099-K reporting.   

[jamesneedsanswers]

A 1099-K isn’t really income thought - it’s deposit. If I deposit 10,000 and I withdraw $10,000 without even playing - I would get a 1099-K for $10,000 but that’s not really income. It’s very confusing as winnings should only be defined on a W2G and 1099-K really is only defined as a transactional report / not actual income. I don’t have any winnings to report. I read that I could get it the number in when I file my taxes and back it out with a negative number because it’s not really income. It’s very confusing for everybody involved. I’ve read a few forums about it and haven’t seen the right / good way to handle this.

[Bsch4477]

It’s confusing for everyone because the IRS hasn’t yet told us how this will be handled. Rest assured, though, that you will only be taxed  on actual income. 

[Roncomanjason2]

Hi, curious as if you found a correct way to

do this as I am in the same exact situation. 

[AmyC]

First, grab a calculator or make a spreadsheet. Next, go to the income section, scroll down to Other Common Income. Select income from 1099-K. 

Do not use this section if it is all business income!

Since you received a 1099-K for multiple things, you have to break it down for each category.

• If you had hobby income, select that button, enter the 1099-K information except the income. Instead, use your calculator determine all income related to hobby and enter that amount.
• Next, personal item sales, enter the 1099-K information again except for the income. Use the calculator and determine the personal item sales.
• Continue doing this through all of the options that apply to you. 

Enter the same 1099-k information over and over but with the correct amount for each category.

[Roncomanjason2]

The 1099 I received is from PayPal. PayPal generates them after a threshold of monetary value or transactions. The problem I’m having is this. I deposited a thousand dollars at a casino online. I played for a while and then withdrew the remaining amount of my money to PayPal. I did this countless times. But because money entered PayPal they assumed I have a business and sent me a 1099k. I am significantly down at the online casinos. Is there a way to offset this? I’m in an utter panic. 

[Roncomanjason2]

This is want a one time occurrence. I was playing at the casino all year long. Forgot to add that. 

[RobertB4444]

When you're breaking this 1099-K down for categories as @AmyC details above you can enter all of the income that you received (which is really just you pulling the same money out over and over) as "received from a related party (you are related to you, after all).  Then it won't be included in your taxable income.  

But whatever you do download your transaction history from the casino website so that you can prove that the money was transferred to and from there.  It is always possible that the IRS will demand proof that the Paypal transactions were not income and you need to have that information ready if they do.

[Roncomanjason2]

Thank you guys for the replies. I was on the verge of having an anxiety attack. 

[jlanza265]

Whatever you do, make sure you put the amounts from you 1099-K onto your return. It appears the best way to do this is in the other income section. I got hit from my 2020 return. I had deposited 22,000 into online sportsbooks and withdrew 23,000. Again, all the same money, deposit 500, withdraw 500 etc multiple times throughout the year. However, I got a 1099-K but saw that I had income of 23,000. I knew this was not right and had no idea what to do. That was not good. I am currently in an appeals state with US Tax court. They claim I owe 8,000 plus interest and penalties when I only made 1000. Hopefully they rule in my favor. I then amended my 2021 return to reflect what I played that year. And this year I am filing my 1099-K under the miscellaneous showing what I withdrew and then using the negative symbol for what I deposited. They have ruined recreational gambling. I will no longer be using online gaming sites or Paypal. I dont know why Paypal cant differentiate when they see a deposit to "Barstool" and then a withdraw from "Barstool." seems like they should be able to determine its the same entity. The funny thing is though, if you do receive a 1099-Misc from an online casino what do you do? Because you have to report that 1099-Misc but you also have to show that same money on your 1099-K. Its very frustrating and causing a lot of people anxiety because the numbers can add up quick if you are depositing and withdrawing daily basically the same $500 over and over. Someone please tell me that they have gone through the appeals process and had a positive outcome?!?!?

[jamesneedsanswers]

This experience sounds horrible. I will be claiming the 1099-K and backing out the amount (other than the winnings I owe tax on) with a negative number. I hope you have a great outcome. Please let us know.

[vastone23]

Hey was there ever a solution to your problem? I was just hit with a CP2000 from the IRS as PayPal sent Ina. 1099k saying I made 95k. I did not. And truly thought I entered my taxes in correctly with collecting all my win / loss statements and paid the taxes on those win losses

so I am trying to find someone who went through this already as I am debating on hiring a lawyer or submitting all of my research and proof by myself?

they are saying I owe 38k in tax, 7k in penalties and 4k in interest ..

I contacted turbo tax today and their tax professional told me I filed correctly and wouldn’t change a thing 

[jamesneedsanswers]

Did you file a 1099-K when you filed your taxes? You should have filed the 1099-K and then deducted the amount (according to what I'd read and discussed with professionals). The instructions are on the forum here somewhere.

Lucky for me - PayPal corrected the 1099-K and it zeroed itself out because the payments weren't really invoice payments received.

[vastone23]

I guess the 1099k was not filed at initial time of filing. Do you happen to know where those instructions are? Because I’ve looked numerous places over last 2 days