If I have been using PayPal to withdraw gambling winnings, I know I will receive a 1099K. I have made about $4,000 in withdrawals from PayPal. What will the tax rate be?

[Critter-3]

Yes it does count for the AGI (the line) where the losses go on the Sch A (below the agi line) ... losses are not entered above the line.  So the increased income will make more of your SS benefits taxable and will factor into any credits or deductions that use the AGI figure to determine eligiblity. 

[Anonymous86]

Thanks for the clarification but I think that’s a bummer. I won’t repeat such mistakes in 2023 but doesn’t that mean I should pay way more in federal and state taxes due to bloated up AGI ? I am already broke and this may make me bankrupt..ugh

[Anonymous86]

I have another question. I do have W2-G from a local casino for a small amount. How do I report my gambling winnings in this case as my non W2-G winnings on paper are super high.

[Aluke8312]

This is my issue as well. Deposit 300, go down and up then cash back out the 300 so I didn't lose anything. But paypal shows all that as money received, even though it's my money which has already been taxed.

[BrittanyS]

You would need to report both forms if you received a 1099-K for gambling transfers and a W-2G.  

You will follow these steps to enter the 1099-K and Form W-2G in Less Common Income.  

To enter your personal 1099-K items, sign in to your TurboTax account if it is not open and follow these steps:

1. Select Income & Expenses.
2. Scroll down to Less common income and select show more.
3. Scroll to  Miscellaneous Income, 1099-A, 1099-C, and check start.
4. On the page Let's Work on Any Miscellaneous Income, scroll to " Other reportable income " and click start.
5. On the page Any Other Taxable Income, select yes.
6. On the page Other Taxable Income, enter a description indicating Personal 1099-K and amount.
7. Select continue.
8. Select done on the next page

Repeat the above steps this time; in step 6, add the amount as a negative value.  Repeating steps 6-8 is to reduce the items that were received for personal use.  For example, payments to friends and family, coffee & donuts, amounts to a local store, etc.  

To report the gambling winnings and losses, follow these steps:

1. Scroll down to the last category, Less Common Income
2. Gambling Winnings  and Start
3. Follow the interview and report the winnings and Continue
4. Report the losses on the next screen
5. You can deduct gambling losses as an itemized deduction up to the amount of your gambling and prize winnings. And select Done

@Aluke8312

[Opus 17]

@Aluke8312 

@Anonymous86 

I'm not sure this is the best experience overall, but it is what you have to do to be able to e-file.  As @BrittanyS wrote, you enter the 1099-K as miscellaneous income, then enter a second item of miscellaneous income in a negative amount to offset the 1099-K, then enter your actual gambling winnings and losses in the usual way.

If you don't include the 1099-K on your return, you will definitely get an assessment letter from the IRS.  If you include it, even if you are zeroing it out, you are acknowledging the form and indicating that you are reporting the income elsewhere, so you only might get a letter asking for more details.  Keep your gambling and PayPal records for at least 3 years in case of audit. 

[Anonymous86]

Thank you everyone for your insight. I guess I have a clear picture now.

1099k positive+ negative

gambling winnings +losses

AGI will shoot up but I won’t be responsible for taxes on entire AGI as I do itemized deductions 

In case of an audit from IRS, I will be ready with PayPal and gambling site records

@Opus 17 

@BrittanyS 

[jamesneedsanswers]

I have about 200k (from daily withdrawals and deposits) but my deposits outweigh the withdrawals. I will be keeping my PayPal log for 2022 to show proof that the 1099-K was NOT taxable income. I don't know any other way to do it than report the 1099-K and back it out as an expense with a reason. I will also be keeping the log I can export from the online sportsbook to keep just incase they want to make sure I don't have gambling income (which I don't have any).

The IRS needs to expand their gambling tax laws and not make this so difficult each year. The online casinos should be reporting your winnings in a W2G at the end of the year since they can now track everything right in their systems.

[Opus 17]

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@jamesneedsanswers wrote:

The IRS needs to expand their gambling tax laws and not make this so difficult each year. The online casinos should be reporting your winnings in a W2G at the end of the year since they can now track everything right in their systems.

---

If the sportsbook is compliant with the law, they must issue a W-2G for wagers that pay more than $600.  But some may be offshore and don't follow the law even though they should.  And even if they did, that doesn't help if your wagers usually pay off less than that.

The law is you report your gambling winnings.  The increased 1099-K requirement was instituted by Congress so the IRS gets alerted to large transaction volumes that might represent taxable income.   The problem with creating a different method for dealing with 1099-K forms is that for different people they represent non-taxable gifts, taxable self-employment income, taxable gambling income, non-taxable sales of personal items below their original cost, and who knows how many other kinds of transactions.  I don't think there is a one-size solution. 

Alternatively, you report your income (whatever it is) in the usual way, leave the 1099-K off your return entirely, and attach a PDF copy of the 1099 along with a written explanation when you file.  Turbotax does not allow attachments so you would have to file by mail, but I believe other software programs allow PDF attachments. 

[jamesneedsanswers]

Do you know if I need to go to an accountant in order to attach the 1099-K with a PDF instead of having to use TurboTax to enter it and deduct it?

[TryingToHelp19]

It looks like Intuit/Turbo Tax did an update to their software.  I am using the Mac desktop version of Turbo Tax Home & Business.  I found the way, I think, to offset my 1099-K which was used to solely move money around my various sportsbooks.

Go to Personal -> Personal Income -> Other Common Income -> Income from Form 1099-K.

If it is all from moving money around gambling sites and none of it was actual income, select the last option at the bottom, "Other (can include any taxable income not reported elsewhere on your return) OR if the entire amount is incorrect" and select Continue.

Input all of the 1099-K information as it is on your 1099-K otherwise the IRS will flag your return, but then in Turbo Tax under where the information for box 4 is, check the box where it says, "This amount in box 1a is incorrect".  Then select, "Box 1a is overstated or contains personal use amounts."  From there you can enter the amount of box 1a that should not have been reported to you or is for personal use.  Make sure the amount you enter that is personal is less than the 1099-K box 1a amount.  In other words, remove the cents or make it less by $1.00.  Mine was exactly as in box 1a and Turbo Tax kept saying there was an error as the amount that is personal cannot be greater than what is in box 1a.  It is a coding issue, but easier to just manually correct it by $1.00.

Make sure you also enter all information into Turbo Tax that is in boxes 6 to 8 of the 1099-K as well.

NOTE:  I am not a CPA, financial planner, or advisor so please do your own research, but this is what I plan on doing.

[kverbeek]

This seems like an easy enough way to do it, but I'm worried about the IRS seeing me "zero-out" around $170,00 from my 1099-K, even though it was just from withdrawing and moving around money in my sportsbook accounts.  I definitely don't want to get audited and it seems like this would be a red flag to them, with such a large amount!  What do others think about this strategy??

[RobertB4444]

This is exactly what I would do if I were in your situation.  Unfortunately, in your case, it is a large amount.  And it really may cause the IRS to send you a letter asking for more information.  It's not exciting but you should prepare for it.

The upside is that this is a new program so the IRS is aware that it isn't perfect and that a wide net like this is going to catch a bunch of people using the online systems to move their personal money around.  The downside is that you have to be prepared to prove it.  So cover all of your bases NOW, while it is fresh, all the documents are readily available and you can remember exactly what you did.  

Get digital copies of every transaction that added up to that 170K.  Prepare it as though you were going to be explaining to an idiot how you moved that money around.  When you show it to someone it should really be obvious.  "This is where I deposited $2,000.  Then I took one thousand back out.  I did that 170 times.  Here they all are.  See?"

Save it to your hard drive and be ready to print all of it and mail it to the IRS if you get a letter.  But most importantly remember that YOU ARE DOING THE RIGHT THING.  This reporting requirement is weird.  And you don't have any taxable income that comes from moving money you already paid taxes on around.  

@kverbeek 

[TryingToHelp19]

I think there are going to be a lot of people that fall into this same category as us.  With online sportsbooks just getting started over the last few years, more people participating in them, and the new tax laws, this will be inevitable.

I have gambling winnings, and while I did not receive any W-2G forms because my winnings were not 300 times my wager, I will still be correctly reporting the winnings to both federal and state governments.  I think this will help to show I am doing the right thing, plus they will see I now have a lot of gambling winnings that I did not have before.  It will become almost self-explanatory.

Of course, if you have losses and therefore are not reporting anything regarding gambling on your taxes, that is a different story.

There needs to be a way for the sportsbooks to issue a document showing the methods one has sent and received money for the year so that can be included in one's taxes and stop any of this confusion and stress.

[kverbeek]

Do you think it will matter to them that the deposits and withdrawals are being made into Sportsbook/casino accounts?  Will this trigger them wanting to see what my winnings vs. losses are?  I have a net loss for the year overall, so none of my gambling/sportsbook money is taxable income.