Do you play fantasy sports? Many sports fans pore over the statistics of their favorite players every new season, with baseball and football being the top two sports of choice. Over the past decade fantasy sports have become a huge source of entertainment for sports fans and stat geeks, alike. They offer fans an extra incentive to follow their favorite teams or players, or just try to win money from their friends. While many people enter small pools of players with insignificant winnings, there are fantasy sports services that offer big payouts for those who manage their fantasy teams right. Some people might win a couple hundred dollars while some leagues offer prizes in the thousands or even hundreds of thousands. So at the same time that fantasy sports have grown in popularity exponentially over the past 10 years, they have also become an additional source of income for some of the biggest winners.
Players and Dollars Are Growing
The world of fantasy sports has changed over the last five or so years. What was once a game played between middle-aged men has become a game of young, tech-savvy professionals that take the game serious. Likewise, the amount of people now playing fantasy sports games has grown from about 20 million in 2007 to about 41 million last year. The money changing hands is nothing to scoff at either. The industry is now worth about $4 billion and it continues to grow, with several professional sports teams as well as entire leagues getting involved. Fantasy sports is big business.
Billion Dollar Industry
As you probably guessed, the taxman wants a piece of the fantasy sports pie as well. And in fact, the IRS doesn’t care if your total winnings only amount to $100. They want their cut, regardless. Any kind of income is subject to taxes, unless you can show it should be considered exempt. That means fantasy sports players beware; you do need to pay taxes on your earnings, large or small. However, while the taxman does want everyone to pay his or her fair share, the IRS is not as worried about small leagues amongst friends as they are about the daily, weekly and yearly fantasy leagues played online. These leagues are high-stakes and some offer prizes that reach seven figures. In fact, one of the larger companies plans to pay out more than $1 billion during this year alone.
What You Don’t Know Can Hurt You
While fantasy sports continues to grow, along with the amount of money that is constantly changing hands, there are still al lot of players that don’t have a clue that they need to report their winnings as income. Still, other players figure that a total prize of less than $1000 is nothing to the IRS and therefore they simply choose not pay. However, tax experts warn against this noting that the IRS could come after you and the consequences would be much worse than the tax bill.
The Choice Is Yours
According to tax experts the best way to report income from fantasy sports is to report it on a Form 1099-MISC, which covers income from all kinds of sources. Plus, if you win more than $600 from one source then the IRS will receive a notice from that source regarding your earnings. That means if you don’t report it, the IRS will know. Ultimately, those who take home winnings from fantasy sports games are responsible to report that money. They might not get the IRS’s attention if they don’t, but if the IRS does discover they aren’t reporting their income, they could end up a fantasy loser.