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With the return of football comes the return of fantasy leagues. According to YouGov's study as of February 2021, 15% of US adults over 21 say that they have played fantasy sports at least once in the 12 months. That number is growing as fans find themselves watching from home and looking for an outlet.
Fantasy sports are not just the game. Winning can earn you big bucks and, if you are playing to win, there are a few things regarding taxes to keep in mind.
Fox tax purposes, any income you receive in the form of cash or prizes is generally treated as hobby or recreational income. Your main goal is (probably) not to earn a living wage playing fantasy sports. It is also not considered gambling in the eyes of the IRS. However, a few states have different rules around contests through pay-to-play fantasy games, like DraftKings and FanDuel. Because of these differences, it is best to check the rules of your state before participating.
Now, if you can argue that playing in your fantasy league represents a true business, you could claim this income on Schedule C and deduct business expenses. You would have to prove that (1) you play fantasy sports regularly and (2) that there is an intention of earning a profit from playing. The IRS naturally looks at fantasy sports as a hobby, so you would definitely have a hefty burden of proof here if you decide to claim it is a business.
If you earn over $600 in winnings, you would receive a 1099-MISC stating how much was earned. This would need to be claimed on your taxes as income. Unfortunately, as a result of the Tax Cuts and Jobs Act, you can no longer deduct hobby expenses against that income.
In short, if you are playing to win, make sure you are also planning to pay.