Questions about Taxes and Withdrawals

hydrokube

Hello! I have a couple of additional questions.

Having placed all bets for DraftKings, I'm waiting for my bets to play out to withdraw the money. There are various stipulations in some of these withdrawal rules about playthrough requirements or in DraftKings it says "Withdrawals may be canceled due to limited gameplay.". Will I have any trouble withdrawing my winnings?
I'm a little confused on taxes. I've been spending the morning reading about the tax implications of gambling. It sounds like we have to pay for winnings that include the initial wager too. As an example, I just spent 200 in bonus cash on one bet, then 600 of my own money on another with total profit of 147 when the bet concludes. If the 600 wins (and it's most likely to win), then I'm on the hook for the 600 + winnings in terms of taxes. This eats up all of my profit between federal and Michigan taxes. Additionally, I'd have to itemize my taxes to offset gambling losses (currently the standard deduction always works better for us). How do people make this work and actually make money on it when we're essentially double-taxed on gambling in the US? Can someone clarify this? Am I missing something or is this just a bad deal?

On another note, do these gambling sites send an annual report of winnings and losses for tax purposes?

carlos

@hydrokube 1. As long as you bet the money deposited and the freebets given, you should have no issues with withdrawing your money.
2. You should follow your state tax guidelines, maybe you could find more info about this on specific sites for this.

hydrokube

Thanks, I'm less concerned with state taxes and more concerned with federal taxes. Everything I'm seeing online says that your initial wager is taxed as part of winnings. As an example, you spend $100 real money on back bet 2 and it wins let's say $10. You now owe taxes on $110. My tax bracket is 22%, so now I owe $24.20 in taxes. This would put me net negative instead of making a profit (I won $10 and owed the US government $24.20). Given that The Dutcher seems to put all free bets on the "underdog" and all real money on the likely winner, your tax burden could be quite high.

It seems to me that federal income taxes will consume a majority of any profit (if not all of it). I'm hoping that I'm missing something here, so let me know if that's the case. Otherwise, I can't continue based on my research.

Claudio NinjaBet

Hi @hydrokube ! You are taxed only on your net winnings if they are more than 600$. The bookmakers will send you a 1099. But you are only taxed on your net profit
You can read here for example https://turbotax.intuit.com/tax-tips/general/tax-considerations-for-fantasy-sports-fans/L75xYecdS

hydrokube

Gotcha, thanks! I was super confused because this article basically says that you can't subtract the wager cost from the winnings:
https://turbotax.intuit.com/tax-tips/jobs-and-career/how-to-pay-taxes-on-gambling-winnings-and-losses/L7JNH7mjn

It sounds like these sports betting sites may be handled differently than traditional gambling?

Claudio NinjaBet

Bookmakers will know how much you made net on their site. Don’t worry. Your taxes are due on the net profit.

jack

But instead of using the new $600 threshold right away, the IRS applied the previous reporting threshold for the 2022 and 2023 tax years. For the 2024 tax year, the IRS is using a $5,000 threshold, regardless of the number of transactions. The threshold will drop to $2,500, regardless of the number of transactions, for the 2025 tax year. Starting in 2026, the $600 threshold will apply.

i read this, so from the next year, before $2500, don't i have to pay taxes on my profit?

Claudio NinjaBet

@jack The thresholds you mentioned do not determine whether you owe taxes on your betting profits; they only set the reporting requirements for platforms like betting sites and payment processors to send information to the IRS. Here’s a clearer breakdown:

Tax Obligation:

In the U.S., all gambling winnings are taxable, regardless of the amount. You are required to report all your profits on your tax return, even if the platform doesn’t report them to the IRS.

Reporting Thresholds:

For 2024, platforms will issue tax forms (e.g., 1099-K) for gambling-related transactions if your total winnings exceed $5,000.
For 2025, the threshold drops to $2,500.
Starting in 2026, the threshold reduces further to $600.
So, even if your winnings are below these thresholds, you are still legally obligated to report them and pay taxes. The thresholds simply dictate when the platform will notify the IRS directly about your winnings.

jack

if I choose the standard tax return and I win 12k and lose 10K, will the amount on which to pay taxes be 2 or 12k? because if it was on 12K, I'm losing it

carlos

@jack

@Claudio-NinjaBet said in Questions about Taxes and Withdrawals:

Hi @hydrokube ! You are taxed only on your net winnings if they are more than 600$. The bookmakers will send you a 1099. But you are only taxed on your net profit
You can read here for example https://turbotax.intuit.com/tax-tips/general/tax-considerations-for-fantasy-sports-fans/L75xYecdS