Are Fantasy Sports Gambling or a Hobby?

Fantasy Sports is a $7 billion industry, with 59.3 million people in the
United States and Canada playing. The Tax Cuts and Jobs Act (TCJA)
offers some tax opportunities and difficulties that players should
understand. The Fantasy Sports Trade Association (FSTA) strongly argues
that fantasy sports are games of skill rather than luck, and the TCJA
does not have a clear definition of gambling. Which leaves uncertainty
of how fantasy income and expenses should be reported. If fantasy sports
are not considered as gambling, the hobby loss rules apply (as long as
the play does not meet the requirements to be a professional player).
Prior to 2018 hobby losses were deductible. Under the TCJA, income from
hobbies are included as income, but losses are no longer deductible.
Many have argued that fantasy sports are wagering transactions, and are
consistent with the Internal Revenue Code section 165(d), fantasy sports
losses should be deductible to the extent of the player’s winnings.
There are other sections in the IRC which indicate that any expenses
that are “ordinary and necessary” in carrying on any trade or business
are deductible. The IRS has not answered whether fantasy sports winnings
are gambling or hobby income, and fantasy players are going to want to
be more aware of where they stand.

For casual players, the only related deductions allowed are classified
as “other itemized deductions” of wagering losses and related
deductions. Casual players may want to combine other itemized deductions
such as real estate taxes, or charitable contributions in that year in
order to utilize fantasy-related losses. In the case for serious
players, treating games as a trade or business may be appropriate.
Income and expenses are recorded differently which can bypass the need
to itemize, and take advantage of tax-related deductions. To be
considered a professional player, a fantasy player must meet nine
factors, and each individual taxpayer’s circumstances are unique.
Regardless if the player is casual or professional, documentation is
important. The IRC is places the burden of documentation on the
taxpayer. For professionals its important to document and demonstrate
the intent to make a profit. Fantasy players need to be aware of the
changes with TCJA and how it can positively or negatively effect income
and deductions.

Tax Cuts & Jobs Act

Being married, taxpayer’s have changes that reduce the marriage
penalty, not yet completely eliminated. A $10,000 cap for itemized
deductions applies to both married and singles. Major tax changes for
divorce and separation decrees or arrangements that were entered into or
modified after 2018. Alimony is no longer deductible, and payments to
recipient are no longer taxable. All still applies if agreements were
made prior to 2018. With having children, the tax credit has doubled to
$2,000 for any child under the age of 17. There is now a $500
nonrefundable child tax credit for a qualifying dependent who not a
qualifying child ( child is living and supported by parents, but too old
to be qualifying child). 529 Plans can be used up to $10,000 tax free
withdraw, limitation applies on a per-student basis, for primary and
secondary school (public, private, religious).
If you are changing jobs after 2017 deductions for expenses of resumes,
travel, and other work-related cost is no longer available as an
itemized deduction. Employers can no longer reimburse employees moving
for work on a tax-free basis (other than active military, who relocate
under military orders). TCJA did not change rules for 401(k)s, 403(b)s,
and IRAs, but converting a retirement savings plan to a Roth IRA in
2018, the account value declines from the date of conversion. Tax payers
who support their elderly parents, can still deduct medical cost they
pay out of pocket for their parents. In 2019 the threshold for itemizing
medical cost is set to 10% of AGI.
This new law give taxpayer’s a chance to sit down and evaluate their
personal situations and change their planning strategies for future tax
years to come.

Is Your Small Business REALLY Just a Hobby?

The IRS is looking at YOU if you operate a small business that can be
considered a hobby. Typically, those who operate a for-profit business
are allowed to directly deduct from the business income, expenses that
are necessary as well as ordinarily incurred in the operation of that
business. If the business shows an operating loss, then these losses can
be used to offset other income, including wages, interest and dividends.
However, if the IRS rules that the loss is a result of a hobby business,
then the expenses can not be used as a direct reduction to income but,
instead, must be used as an itemized deduction, subject to the 2%
miscellaneous expense rules.

How do you determine if the business activity is a hobby or a viable
business venture is a challenge. Basically, you must be working toward
profitability. If you show an operating profit for three or more years,
you just might be operating a small business. If, however, your
“basement” or “garage” business is just extra cash for side work, you
must report this activity as a hobby and follow all the rules associated
with hobby income and deductions.

Which are you? Answer some of these simple questions:
1. Do you keep thorough and business like books?
2. Are you maintaining a separate business checking and credit card
3. Are you carrying the correct business insurance as well as licenses?
4. Do you have a written and updated business plan?
5. Did you create an LLC and have an operating agreement?
6. Do you have professional advisers such as an Attorney and an Accountant?
7. Are you maintaining a “log” of your activity?
In other words, are you REALLY running a small business or do you just
have a “Hobby”?

Taxable Employee Fringe Benefits

Attention Business owners! Now is the perfect time to look at the fringe
benefits you provide to your employees. This specific area is a main
focus of the IRS right now.

In general, anything you give to your employees is taxable unless the
IRS specifically exempts it. Since that may not be as clear as you want,
let’s give some examples. Certainly this is not an all inclusive list,
however it will provide a good starting point. Cash and cash equivalents
are always taxable. An example would be a $50 gift card you give to the
employee of the month. This is taxable at the time that they are given
to the employee and in the pay period they are received.

Some items are exempt from taxation. Cell phones, if used primarily for
business, can be excluded from income. Additionally most health care
plans are exempt and, if the health care plan is Section 125 Cafeteria
Plan applicable, that benefit is exempt from FICA tax.

Company cars become a little bit trickier and have a few calculation
methods; standard mileage or the lease valuation rule. Moving expenses
paid under an accountable plan, are also exempt. An item that is not
exempt, however, is house hunting. This includes travel to the new
location prior to moving. This fringe benefit is taxable.

Remember, the IRS is watching so now is an excellent time to review your
procedures and controls to ensure proper timing and taxation of fringe

Business and Personal Credit Score

“What’s your credit score?” For most consumers, the answer is simple –
almost everyone can find their personal credit score online. However,
small business owners need to build and monitor their credit as an
individual and for their business.

For small business owners, personal credit scores are vital. Until
you’ve built up a history with tax returns and balance sheets, lenders
and creditors will look at your personal score – it’s every bit as
important as your business credit score.

Small business owners also have a business credit score based on “trade
credits”. Trade, or business credit, is the single largest source of
lending in the world.

Trade credit is extended by suppliers who let companies buy now and pay
later. Any time delivery is taken of materials, equipment or other
valuables without paying cash on the spot, you’re using trade credit.

Your business credit report is generated using your business name,
address and employer identification number (EIN), which you get from the

Why keep them separate?

By creating a credit profile for your business, separate from your
personal profile, you may be able to access more credit than you could
as a consumer. On average, a business owner uses at least 10 times as
much credit as a consumer – important as you establish and expand your

Besides the additional funds you can borrow, there are other reasons for
separating your credit profiles:

1. With a business lender, you’re contractually required to pay the loan
back. The clear rules and deadlines force you to use the money wisely.
2. If you don’t separate the two and your business goes under, you might
lose your personal savings.
3. If your business is sued, personal assets could be at risk.
4. Separate business credit makes it easier to identify business expense
deductions for tax purposes.
5. Separate business credit protects your personal credit scores.

Ways to keep business and personal credit scores separate:

1. Establish your business as a separate legal entity. This could be as
an LLC or S-Corp.
2. Set up a business checking account. This is an easy way to stay
organized and monitor cash flow.
3. Build a business credit history. Start by opening a business credit
card and always paying on time. Make sure that the card provider reports
to business credit bureaus and not to personal ones.
4. Open credit lines with your vendors and suppliers to build trade credit.