Paypal 1099-K for online gambling

Forum|Forum|6 years ago
February 25, 2020
13 replies
35 views

My client received a 1099-K from Paypal for online gambling. He said the amount shown is incorrect because it includes his deposits and are not all winnings. How/where does this go on the Federal tax return and how do you break out his deposits vs. winnings? Thank you in advance.

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Best answer by ERIC J 11

It depends. If he would be determined to be a professional gambler, it would go on a Schedule C, Other Expenses, as gambling losses (or technically I would describe as "buy-ins") that offset the gross 1099-reported income. If not a professional, two options - if he itemizes, I'd report as gambling losses/buy ins on Schedule A. This is cleanest and would match the gross 1099 IRS reporting. if he doesn't itemize, this leaves you with reporting contrary to the gross 1099 that may result in CP2000 correspondence from IRS. I would add an explanatory footnote/sub schedule to the Other Income line of 1040 showing the gross 1099 less his own buy in contributions. If he is absolutely certain of this 1099 accounting, then I would go for it - and advise him it may get scrutinized and to keep good documentation of it, then you fight it in a CP2000 correspondence audit if necessary. Good luck, Eric J

ERIC J 11Answer

Level 4

It depends. If he would be determined to be a professional gambler, it would go on a Schedule C, Other Expenses, as gambling losses (or technically I would describe as "buy-ins") that offset the gross 1099-reported income. If not a professional, two options - if he itemizes, I'd report as gambling losses/buy ins on Schedule A. This is cleanest and would match the gross 1099 IRS reporting. if he doesn't itemize, this leaves you with reporting contrary to the gross 1099 that may result in CP2000 correspondence from IRS. I would add an explanatory footnote/sub schedule to the Other Income line of 1040 showing the gross 1099 less his own buy in contributions. If he is absolutely certain of this 1099 accounting, then I would go for it - and advise him it may get scrutinized and to keep good documentation of it, then you fight it in a CP2000 correspondence audit if necessary. Good luck, Eric J

qbteachmt

Level 15

1099-K is for financial Activity, not Income. 1099-M would be Gambling income. Both of these forms are informational and only are required to be issued when the activity meets a reporting threshold. There is no reconciliation of 1099-K amounts to income.

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dianejhartAuthor

Level 5

So just to clarify- your saying this does not go on the tax return? I have had instances where the 1099-K was left off and the client received a letter from IRS. Thank you!

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