Do you enjoy betting on sports? While most people who do so are in it only for fun and occasional profit, others take it more seriously and can make serious money doing so. When this happens, each bettor must decide if they want to continue to report it to the IRS as a hobby or to take it a step further and call it a business. Here's what you need to know about both choices.
The Advantages of Betting as a Hobby
The two biggest advantages of calling your gambling a hobby are the imposition of taxes and ease of paperwork. The income earned from a hobby is not subject to self-employment taxes, which is 15.3% as of 2020. This additional tax is imposed on independent contractors to replace Social Security and Medicare taxes normally withheld from wages.
The second benefit is that you have less documentation when reporting hobby income and expenses. Because most gamblers only report winnings and betting losses, they only need to keep records of these two things. And winnings are reported as Other Income rather than requiring additional tax forms or schedules. Business ventures take more effort when it comes to the books and tax time.
The Advantages of Betting as a Business
Business income, on the other hand, allows you to deduct more expenses than just your losses. While current tax law doesn't allow you to deduct so many business expenses that it results in a loss, these can be used to zero out that income.
Some gamblers may do their betting online or in a local venue, but others take it on the road, so to speak. They may visit other gambling venues or attend specific games or races. Only if you operate a business to earn a profit can you deduct these expenses (using Schedule C). And these expenses can help reduce or eliminate that self-employment tax.
If you want to ramp up your gambling so it provides more and more of your overall income, you'll need to start running it like a business. So why not do that now? Viewing it as a business helps you craft a profitable strategy, do proper bookkeeping, and put your efforts where they can do the most good.
Where to Learn More
Do you think that moving from hobby gambling to a business could benefit you? If so, start by meeting with sports betting tax consultation services to learn more about sports betting and taxation. Together, you can find the right fit for your circumstances, allowing you to pursue your interests with the most opportunity for profit possible. Make an appointment today to begin.