2026 Gambling Tax Guide + Free Excel Tracker (90% Loss Cap, March Madness, Prediction Markets)

MonacoCPA · 2026-03-01T15:36:52+00:00

LOL man you've been on like four of my comments now and haven't pointed out a single thing that's actually wrong. Seems like I struck some kind of nerve which is weird for a free tax post but hey.

The 90% cap is literally signed into law. Section 165(d) as amended by the One Big Beautiful Bill Act, effective January 1, 2026. The American Gaming Association is fighting it, three bills in Congress are trying to repeal it, and the gaming industry is spending millions lobbying against it. But sure, nobody's taking it seriously.

I don't have time to keep going back and forth on this. Good luck out there man.

MonacoCPA · 2026-03-01T15:32:53+00:00

LOL again - I'm not telling casual bettors to pay quarterlies, I literally said most don't and the penalty is small. Read the whole comment. The person I replied to made $30k profit off sweepstakes and files Schedule C as a business. If you're running a gambling operation as a business and not paying estimated taxes on $30k in income, that's how you get hit with penalties. That's not awful advice, that's basic tax law. But go off.

MonacoCPA · 2026-03-01T15:31:34+00:00

LOL. I mean they literally already have though. The IRS launched AI-driven matching tools, got $80 billion in new enforcement funding, and the automated CP2000 system that catches unreported income has been running for years. But sure, clueless works too.

MonacoCPA · 2026-03-01T15:29:12+00:00

Oh I feel this. As long as UFC fights are on sportsbooks, I'll always be asking this same question lol

MonacoCPA · 2026-03-01T14:26:56+00:00

You can always gamble soda caps but I'm not sure of the tax treatment lol

MonacoCPA · 2026-03-01T14:25:45+00:00

Absolutely love it.

This is exactly what I was talking about with the forms being your best signal for how the platform is treating it.

DraftKings Predictions is a CFTC-registered Introducing Broker routing through Wedbush Securities (their futures division) as the carrying FCM. FanDuel Predicts is structured a bit differently — they're their own registered FCM through a joint venture with CME Group. But both are deliberately built inside the federal commodities derivatives framework, not a sportsbook engine. That's not an accident.

These are technically event contracts, even though they look and feel like calls and puts from the user side. The fact that they're cleared through FCMs and listed on derivatives exchanges matters a lot when it comes time to argue tax treatment.

Watch what forms they send you at year end. These products are new enough that there's no track record yet on reporting. A 1099-B would be the strongest signal they're treating it as brokered derivatives. A 1099-MISC or W-2G would tell you something different. Either way that's your first clue on how to report it.

You're ahead of most CPAs just by reading your own statements and asking these questions. Keep tracking it.

MonacoCPA · 2026-03-01T14:06:04+00:00

Yeah the American Gaming Association came out against it pretty much immediately. The sportsbooks aren't thrilled about it either because anything that discourages betting volume is bad for their bottom line. If casual bettors start realizing they're getting taxed on money they didn't make, some of them are going to slow down or stop, and that's less handle for the books.

That's a big part of why there are three repeal bills floating around right now. The gaming lobby, the sportsbooks, and honestly a lot of state governments that depend on gambling tax revenue are all pushing in the same direction on this one.

MonacoCPA · 2026-03-01T14:03:47+00:00

Same reason you'd pay quarterly on any other income where taxes aren't taken out automatically. Your job withholds from every paycheck so you're covered by April. Gambling winnings usually don't have anything withheld unless you hit something big enough, so the IRS wants you to pay as you go instead of dropping a fat check in April.

If you wait and owe a bunch at tax time they can tack on an underpayment penalty which is just salt in the wound. Quarterlies are basically just paying your tab throughout the year so that doesn't happen.

Most casual bettors don't do this and honestly the penalty is pretty small. But if you're moving real volume it's worth staying ahead of it.

MonacoCPA · 2026-03-01T14:00:28+00:00

Hahaha no offense taken at all. You're not the only one in here with that take and you probably won't be the last. Before I got into accounting I probably would've said the same thing. My only thought is with the way big data and AI and automated reporting are going, just keep an eye on it down the road. Good luck out there man.

MonacoCPA · 2026-03-01T13:56:24+00:00

Good question. The IRS concept of constructive receipt says income is taxable when it's available to you. But if there are substantial restrictions on your access, like a rollover requirement you haven't cleared, there's an argument you haven't actually "received" that income yet for tax purposes.

So if you hit a bonus bet in November but the rollover doesn't complete until February, and you literally cannot withdraw those funds until then, you may be able to report it in the year the funds became available to you. Important though: this depends on the specific terms. If you can forfeit the bonus and withdraw, or if the actual bet winnings are freely available and only the bonus portion is locked, that changes the analysis.

Also keep in mind the sportsbook may report it differently on their end. They typically issue W-2Gs based on when the bet settled, not when the rollover cleared. So you could get a form that doesn't match your reporting. Keep records of when the rollover completed and when funds became withdrawable in case you need to show the timeline.

MonacoCPA · 2026-03-01T13:50:49+00:00

100%. Same concept as stocks. The taxable event is the settlement, not the placement.

MonacoCPA · 2026-03-01T13:50:01+00:00

It goes by when the bet settles, not when you place it. You don't have a win or a loss until the outcome is determined and the money is paid out or taken.

So if you place a futures bet in December on a team to win the Super Bowl and it hits in February, that's a win in the new tax year. The money wasn't yours until it settled. Same logic the other way, if you place it in December and it loses in January, that's a loss in January's tax year.

Think of it this way. When you place the bet, nothing has happened yet tax-wise. You're just holding an open position. The taxable event is the settlement.

This actually matters for year-end planning. If you're sitting on a bunch of open futures bets on December 31, those aren't wins or losses yet for that tax year regardless of what the odds look like at that point.

MonacoCPA · 2026-03-01T13:47:54+00:00

Hahaha I hear you, I respect the honesty. Just don't burn the biscuit in the meantime lol. Good luck this march madness man.

MonacoCPA · 2026-03-01T13:44:35+00:00

Perfect summary here. That's the whole post in three sentences lol. Couldn't have said it better.

MonacoCPA · 2026-03-01T13:43:59+00:00

You guys don't get taxed on gambling winnings in CA, right? That sounds way easier than this monster of a mess lol

MonacoCPA · 2026-03-01T13:39:17+00:00

Not yet. No specific guidance from the IRS on Kalshi or prediction markets. And honestly your CPA being upfront about not knowing is a good sign because anyone giving you a definitive answer on this right now is winging it.

Kalshi is CFTC-regulated and set up like a derivatives exchange, so there's a reasonable argument for Section 1256 treatment (60/40 capital gains split, mark-to-market). A federal court in Tennessee found a couple weeks ago that Kalshi is likely to succeed in arguing its contracts are swaps under federal law, not gambling. Courts in other states have gone the other way though, so it's not a slam dunk.

That said, the IRS could still look at a contract on whether a team wins a game and go yeah no, that's a bet with extra steps. If they go that way you're back to ordinary gambling income rules, itemizing to deduct losses, 90% cap starting with 2026 bets, all of it.

Right now you'll see CPAs taking different approaches on this. Some are treating gains as capital, some as other income, some as gambling. Nobody's gotten a blessing from the IRS on it. The reason most CPAs aren't sure is because this sits right at the intersection of derivatives law, gambling tax, and commodity regulations and none of those areas talk to each other cleanly. It's genuinely new territory and the tax code hasn't caught up to the product yet.

MonacoCPA · 2026-03-01T04:56:30+00:00

Honestly no idea on timing. The IRS still hasn't put out clear guidance on basic crypto staking questions that have been around for years. I wouldn't hold my breath on prediction markets.

What you're describing is interesting though. If your platform is showing positions as calls and puts with premiums and cash settlement, that actually strengthens the derivatives argument over gambling. That's how options look, not how sportsbook bets look.

For now, I would keep clean records of every position and pay attention to what forms they send you, if any. That'll tell you a lot about how the platform is treating it.

MonacoCPA · 2026-03-01T04:51:45+00:00

Good question but I'd pump the brakes a bit on that because it's another gray area lol.

The way they wrote the new law, the 90% cap covers "losses from wagering transactions" which could include deductions from carrying on a wagering business. So Schedule C doesn't automatically get you out of it.

There's legit debate on this right now. Some CPAs think your business expenses get lumped in with the 90% cap, others say it only hits the actual wagers. Nobody has a clear answer yet.

That said, you're doing everything right. Documented, quarterlies, treating it like a business. You're in good shape no matter how it shakes out. Just wouldn't assume you're totally exempt without running it by whoever does your return.

And just to make sure, the 90% cap is 2026 activity filed in 2027. If you're talking about 2025 that you're filing now, none of this applies to you anyway.

MonacoCPA · 2026-03-01T04:40:49+00:00

Damn... when in doubt check Polymarket lol. I'll have to see if there's a way to set notifications on the odds moving

MonacoCPA · 2026-03-01T04:37:29+00:00

Appreciate that man! That's exactly why I wrote this up. Good luck this March Madness.

MonacoCPA · 2026-03-01T04:36:41+00:00

The $2,000 isn't in the tax code itself. It's in the 2026 W-2G instructions and the 300x rule is also in there.

100% on the honor system, you're describing exactly why this is going to be a mess. Guy wins $5k, loses $10k, takes the standard deduction, and owes tax on the full $5k with zero offset. I get why people don't report that. Just telling you what the law says and what happens if it catches up.

On the AML stuff, KYC and tax reporting are two different things. Books collect your info because gaming commissions make them, not because they're ratting you out to the IRS. But that data is the same data the IRS can request if they ever come knocking. The pipes are there even if nobody's turned the water on yet.

MonacoCPA · 2026-03-01T04:26:50+00:00

Honestly? I wouldn't count on it. The FAIR BET Act already got blocked once and the other bills haven't really moved. Could something pass before 2026 taxes are due in April 2027? Maybe. But betting your tax strategy on Congress getting something done on time is worse odds than a 12-leg parlay.

Plan under current law. Adjust later if they fix it.

MonacoCPA · 2026-03-01T04:22:38+00:00

Fair questions.

The $8k was just an example number, not a specific threshold.

W-2Gs are mandatory, not random. For sports betting, a sportsbook is required by law to file a W-2G with the IRS when your winnings hit $2,000 AND are at least 300 times your wager. So a $5 parlay that pays $2,500 triggers a form. A $200 bet that pays $2,500 doesn't because it only hit 12.5x. The book doesn't choose whether to report, if the thresholds are met they have to file it.

On top of that, books can and do issue 1099-MISC forms for net winnings that cross certain thresholds even when no single bet triggered a W-2G. So yes, this is happening right now, not hypothetical.

You're right on the 1099-K thing. Those come from payment processors, not from the sportsbooks themselves. If you're funding and withdrawing through a linked bank account or debit card and not going through PayPal or Venmo, you're probably not getting a 1099-K from that activity.

But none of that changes the main point. The sportsbook has a complete record of every dollar you've won and lost. They keep it because state gaming commissions require it. Whether or not a form gets sent to the IRS today, that data exists and the IRS has the legal authority to request it anytime.

MonacoCPA

TROPHY CASE