The world of esports tournaments proves exciting opportunities for those who excel at virtual athletics. Hopefully, these esports athletes also use the spreadsheet Excel to keep track of their winnings. Tournament champions may walk away with a generous amount of prize money. Winners should not automatically assume they get to keep all of it. Tax law comes into play. With the law, comes bookkeeping and accounting responsibilities. So, are eSports winnings taxable? The short answer is, "Yes." Let's look at the hows and whys of the answer, as well as why winners may need a CPA.
Paying Taxes on eSports Earnings
In general, prize money is taxable. An esports athlete should not assume he/she doesn't pay tax. Income, even if small, is both earned and taxable. Those who make a good living as an esports player should realize that taxes may be owed somewhere. A U.S. citizen who earns income through esports' revenue streams has to file a federal tax return. Most eSports players likely realize this obligation exists. They might not understand the issues surrounding their state tax requirements, which is why hiring a CPA may be necessary.
State Tax Requirements and Considerations
A resident of a particular state who earns income in that state must pay state taxes. A person who earns money in another state becomes obligated to that state for any taxes due. Someone who travels into another jurisdiction and earns money there must file based on the state's requirements. Filing a non-resident tax return to cover the earnings might be a requirement. An esports player may travel all over the United States, if not the world, and must adhere to the necessary laws and have smart tax planning steps in place.
Tax Adherence and Complexities
Specific circumstances may complicate things. For example, someone living in the state of Georgia who earns esports income in New Jersey has a deal with not only paying income tax but also filing the correct return. He/she may need to file several non-resident returns along with one for Georgia. What if someone earns tournament income for competing in a foreign country? Likely, the competitor has to pay federal taxes, but also on the state level in his or her home state.
1099s and Tax Issues
For esports athletes, accounting and bookkeeping should be accurate because 1099s may need to be filed with the federal government, and those copies may go to the various states. The home state might not know where that income was physically earned. Therefore, just as the non-resident returns may require noting indicate when someone worked in that state, the resident income tax return may need to indicate income came from another jurisdiction.
Expenses and Records
Maintaining accurate records becomes necessary to file completely accurate state returns with the corresponding offices. Of course, accuracy extends to the federal tax return, as well. So, keeping track of all records of income and expenses should become vital. Expense tallies could prove valuable when tax planning. An eSports player probably has many deductions he/she can take, as long as they are allowed by law. Someone who pays his or her flight and hotel to compete in the tournament might be able to deduct travel expenses and more. If the promoter covers the person's flight and other accommodations, the payments could create additional tax issues.
How To Work Smarter and Keep More Money?
As you may see, tax planning and accounting may play an integral role in maintaining financial clarity and success. So, if you are a sports player and you're noticing that your accounting team is dropping the ball or you spend too much time managing your routine booking - we are here to help. Our team of financial advisors and CPAs here at Fusion CPA are well-versed in the best accounting and tax planning strategies for esports athletes. Our goal is to help you take advantage of leading accounting and tax planning solutions so you can focus on your craft. You can learn more about our services by clicking the button below to schedule a complimentary discovery call today!
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