Sports Bettors
DraftKings, FanDuel, BetMGM, Caesars, and other NJ-licensed sportsbook users. Whether you bet recreationally or actively, all winnings are taxable and losses may be deductible - but the 2026 rules changed how much you can deduct.
"Greg was very easy to work with. I had a complicated scenario that he was able to manage, with complete confidence. I would highly recommend using him."
"I've had a great experience working with Greg Monaco. He is incredibly detail-oriented and thorough, making sure everything is handled correctly and fully compliant. What really stood out to me is how…"
"Monaco CPA is excellent to work with! Greg is detail-oriented, knowledgeable, and prompt. He's been instrumental in helping me get my business off the ground with a strong financial foundation that includes…"
"If you need a CPA or accountant in Livingston or Essex County, I highly recommend Greg at Monaco CPA. My wife and I switched because my old accountant often didn't return my calls. Greg is different. He…"
"I've been working with Greg Monaco, CPA for a few years now, and he's honestly saved me real money with both personal tax help and crypto tax stuff. He answers quickly, breaks things down in a way that's…"
"I've been working with Gregory Monaco CPA LLC for my taxes, and I couldn't be happier with the experience. Extremely professional, thorough, and organized from start to finish. He takes the time to explain…"
These reviews reflect individual experiences and do not guarantee similar outcomes. Results vary based on each person's specific facts and circumstances. No reviewer was compensated for providing a review. Tax savings and outcomes depend on individual tax situations and are not typical of all engagements. Historical reviews may describe prior communication channels; current prospective-client intake and any response, when provided, use the written contact form only and create no call or consultation promise.
NJ-licensed CPA for gamblers and sports bettors. W-2G reporting, federal and NJ filings, loss deduction optimization, and 2026 phantom income planning. Greg remains responsible for every engagement and reviews, approves, and signs all client-facing work. Greg is the sole practitioner.
The One Big Beautiful Bill Act (OBBBA) changed gambling tax rules effective January 1, 2026. The federal loss deduction is now capped at 90% under Section 165(d), and the W-2G reporting threshold increased to $2,000 across categories (from $1,200 for slots/bingo, $1,500 for keno, and $600 for sports, which keeps the 300:1 test). These rules apply to all gambling activity happening right now.
Read the full breakdown →Filing 2025 returns now? The old 100% loss deduction still applies. You can deduct gambling losses up to the full amount of your winnings on your federal return.
Gambling in 2026? The 90% loss cap is already in effect. You can only deduct 90% of your gambling losses on your federal return, and never more than your winnings.
NJ advantage: New Jersey still allows 100% netting on the NJ-1040. NJ did not adopt the federal 90% cap, making NJ-specific optimization critical for reducing your overall tax bill.
Whether you bet on sports, play casino games, enter poker tournaments, or hit the lottery, gambling income has tax consequences. Here's how the tax rules apply to each type of gambler.
DraftKings, FanDuel, BetMGM, Caesars, and other NJ-licensed sportsbook users. Whether you bet recreationally or actively, all winnings are taxable and losses may be deductible - but the 2026 rules changed how much you can deduct.
Slot players, table game players, and anyone receiving W-2G forms from Atlantic City or online casinos. Win/loss statement reconciliation with W-2G reporting is essential for optimizing federal and NJ filings.
Tournament and cash game players face unique reporting requirements. Tournament winnings over the W-2G threshold generate forms, but cash game sessions require self-reporting. Proper documentation of both is critical for compliance.
NJ Lottery and multi-state lottery winners face immediate withholding and complex tax obligations. Key considerations include federal and NJ filing coordination, estimated payments on installment prizes, and lump-sum vs. annuity tax analysis.
If gambling is your full-time trade or business, you may qualify for Schedule C reporting under Commissioner v. Groetzinger. Professional status allows business expense deductions but triggers self-employment tax. Schedule C is the route for an individual or single-member LLC; a gambling partnership or S corporation instead passes results to owners via Schedule K-1 and Schedule E, and forming an entity does not by itself create professional status. Proper evaluation of professional vs. recreational status determines the correct filing approach.
Kalshi, Polymarket, Robinhood, DraftKings Predictions, FanDuel Predicts, and other event contract platforms. As of July 2026, the IRS has issued no guidance on how to classify prediction market income, and three possible tax treatments exist with wildly different consequences. Choosing a defensible position, preparing disclosure documentation, and optimizing the federal/NJ interplay are all essential for compliance.
Use the contact form to tell me about your gambling activity, which platforms you use, and what you need for your return.
You provide your W-2G forms, year-end statements from sportsbooks and casinos, and your gambling log. I'll tell you exactly what I need. No guessing.
Federal and NJ return preparation with applicable loss reporting, W-2G reconciliation, and both the federal 90% cap and NJ netting calculations. For prediction market activity, this includes the classification analysis and Form 8275 disclosure.
You review the completed returns, ask questions, and approve for filing. I e-file both federal and NJ.
Any post-filing or estimated-tax review requires a separately stated written scope and current client-supplied records. No monitoring, automatic check-in, reminder, or projection outcome is included.
Federal and NJ gambling tax rules differ in important ways. Understanding both is key to minimizing your total tax bill.
| Rule | Federal | New Jersey |
|---|---|---|
| How losses work | Casual gamblers itemize on Schedule A (professionals report on Schedule C). Capped at 90% of losses for 2026+ under Section 165(d). | Net losses against winnings on NJ-1040. 100% netting allowed. Net income cannot go below zero. |
| Must you itemize? | Yes - for casual (nonprofessional) gamblers. You must itemize on Schedule A to deduct losses; with the standard deduction, no federal loss deduction is available. Professional gamblers (a full-time trade or business under Groetzinger) report on Schedule C instead. | No. NJ netting is automatic on the NJ-1040 gambling income line. Itemizing is not required. |
| Tax rates | Ordinary income rates: 10% to 37% depending on total taxable income. | Ordinary income rates: 1.4% to 10.75% depending on total NJ gross income. |
| Withholding | 24% regular federal withholding on winnings over $5,000 from sweepstakes, wagering pools, and lotteries; sports and parimutuel wagers also require a payout of at least 300:1. For slots, keno, and bingo, only 24% backup withholding applies (when no valid TIN is provided). Noncash prizes are measured at fair market value; if the payer covers the withholding on your behalf, the grossed-up amount is added to your reported winnings. | 3% NJ withholding on reportable casino and sportsbook winnings. Credited on your NJ return. |
| Lottery rules | Lottery winnings are taxable at ordinary rates. Federal withholding is 24% once the PRIZE exceeds $5,000 - and for installment prizes the test applies to the total prize, so every installment check gets 24% withheld even when an individual check is under $5,000. Annuity winners receive a W-2G every year, and lump-sum-vs-annuity choices have their own timing rules (including a 60-day election window on some prize options) - model both before you pick. | NJ Lottery prizes of $10,000 or less per prize are exempt from NJ state tax. Prizes over $10,000 are taxable. Multi-state lottery prizes (Powerball, Mega Millions) purchased in NJ follow the same rule. |
| W-2G threshold | $2,000 threshold for slots, bingo, and keno (raised from $1,200/$1,500 by OBBBA §70433 for 2026) AND for sports betting/parimutuel wagers (raised from $600 by the same provision; sports also requires 300:1 odds). Poker tournaments: $2,000 net of buy-in for 2026 payments per the January 2026 W-2G instructions ($5,000 net, Rev. Proc. 2007-57, applied through 2025). | NJ follows federal W-2G thresholds. The $2,000 floor applies in NJ for 2026+ across slots/bingo/keno and sports betting (sports also needs 300:1 odds). |
Why this matters:Because federal and NJ rules differ significantly, a CPA who understands both systems can optimize your combined tax outcome. NJ's full netting often produces a lower state tax bill than you'd expect from looking at the federal numbers alone.
The One Big Beautiful Bill Act (OBBBA), signed into law in 2025, made two significant changes to federal gambling tax rules effective January 1, 2026. Both changes impact how gamblers file and how much they owe.
Previously, recreational gamblers could deduct gambling losses up to the full amount of their winnings. Starting in 2026, the deduction is capped at 90% of total gambling losses. This creates "phantom income" for break-even gamblers: if you win $50,000 and lose $50,000, you can only deduct $45,000, leaving $5,000 in taxable income with zero actual profit. The cap applies to all gamblers who deduct losses, whether recreational (Schedule A) or professional (Schedule C).
High earners face a second haircut. For TY2026+ the revived Section 68 limitation (the "2/37 rule") further reduces the benefit of itemized deductions - including gambling losses that already survived the 90% cap - once taxable income exceeds roughly $640,600 (single) / $768,700 (married filing jointly). A break-even bettor in the top bracket loses twice: about 10% of losses to the Section 165(d) cap, then roughly 2/37 of the remaining deduction benefit to Section 68.
The threshold for issuing W-2G forms on slot machine and bingo winnings increased from $1,200 to $2,000. This means fewer W-2G forms will be issued, but the income is still fully taxable. If you win $1,500 on a slot machine in 2026, you won't receive a W-2G, but you're still required to report it.
New Jersey has not adopted the federal 90% cap. On your NJ-1040, you can still net 100% of gambling losses against gambling winnings. This means NJ-specific optimization is more valuable than ever. The difference between your federal and NJ gambling income can be substantial, and proper filing ensures you don't pay more NJ tax than required.
Gambling tax preparation, planning, and compliance services from a NJ-licensed CPA.
Full federal and NJ tax return preparation for gamblers and sports bettors. Covers W-2G income, Schedule A loss deductions, and the 2026 90% cap calculations to ensure accurate, IRS-compliant filing.
Help organizing your gambling session logs, win/loss statements, and supporting records into IRS-compliant documentation. Proper records are essential to claim any loss deductions on your federal return.
Reconciliation of client-supplied W-2G and 1099-MISC statements against available wagering records, using the procedures defined in the accepted written scope.
Gambling activity outside New Jersey can create other-state filing questions. Monaco CPA confirms the returns and jurisdictions covered in a written scope before work begins.
After separate written acceptance, Monaco CPA may review an ordinary non-examination IRS or state correspondence notice concerning gambling income or loss deductions and prepare a client-submission response package. Agency representation, examinations, appeals, and collection matters require an independent tax-controversy specialist.
An accepted written scope may include federal and NJ estimated-tax calculations and reporting analysis using records the client supplies. Monaco CPA does not monitor accounts or deadlines, recommend wagers or transactions, or promise reminders or a result.
Simplified hypothetical scenarios showing how the current federal and NJ rules can play out - not actual client engagements.
Suppose a recreational sports bettor wins $25,000 and loses $25,000 across DraftKings and FanDuel in 2026. Before 2026, an itemizer with substantiated losses could generally deduct losses up to winnings - though gross winnings still raised AGI and itemizing could displace the standard deduction, so the overall effect was not always zero. Under the 90% cap, only $22,500 of the losses is deductible federally - creating $2,500 in phantom taxable income. On the NJ return, full netting still applies, so NJ tax on this activity is zero. Preparing the federal and NJ returns on the correct rules avoids overpaying NJ.
Suppose a NJ resident wins $40,000 across poker tournaments in NJ, Pennsylvania, and Nevada. Correct preparation allocates the income by state, files a Pennsylvania nonresident return (Nevada has no state income tax, so no NV return is needed), claims the NJ credit for taxes paid to PA, and substantiates session losses - say $28,000 - with contemporaneous logs.
Suppose a gambler has $60,000 in W-2G income from Atlantic City slots, $15,000 in online sportsbook winnings, and $52,000 in documented losses. Federally, itemized losses are capped at $46,800 under the 90% rule; on the NJ-1040, the full $52,000 nets against winnings, and each W-2G is reconciled to IRS records. In this illustration, NJ's full netting prevents $5,200 of additional NJ gross income compared with misapplying the federal cap; the resulting tax effect depends on the rest of the NJ return.
These examples are simplified hypothetical illustrations, not actual client engagements. They assume the facts stated and omit items that can change the result, including filing status, other income, itemized deductions, residency, sourcing, and documentation. They are not tax advice and do not guarantee any outcome.
In-depth articles covering the tax rules every NJ gambler should know.
NJ netting rules, withholding rates, lottery exemptions, and how NJ differs from federal.
Read guideStep-by-step guide for NJ sports bettors: reporting winnings, claiming losses, and avoiding mistakes.
Read guideHow to report Kalshi, Polymarket, and Robinhood event contracts. Three possible treatments, platform comparison, and the NJ angle.
Read guideEsports tournament winnings and gambling winnings are taxed differently under federal law. The distinction matters because it determines which IRS form applies, which deductions are available, and whether the 90% loss cap affects you.
| Category | Esports Tournaments | Gambling (Casino, Sports Betting) |
|---|---|---|
| IRS form | 1099-MISC Box 3 (Prizes and Awards) for a standard sponsor- or organizer-funded prize. Skill alone is not dispositive, so a pay-to-enter, participant-funded pool needs a facts review (see CCA 202042015). | W-2G. Slots, bingo, and keno at $2,000+ for 2026 (formerly $1,200 slots/bingo and $1,500 keno), poker-tournament winnings of $2,000 or more, net of buy-in, for 2026 (more than $5,000 net through 2025). |
| Tax classification | Prize income. Reported as other income or Schedule C if you compete professionally. | Gambling income. Reported on the gambling income line of your return. |
| Loss deduction | Business expenses deductible on Schedule C if competing professionally. Not subject to the 90% cap. | Losses deductible on Schedule A up to winnings. Capped at 90% of losses for 2026+ under OBBBA Section 165(d). |
| NJ state treatment | Taxable as income. Business expenses deductible if Schedule C applies. | NJ allows 100% netting of gambling losses against winnings in the same category on NJ-1040 (Line 24) per TB-20(R). Net cannot go below zero. |
Why this matters: If you compete in esports tournaments, your winnings should not be reported as gambling income. The reporting form, deduction rules, and applicable loss limitations are all different. Misclassifying esports prize money as gambling income can cost you deductions and trigger unnecessary phantom income under the 90% cap.
Filing 2025 returns? The old 100% loss deduction still applies, but you need proper documentation to claim it. I'll reconcile your W-2G forms, optimize your federal and NJ filings, and make sure you're not leaving money on the table.
Planning for 2026? The 90% cap is already in effect. I'll help you understand your phantom income exposure, set up estimated payments, and take advantage of NJ's full netting rules. Use the contact form to discuss your gambling tax situation.
Gregory Monaco, CPA LLC d/b/a Monaco CPA · New Jersey CPA firm registration · New Jersey CPA license
Livingston, NJ 07039 · Written intake: contact form
Gambling tax services are confirmed in a written scope. This page is informational and does not create a CPA-client relationship.
Tax advice disclaimer: This material is for general educational information only and is not legal, tax, or accounting advice for your specific facts. A CPA-client relationship is formed only through a signed engagement letter.