Tax Considerations for Professional Gamers
Although the history of video games can be traced all the way back to the 1950s, it wasn’t until the rise of the internet that gaming started evolving into what it is today – an industry worth billions. Unsurprisingly, as is usually the case with any new technological advancements, this was accompanied by an emergence of dozens of new vocations.
One such example is professional gaming, a career the majority of young video-game enthusiasts dream of and how could they not? Skilled players can earn millions while taking part in an activity they love. However, video game athletes should be aware that they don’t get to keep the entirety of their profits, as taxes are an unavoidable part of any developed society.
What Is Taxed?
Failing to pay a required amount of income taxes can lead to hefty fines and various other financial issues, so this topic is definitely worth getting acquainted with. The very first step in avoiding an unfavorable outcome is to learn what you, as a professional gamer, can be taxed on. Sadly, there are no special exclusions for video-game participants. In a nutshell, if you’ve received an income of any form, you have to declare it to the IRS. That includes earnings from tournament winnings, player salaries, streaming, and sponsorship funds.
There’s often a lot of confusion surrounding the taxation of prize money since gaming competitions are held across numerous countries, all of which have their own specific tax laws. In the UK, for example, there’s a misconception among gamers that they don’t need to pay taxes on tournament winnings. This is because they equate these proceeds with those obtained through gambling. Namely, winnings from playing games of chance and sports betting are deemed nontaxable income in the UK.
As you can imagine, these kinds of misunderstandings are quite common. Nevertheless, you should in no way feel bad about not knowing every single intricacy of tax obligations. What you can do instead is find and contact a good CPA to help guide you through the necessary procedures.
Still, one piece of information that any player participating in a tournament located in the US should be aware of is that any individual who earns more than $600 will receive a 1099-MISC – a form used for reporting miscellaneous income. In this case, gamers should fill out the form detailing their winnings.
Professional gamers generally earn between $1,000 and $5,000 per month. The money doesn’t always have to come from the companies the players represent, though – a gamer can be an independent contractor as well. In these situations, keeping your financial records in order can be a bit tricky.
When it comes to e-sports, paying your dues to the IRS is no different than what any other professional athlete would be required to do (or anyone from any other profession for that matter). That said, independent gamers should keep track of all the receipts they get from making purchases directly related to their work as they may be able to use them as a write-off to lower their taxes.
For those unfamiliar with the term, a write-off is an expense declared as a tax deduction. It is subtracted from your overall taxable income, making your mandatory payments to the IRS smaller.
Numerous gamers enjoy showing off their techniques on streaming platforms such as Twitch or YouTube and the most entertaining ones even manage to make a pretty penny off of it. This money comes from their viewers’ voluntary payments. Keep in mind that although these are technically donations, not only can they not be used as tax deductions, but they are also treated as any other conventional form of income.
The main issue we’d like to draw your attention to is the fact that many streamers are actually quite young, sometimes as young as 13 or 14. So, if you know anyone fitting that description, try to either assist them yourself or to arrange for a qualified tax agent to do so.
If you’re lucky enough, a company will deem you worthy of representing their products in exchange for financial compensation. While it’s clear that these payments are yet another taxable amount on your list, you might not know that a further charge is imposed on the stuff your sponsor gives you for free as well.
These additions to your compensation can be anything from gaming equipment to free mileage. Therefore, you may want to have a lawyer (or anyone with the appropriate knowledge of the matter) go over your contract before you sign it.
While it may seem like a lot to digest, none of the things we’ve discussed in this article should discourage you from developing your esports career. Keep in mind that even if articles such as this one aren’t enough to resolve every tax-related inquiry you might have, there are countless services and experts in the field that you can turn to. For a free estimate on getting help filing taxes for professional gamers visit our pricing page