Can Sports Betting Be a Side Hustle?

Many individuals explore “side hustles” to supplement their primary income, ranging from freelancing to gig work. This pursuit of additional earnings reflects a broader trend of seeking financial flexibility. This prompts a closer look at whether sports betting can genuinely serve as a consistent and viable method for generating supplemental income.

Legal Landscape for Sports Betting Income

The legal status of sports betting has undergone significant changes in recent years, moving from largely prohibited to state-regulated. Prior to 2018, the Professional and Amateur Sports Protection Act (PASPA) effectively banned sports betting across most of the United States, with limited exceptions. A Supreme Court ruling in 2018 declared PASPA unconstitutional, allowing individual states to determine their own laws regarding sports wagering.

Currently, sports betting is legal in some form across 38 states, as well as Washington, D.C., and Puerto Rico. Of these, 30 states permit online sports betting through dedicated applications or websites. Engaging in sports betting as a potential income source necessitates operating within legally sanctioned frameworks. Activities conducted in jurisdictions where sports betting remains illegal carry substantial risks, including potential legal repercussions and a lack of consumer protections, which fundamentally undermine any attempt to establish it as a legitimate side hustle.

Managing Finances for Sports Betting

Treating sports betting as a side hustle necessitates a disciplined approach to financial management, akin to running any small business. A fundamental step involves segregating funds dedicated to betting from personal finances. This separation helps in accurately tracking profitability and prevents commingling. Using a distinct bank account or digital wallet for all betting-related transactions provides clarity and control.

Meticulous record-keeping is paramount for anyone engaging in sports betting with the intent to generate income. Detailed records should include the date of each wager, the specific sporting event, the amount risked, the odds, and the outcome (win or loss). All related expenses should be meticulously tracked, such as subscription fees for data analysis tools, handicapping services, or educational materials aimed at improving betting strategy. These expenses can significantly impact overall profitability and are important for determining net gains.

These records are not only crucial for personal financial assessment but also become indispensable for tax reporting purposes. Maintaining a consistent log, perhaps through a dedicated spreadsheet or specialized financial tracking software, allows for a clear overview of performance over time. This systematic approach ensures that all financial inflows and outflows related to sports betting are accurately accounted for, providing a comprehensive picture of financial health.

Tax Treatment of Sports Betting Activities

All gambling winnings, including those derived from sports betting, are considered fully taxable income by the Internal Revenue Service (IRS). For significant winnings, sportsbooks and other gambling establishments may issue Form W-2G, Certain Gambling Winnings, to both the winner and the IRS. Generally, a W-2G is issued if winnings are $600 or more and the payout is at least 300 times the amount of the wager.

In some cases, if winnings exceed $5,000 and are at least 300 times the wager, the payer might withhold 24% for federal income tax directly from the payout. Beyond W-2Gs, some online sportsbooks might issue Form 1099-MISC if net earnings for the year are over $600 or 300 times the original wager. Taxpayers are obligated to report all gambling income, even if no form is received.

The tax treatment of gambling losses depends on whether the individual is classified as a recreational or professional gambler. Recreational gamblers can deduct gambling losses, but only up to the amount of their winnings reported for the year. These losses are claimed as an itemized deduction on Schedule A (Form 1040). If a recreational gambler takes the standard deduction, they cannot deduct any gambling losses.

Professional gamblers, however, treat their sports betting activities as a trade or business. This allows them to report their winnings and deduct ordinary and necessary business expenses, such as travel, research materials, or analytical software, on Schedule C (Form 1040). Professional gamblers are subject to self-employment taxes, which cover Social Security and Medicare contributions, typically at a rate of 15.3% on their net gambling income. The IRS determines professional status based on factors like the continuity and regularity of gambling activities, and the intent to produce income for a livelihood.