By Barry Dolowich
Q: I afresh won a cruise admired at $3,800 from my abbey raffle and accept been told by abounding that I will owe tax on my prize. Do I absolutely accept to pay taxes on my prize?
A: Generally, prizes you win from sweepstakes, raffles and contests are taxable as accustomed income. Prizes added than banknote (car, cruise, etc.) are admired at their fair bazaar value. The absolute banknote and fair bazaar bulk of other-than-cash prizes are appear to the Internal Revenue Service via Form 1099-MISC. This assets charge be appear on your Form 1040 as “Other Income.”
Your accidental access costs (postage, envelopes, travel, etc.) are not deductible. The rules for award-winning accomplishment should not be abashed with those for gambling. Bank losses are deductible to the admeasurement of bank winnings. However, sweepstakes access postage costs do not authorize as a bank accident and award-winning accomplishment are not the aforementioned as bank winnings.
It is accepted for d appearance contestants and added award-winning winners to acquisition themselves with astringent tax problems. Oftentimes, winners do not accept the banknote to pay their taxes. Imagine acceptable $100,000 account of prizes (perhaps a car, a cruise about the world, a television, and abundant more) and actuality told you owe $35,000 in federal and accompaniment assets taxes on April 15 by your accountant. Ouch!
I bethink audition a adventure of a “lucky” champ of a actual big-ticket affluence car. He won the car in January and was not accountable for the assets tax until April 15 of the afterward year, about 15 months later. As the tax day of reckoning was approaching, he accomplished he had to advertise the car to pay the taxes. However, the car had attenuated so abundant in bulk at this point, that he was affected to advertise it for an bulk hardly beneath than the tax accountability created by acceptable the car in the aboriginal place. Needless to say, he was not a blessed camper. At atomic he had the acquaintance of active the affluence car for 15 months!
Many d shows and award-winning advance companies action their winners the advantage of accepting a discounted bulk in banknote to allay the tax accountability created by their winnings. I acclaim that you acquaintance your tax adviser to anon to alpha planning!
Barry Dolowich is a certified accessible accountant in Monterey. He can be accomplished at 831-372-7200, P.O. Box 710, Monterey 93942-0710 or [email protected]
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