Now that I’ve started to enter more giveaways (see my weekly giveaway roundup posts for giveaways to enter), I figured I should look into how these winnings are taxed.
First of all, prizes and giveaway winnings are taxed. Richard Hatch, winner of the very first Survivor show, ended up in prison for not paying taxes on his $1 million prize. Now, if you are lucky enough to win a million dollars I would hope you would look very carefully into how it should be reported, and that you do in fact pay taxes on these winnings.
How should giveaway winnings be reported?
Most people will not win anywhere close to a million dollars in contests and giveaways. Still, the IRS requires that you report these winnings as income. They should be reported as Miscellaneous or Other Income on Form 1040 and are taxed at your regular tax rate.
How do you know the amount to report for, say, a DVD you won? The amount that you should report is whatever the fair market value is of the DVD on the day that you receive it. So if the DVD is selling for $10 at a retailer, you would have to report $10 of income.
Someone from my college won a car at a baseball game. While he was ecstatic about winning the vehicle, he didn’t keep it. He sold it, paid taxes on the fair market value, and kept the rest.
Unfortunately, even if you win something for “free” you still owe the government their cut.
What about garage sales?
If you sell items for less than you paid (i.e. they did not appreciate in value from the time you bought them and sold them), you are technically taking a loss on the sale and therefore there is no “income” to report. Of course, some items are treated differently so be sure to check with IRS guidelines or a tax professional to be sure that none of the income needs to be reported.
What about gambling winnings?
Let’s say you go to the casino every week for ten weeks and you lose $100 each week. Then, finally, you go back and win $1,000. Of course, you really didn’t win anything once you factor in your losses. You do not have to report gambling winnings if they are offset with losses. This, of course, would require keeping detailed records of your gambling, as they may be questioned.
Have you ever had to report “winnings” to the IRS?
Photos by michael szpakowski.
Disclaimer: I am not a tax professional and this post is for informational purposes only. Check with a tax professional before following any tax advice on this (or other) websites..