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?
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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..
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In Australia all gambling winnings are tax free. So if you are an expert gambler come on over and teach me how to win big :p
@MonsterPiggyBank Are they really? That is nice. I would think every poker player in the world would want to move there!
@GregatClubThrifty @MonsterPiggyBank Wow…I had no idea. I’m also surprised more poker players haven’t moved over there.
I’ve never had any winnings to report myself. I have won at gambling at times, but I am sure it would’ve been outweighed by my losses. Though, I just may have to move to Australia to take advantage of the tax free status. ;)
@FrugalRules Yeah what’s up with that! I guess Canada doesn’t tax either!
Well, since I rarely have the luck to win anything, I don’t have to report my winnings on my tax return. I would if I actually got some, but my giveaway entrances are just for fun.
@DebtRoundUp Hopefully you start winning soon ;)
I won a trip to costa rica (although the plane reservations were not made by me and neither were the accommodations) and I did not pay tax on it. Other than that I never really won anything worth mentioning.
@Beachbudget While legally you are supposed to report every single giveaway win, the large, LARGE majority probably never get reported. If I end up winning a ton of giveaways this year and selling them on ebay (that’s my plan, at least haha) I would definitely report it.
@Beachbudget By the way, how did you win a trip to costa rica?!? I would LOVE to go there.
I’ve never won anything big and have never reported it to the IRS. Usually my winnings are like a $10 gift card.
@SenseofCents That surpises me, Michelle! I would have expected you to have won a trip or something by now, you’ve been entering giveaways before they were cool ;)
All prizes and winnings in Canada are tax free as well.
Even if we win over a $1,000 in Vegas we pay the tax at the Casino and then get it back once we return home.
I have always thought that it sucks that everytime someone in the US receives a gift or money of a certain value they have to pay tax on it.
@TacklingOurDebt That’s incredible. The US really isn’t anywhere close to the “freest” nation on earth anymore, especially when it comes to tax policy. You are supposed to report even a $10 win.
I’ve never won anything other than a smoke detector as a kid, so I didn’t report the “windfall” on an IRS form.
I guess I”m weird, but when I watch Jeopardy I often wonder how much that person has to pay in taxes.
I knew a couple who won a car on The Price Is Right and were very surprised at the tax. I don’t think I’ve ever won anything that much other than my laptop. I guess I should have reported that!