We all want to win, right? Well, there's a little more to it than just collecting the prize. The winner is responsible for reporting all winnings as income at the end of the year. Yep, you have to pay taxes on them.
Can you Afford to Win that Prize?
I think I may have always known this, but the reality hit me when I won several sweepstakes in one year – two of them being trips. I think I had a total of $10,000 in 1099's for the year. (Even if you don't receive a 1099, you are still required to report.) Depending on your tax bracket, you can end up owing up to 40% or so on the value of your winnings.
Once you realize this, you might be a little more picky about what you enter to win. For example, the trips that I won… would I have spent $4,000 in total of my own money to go on either one of them if I hadn't received them as prizes? Probably not. Remember you are required to report the whole value of the prize, so that's the whole package – airfare, hotel, transportation, spending money… whatever they include. The value of both trips was $10,000. That means I was responsible for up to $4,000 of that in taxes.
I can't remember what tax bracket I was in for that year and I don't know much about tax brackets (check with your accountant). It probably wasn't 40%, but you see what I mean. Plus, I always have a lot of deductions. But, if you are out of work, or don't have many dependents or deductions, you might end up owing the government. Just something to keep in mind.
I am not trying to deter anyone from entering. This is just something that is good to know. If you win that huge dream home or super pricy vehicle, are you going to be able to pay the taxes on it? Oh, that's another thing – if you win a car, you have to pay state taxes before you even get to drive away in that sucker.
I think most of us would like to have this problem to tackle, no? Gee, honey, how are we going to pay for our enormous dream home prize? I think I would still like to cross that bridge! 😉
Keep on winning, just keep Uncle Sam in the back of your mind.
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