you're pretty lucky because you won $1,000 in a radio contest?
Uncle Sam is even luckier. He's due part of your winnings.
Prize winnings are included
in the long list of "other" income that the tax law says is
And it's not just limited to cash awards. You've got to pay
taxes on the fair market value of any property you win. So
get ready to come up with some cash for Uncle Sam to cover
that new Corvette the local Chevrolet dealership presented
to you as part of its latest promotional contest.
Be careful when reporting
the amount of a noncash prize. In most cases, companies and
groups that award prizes, both cash and property, will send
you a 1099 form declaring the value of what you won. If your
tax return reports substantially less than what the giver
claims, your under-reporting could mean a long, hard look
from an IRS auditor.
But don't cheat yourself,
either. It's not inconceivable for a prize presenter to over
value a gift. If you find yourself in this situation, it is
possible to do your tax duty without paying too much. This
from Bankrate's tax expert tells you how.
And don't forget about
proceeds. They're taxable, too, but at least you get the
chance to reduce the tax bite here by subtracting any betting
losses from your winnings.
Text by Kay
illustrations by Brandy Kesl.