Tax question on winning a trip.

[Reciprocity]

I use trip but it could be any prize. I was curious because I was going to enter a contest but it's value was $8,500. Now if you pay 25% taxes (like the lottery) on it you would pay $2,150 to good old Uncle Sam. The trip was just for four days at a spa. A spa in the US. I could go all the way to New Zealand for that amount of money.

[pagerbear]

1. What was the question?

[Reciprocity]

2. What is the tax rate for prizes.

I know what they are for the lotto, but I don't know about other prizes.

[pagerbear]

3. I don't think there is a flat rate for prizes, lotto or otherwise

It's whatever your tax rate is for your total taxable income for the year, including the prize money.

Whether there's a standard rate that prizegivers withhold to prepay taxes is another question. I think you can get them to not withhold taxes if you swear to pay the taxes yourself, but I am not completely certain about that.

[Reciprocity]

4. Thanks.

I think you can receive up to a $10,000 gift, like from like a relative with no taxes taken out.

[pagerbear]

5. There is no tax on the recipient of gifts

The so-called gift tax applies to the giver. I don't remember exactly how it works, but it's a device to keep folks from giving away all their property to avoid having their estates taxed after death.

[Reciprocity]

8. I appreciate you taking the time to help me out with this.

[SoCalDem]

12. Whew.. we never paid any taxes for our freebie tahiti trip

That would be a bummer to have to pay taxes on what was worth about $10K..We never got any tax documents, so we didn't say a word:)

[pitohui]

20. well you owe taxes on it

if you won a $10K trip then the company who awarded you the prize filed a form w. the IRS so one of these days they will come around and charge you taxes, interest, and penalties

if you have an accountant, best thing to do is confess when and where and see if she can fix it for you

the IRS has a nasty habit of coming at the last possible minute before the statute of limitations can expire, so that they maximize what they collect in penalties

this is what has happened to any number of people i know who didn't pay taxes on winnings

[SoCalDem]

24. We did not technically "win" it..

The Vice president of my husband's company quit, and the incentive trip that was given to the company was going to go unused, so we were asked if we wnated to go.. we did :)

[pitohui]

26. yeah you owe taxes on it but maybe it'll slide by

an incentive trip is beyond doubt income even if you weren't the original "incentee" :-)

my thinking is that if they failed to file the proper form and it fell thru the cracks, it could be okay

you'll just have to wait out the six years and see if they come back at you before then

[spindrifter]

13. But is winning a prize equivalent to receiving a gift?

[pagerbear]

14. Nope--two separate questions

[pitohui]

22. no winning a prize is NOT equivalent to receiving a gift

gifts are tax-free to the recipient

prizes are miscellaneous income (1099-MISC or 1099-G) and taxable as such

[WCGreen]

10. You are correct....

They ask you to pay a straight 25% on the winnings...

They will then give you a 1099 for the amount which you have to include as income....

Since it is marginal income, the amount could kick you into a higher tax bracket than where you normally reside.

[RebelOne]

6. I won a ski trip to Steamboat Springs, Colorado in 1999,

But never had to pay taxes on it. The trip was valued at $3,000.

[Reciprocity]

7. Thanks that’s good to know.

[pitohui]

23. yes you did have to pay taxes on it, you just cheated

this is not even debatable, it is well established tax law

since so much time has passed, you may be okay, but you certainly broke the law

don't advise people to break the law on a political site, it is not a good idea for reasons that i hope would be obvious

[RebelOne]

30. I was never sent the tax form that I was told I would have to include

with my tax return. Probably the radio station that I won the trip from neglected to report it. So I did not have anything in writing to show what the actual price of the trip was. The radio station verbally told me that it had a value of $3,000.

AND DO NOT ACCUSE ME OF TELLING SOMEONE TO BREAK THE LAW!!!!!

[Floogeldy]

9. Do I look like an IRS agent to you?

Don't answer that question.

}(

[Reciprocity]

11. Maybe. This from the Huffington post is what got me thinking about

taxes and sweepstakes.

Me and My Goody Bag
http://www.huffingtonpost.com/nora-ephron/me-and-my-goody-bag_b_27598.html
<snip>
But this week the IRS announced that it would start taxing goody bags - and the Academy simultaneously announced that it would stop giving them out - so I guess that's pretty much the end of that resolution. According to the Los Angeles Times, the tax on a goody bag estimated to have $100,000 worth of swag in it could run as high as $40,000, which in my case is a lot to pay for a useless desk chair and a pair of Birkenstocks.

[pagerbear]

15. Well, on the one hand

...it's good they're not focusing their efforts at building revenue on middle-class and poor workers.

But on the other, what sort of compliance are they really looking for?

[Reciprocity]

16. Maybe because this is unsolicited it is.....

considered advertising instead of a gift? Therefore taxable.

[pagerbear]

18. They'd have to prove it's compensation

It's not really a prize, and gifts aren't really taxable.

[pitohui]

25. yeah i saw that too

i think this ruling is on shaky ground, i think if anyone should pay tax on the gift bags it should be the giver of the gift (the advertiser) not the recepient of the gift -- giving the "gift" of a tax obligation is not usa tax law

if the goody bags are now considered to be income, who would accept one? you end up paying taxes on a lot of crap you wouldn't bother to buy at those prices

i mean in a past year caesar's palace has claimed it donated $25,000 worth of RFB before to the various actors, come on, RFB/limo/airfare are FREE to the high roller, they are not any $25,000 -- and if you don't gamble, you wouldn't stay there anyway not for $25,000, cripes

in the article i read clooney just gave away all the crap in his gift bag, so he is to be taxed on a bunch of crap he didn't want?

i guess if this sticks, they can do what the mirage did at one party i attended and just put cash in the gift bag, you don't mind so much paying tax on cash (yes, it was tacky, and it was not a lot of money, it was $200 but do i look like a celeb to you? i took it!)

[pitohui]

17. that is correct, you NEVER want to win a trip

you end up paying more in taxes than you would have paid if you yourself had done some smart shopping and planned the trip yourself

a 4 day spa trip is not worth $8,500 -- maybe $1,000 and that's stretching it

unfortunately they will file these bloated 1099s so the best thing to do is ONLY enter contests where the prize is cash! because you WILL be assessed at your marginal tax rate for what's on the 1099-MISC

[idgiehkt]

19. thanks

nice to have it explained like that...especially since I am math-impaired and could never figure something like this out on my own.

[pitohui]

27. there is one thing you can do

virtually all of my winnings and i have won quite a lot over the years was in cash, however, i did win one item that i decided to keep -- i requested that the casino revise the value on the 1099 (they can easily do this if they feel like it) and i was able to show that equivalent items cost about one-third of what they were claiming on the original 1099

so you can try that

if they won't adjust the 1099, you can then ask for an alternate cash prize which will be less than they claim the value of the trip or car or whatever BUT with cash you are not left in a hole, because you pay taxes out of the cash and still have $$$ left over

if they won't do that, your last resort, if the taxes on the gift would harm your finances, is simply to refuse the prize

for the most part i only target opportunities where i can win cash, it's just much simpler all around

[The Velveteen Ocelot]

21. A prize is not considered a gift; it's income. So is money won gambling.

The amount of the prize is considered ordinary income, and is taxable as such. The exact amount would depend on what your tax bracket ends up at when you include the amount of the prize. Depending on your state, you might also have to pay state income tax as well, so the tax could end up being as much as 40% of the prize.

[Reciprocity]

28. Let me see If I got this right.

This is from the Texas Lottery site.

How much of a prize is taken out for taxes?
<snip>
The new law, which replaces the 2001 Act, reduces the tax rate to 25 percent, and the effective date is retroactive as of Jan 1, 2003. This is a tax rate decrease of two percent on prizes over $5,000 for U.S. citizens and resident aliens.
<snip>
While there is no withholding on lottery prizes of less than $5,000, unless paid in installments or to a nonresident alien individual, winnings are still subject to income tax. However, the 2003 decrease in the tax rate applies to all income, including lottery prizes. In addition, changes in deductions may also reduce the amount of income tax liability, depending upon each individual’s personal situation. http://www.txlottery.org/faq/morequestions.cfm#prize

Okay

The amount of the taxes is what your tax bracket is? Someone like myself who has a modest income may not pay the higher 25% tax rate, but will have to pay something nevertheless. However if you win big time lotto you are automatically put in the 25% tax rate by the virtue the amount.

So if you have to claim your gambling winnings, can you claim your losses as well?

[FILAM23]

29. Gambling losses are dedutible,

however they can not exceed your winnings.
In other words you can not use gambling losses
to lower your normal taxes but you can claim them
to lower the amount of your winnings that are taxable.
Another note is you must be able to proof your losses,
ie non-winning lottery tickets