| Ask The Expert
I don't
have a significant cash flow, so the tax burden would appear to
preclude my accepting a winning of anything that would involve taxes.
If I were to win a new car, I would of course, simply sell my present
car. But what if I were to win a trip? Am I correct in not entering
any sweeps for a trip or cruise? I also read some advice to the
effect that taxes on trips are really "negligible to nothing".
Is this true? Your advice would be much appreciated! ML
In my opinion,
you should feel free to enter as many sweepstakes as you wish without
worrying about the tax burden. Very often sponsors include some
cash to help offset the cost of the trip (spending money, taxes,
etc.). Even if there isn't any additional cash included, you are
correct that the taxes on the trip MAY NOT BE as high as one might
think. The reason for this is that the manufacturer's suggested
retail value of the trip may be listed as higher than the fair market
value. The fair market value is the price at which the trip would
sell to the general public. If you were to win, you would only liable
for taxes on the fair market value of the trip.
After winning a prize with a value greater than
$600, make sure you receive Form 1099-MISC, Miscellaneous Income,
from the person or organization that's sponsoring the event. Form
1099-MISC states the manufacturer's suggested retail value of the
prize and you're required to pay the tax on that item. If you can
prove within 30 days of receiving the form that the same item could
have been purchased at a lower price, you have a good shot at owing
less taxes. We recommend that you shop around to find a lower price
and then keep a copy of the advertisement, quote, etc. with your
tax records. You can even do this prior to accepting the prize.
I recently
received a call telling me that I won a prize and only had to pay
the taxes on it to receive it. Is this a scam?
Yes, this
is most definitely a scam. If you've really won a prize, you may
need to make an estimated tax payment to cover the taxes that will
be due at the end of the year, but the payment goes to IRS, not
the caller. A legitimate sponsor sends you Form 1099-MISC, Miscellaneous
Income, showing you the total prize value that should be reported
on your tax return.
The following are tax questions and our expert's
advise from previous issues:
If I were
to win a house, property and other stuff that was worth a little
over a million dollars, how would I know how much I would have to
pay in taxes and would I have to pay any other money? Also, would
I have to pay the taxes all at once or would I be able to make payments?
Finally, could I take a loan against the house I just won in order
to pay the taxes? Thank you, Barbie
Great question!
If you win the property (I hope you do!), you will receive a 1099
to file with your taxes. How much you would have to pay is something
you will want to have your tax advisor help you with. If the sweepstakes
is legitimate, you should not have to pay any other money besides
the taxes. No, you would not have to pay the taxes all at once,
you would be allowed to make payments. I found some information
from the IRS's website that may help you: http://www.irs.gov/faqs/page/0,,id%3D15905,00.html.
According to their website,
If you cannot pay the full amount due as shown on your return,
you may ask to make monthly installment payments. However, you
will be charged a one time user fee of $43.00, and you may be
charged a late payment penalty unless you can show reasonable
cause for not paying the tax by April 15, even if your request
to pay in installments is granted. Before requesting an installment
agreement, you should consider less costly alternatives such as
a bank loan.
As far as taking a loan against the property, yes,
as long as you have the deed to the house and property, you should
be able to take a loan against. Another alternative would be to
sell the property.
Do I have
to claim my prize winnings on my tax return?
Yes, you do.
As of 2001, gambling winnings must be reported on IRS Form W-2G
if an individual receives the following:
Winnings from gambling, lotteries, raffles, sweepstakes, wagering
pools or drawings having a value of $600 or more. Prizes and gambling
winnings having a value in excess of $5,000 are subject to withholding
at the rate of 27%.
Click
here to download IRS Form W-2G.
Do you have a question for our expert? Send an email to us at:
editor@sweepstakes.bz.
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