When Luck Bites Back

Know any “lucky” people? You might want to pass this article along to them so they don’t wind up in hot water with the IRS. With revenues declining for local, state, and federal governments, you can be sure the Tax Man will be on the lookout for his cut of your winnings, even if those winnings aren’t in cash.

luck-bites-back Being lucky may not be all it’s cracked up to be. Most people realize that winning a huge jackpot automatically means a large chunk of change goes to Uncle Sam, but gambling winnings can show up in the strangest of places. Like where?

That iPad you won is taxable

Various sites around the Internet giving away prizes ranging from iPads/Pods/Phones to costume jewelry, and winners are required by law to report those prize winnings on form 1040.

TurboTax or H&R Block – which one is better? Find out which one worked better for me.

All income (including non-cash prizes) from gambling of any sort has to be reported on form 1040. Form 1040A or 1040EZ users are not allowed to use these forms to report gambling winnings. This rule applies regardless of the amount and regardless of whether you receive a Form W-2G 1099-MISC or any other reporting form from the casino, track, bookie, company or … website.

Income includes, but is not limited to, winnings from lotteries, raffles, and random drawings. It includes cash winnings and also the fair market value of those prizes. It doesn’t include qualified educational scholarships, non-cash employee achievement prizes and designated prizes transferred to charities (check with your tax advisor or the IRS).

Prize winnings are fully taxable and must be reported on your tax return.

  1. Income includes – but is not limited to – winnings from drawings, raffles, and lotteries, as well as the fair market value of prizes you may have won.
  2. Depending on the type and amount of your winnings, the payer might provide you with a Form W-2G or a 1099-MISC and may have withheld federal income taxes from the payment.
  3. The full amount of your prize winnings for the year must be reported.

This year I’m using Turbo Tax – the #1, best selling tax software!

Don’t let the taxable nature of any prize stop you from entering a drawing or contest.  After taxes are deducted from the winnings, the winner is still ahead of anyone who didn’t enter! But don’t forget your legal obligation either. You and I are legally bound to report any and all prize winnings on our tax return. Failure to do so could come back to bite you and cost a lot more than just an iPad.

For further information, see Tax Topic 419, Gambling Income and Expenses on the IRS website.

Photo by falcon1961

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