Taxes on Winnings
Winning prizes is very exciting, and the notion of paying taxes for them shouldn’t diminish the excitement or evoke fear. A very general idea of what you will owe for a prize in taxes is about a third of the prize value. Meaning, if you won $6,000 you will be paying roughly $2,000 to taxes. This might sound like a lot, but remember that the $4,000 difference was money you didn’t have before winning!
Below we will list some steps to help you pay your winning taxes:
- Record Your Wins and Expenses. Good record keeping will make paying taxes on your sweepstakes wins so much easier. Keep a ledger or a spreadsheet where you record information about your prizes, including the name and sponsor of each contest you win, the date you expect to receive the prize, the date the prize actually arrived, and the Approximate Retail Value of the prize and the Fair Market Value of the prize.
- Collect 1099 Forms from Sponsors. If you had any wins with a prize value of more than $600, you will receive a 1099-MISC form from the sponsor at the end of the year. Many sponsors will send 1099-MISCs for smaller prizes as well. You will need to include the information from these forms on your taxes, and you’ll want to keep copies for your records. By law, sponsors must mail these forms by January 31st.
- Total the Value of Your Wins. There’s a common misunderstanding that someone only needs to report prizes worth $600 or more. This is not true, all prizes are legally required to be reported on US taxes. This means you will need to add together the value of all of your winnings throughout the year. This number will be entered under “Other Income” on line 21 of your 1040 form.
- Have a Tax Professional Review your Taxes. The only way to be certain that your taxes are filled out correctly is to have a professional take a look. Sweepstakes taxes can sometimes complicate your tax return a bit, so it’s better to have a tax agent make sure you don’t get penalized at a later date.
Charitable Sweepstakes Good for the Soul
When you support a good cause and do good, you feel great and everybody wins. An easy way to do this and have a good chance of winning a sweepstakes or prize at the same time is to participate in charitable contests where your entry goes towards a good cause. Even...
Dream Home Renovations for When You Win Big
Maybe you’ve recently won some money or maybe you are still dreaming of the day you’ll be swimming in a big vault of coins. It’s never too soon to dream big for when you win big. Renovating your home is a smart investment that will lead to a big return down the...
Are You in a Winning State?
There may or may not be a reason, but some states seem to be the home to more winners than others. The question we may be wondering is why this occurs. Are they lucky, or is there something else that increases their odds? Would it be worth your while to travel to...