I was thrilled this week when I won an amazing prize package from a local Apple dealer as part of their Grand Opening. I won a MacBook Pro, hard drive, printer, and other accessories.
The feeling of euphoria I had quickly faded as my mind drifted to the tax implications. What can I say? I’m the daughter of a CPA, and a personal finance writer. I knew there was a price to be paid.
A quick google search, and I realized that I would owe taxes on my precious prize. Based on last year’s taxes about 25% of my winnings. Ouch.
Taxes, taxes everywhere
Researching the taxes on my prize made me realize there are many times you would likely be taxed for a prize, or things you might not expect.
You are required to report and pay taxes on:
- lottery winnings: This is one I don’t want to win, since lottery winners often end up bankrupt.
- giveaways: like my prize, a prize of tickets to see a show, swag, etc.
- prizes: anything you earn for winning a contest, just ask Richard Hatch 😉
- host/hostess gifts: Pampered Chef, Southern Living at Home, etc offer these “incentives”for hosting a party in your home
- side income over $600/year: freelance work, a small business, blogging, etc.
- sales tax: Shop in a tax free state, but live in a state that has sales tax? You have to pay tax on the items you purchased.
- bartering: Use the amount the service would normally cost.
Remember just because you don’t get a 1099, doesn’t mean you don’t owe tax!
While it is a bit of a bummer, it’s still a GREAT deal. 75% off an Apple laptop? Yes, please. Fortunately since we have so many little tax deductions we will likely still not owe tax.
Have you ever been taxed on a prize?
Disclaimer: I am not a tax professional, and my advice should be taken with a giant grain of salt. Please seek professional advice from your accountant.