Yesterday I was in a twitter party when someone stated they couldn't imagine paying taxes on some of the prizes other participants had won. This started a mini-debate that I wanted to touch on here.
Yes, you have to pay taxes on every win, even if it is under $600. Even if the sponsor doesn't ask for your tax information or tell you they will be sending a 1099, you still have to claim it.
|photo from www.sxc.hu|
The following was copied from IRS publication 17
"Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. (pg. 40)"
"Prizes and awards. If you win a prize in a lucky number drawing, television or radio quiz program, beauty contest, or other event, you must include it in your income. For example, if you win a $50 prize in a photography contest, you must report this income on Form 1040, line 21. If you refuse to accept a prize, do not include its value in your income." (pg 93)
My blog or any other blog win, twitter win, sweepstakes or contest MUST BE REPORTED. I report it because I never know who is going to report what win or what IRS representatives check out what sweepstakes.
Edited to clear up some confusion: I do not report any prize winners to the IRS, it is up to you to report. I only report my winnings. However, each blog owner is supposed to keep at least 4 years of winners information in case a government agency needs it.
If you care about another sweeper, let them know about this. If you want to share on FB or twitter the links are below. What do you think of the law? I know that my winnings have helped my family out tremendously, so I don't mind having to pay taxes on it. Never win more than you can afford to pay taxes on.