Are Gifts, Prize Winnings and Non-Cash Bonuses Taxable?
As you gather your receipts and proof of income for Tax Day (May 17 this year) you may be forgetting one important detail: If you had any lottery or giveaway wins or non-cash bonuses from your employer or clients, you may be required to declare that as income, experts say.
H&R Block notes that prizes, awards, sweepstakes, raffles and lottery winnings must be declared as ordinary income, regardless of the amount. If you received more than $600 value in prizes, you might receive an IRS Form 1099-MISC to show winnings from sweepstakes or game shows.
Winnings from raffles, lotteries and other drawings should be reported with an IRS Form W-2G. However, if the person who gave you the prizes does not send you the appropriate IRS form, you should still declare the income, just as with earned income.
The good news? You can deduct any money spent entering lotteries, raffles and game shows, up to the amount of your winnings, as an expense when you file your taxes.
Can You Be Taxed on Non-Monetary Prizes?
Winnings don’t only include cash prizes. They also include the monetary value of items received in raffles and giveaways. This could become a large tax burden if you win an expensive item, such as a vehicle or a vacation, in a game show, for instance, and then have to pay tax on the item.
The tax law even goes for items received from employers, including gift cards, as part of company contests or performance incentives, according to the IRS.
So, if you’ve had winnings from state lotteries, giveaways, raffles or contests in 2020, you may want to review your receipts so you can deduct any costs associated with these winnings and reduce your tax bill.
Are Gifts Taxable?
If someone gives you a gift that is not tied to a contest or giveaway, you are not liable for the taxes. According to the IRS, the donor typically pays taxes on gifts, and exclusions apply up to $15,000 per person. So, if a person gifts each of their four children $10,000, no one would have to pay taxes on that $40,000 changing hands.
At Least You’re Not an Oscar Nominee
Bottom line: Track any income, including prizes and work bonuses, to accurately file your taxes and avoid penalties.
And be thankful you don’t have to pay taxes on the six-figure gift bags given to Academy Award nominees by Los Angeles-based Distinctive Assets. These coveted goodies are considered promotional items rather than gifts, and therefore are treated as taxable income.
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