Tax Information With A Mother's Touch
Published by Eva Rosenberg, MBA, EA
Volume 6, Issue 277 October 1, 2004
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Tax Information With A Mother's Touch Published by Eva Rosenberg, MBA, EA Volume 6, Issue 277 October 1, 2004 |
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 » From: Tacoma, WA Dear TaxMama: I just won my first big sweepstakes. The value for a trip is $10,000 and $5,000 spending money. I am not employed so there is no other income. How will the taxes be handled? How much should I put aside? Patricia  Hi Patricia, Good for you! That feels really great, doesn't it! You need to make a decision - will you use the trip or sell it? If you sell it, it's really easy to determine the value of the trip - it's your sales price. If you use the trip, here's what I would do with something like that. Do some research. You can do it online, or in the newspapers. Or you can ask a travel agent to give you his or her best price for the same package and pay them a small fee for the appraisal. You'll need the documentation to prove to IRS why you're paying taxes on the smaller amount.And you'll need to attach an explanation to your tax return to show your computations. To stay out of trouble, you'll need to report the full amount of the prize, as they show it on your 1099 or W-2 G or whatever. Then, you'll need to add a schedule or statement, reducing it to the real value, with an explanation. (A good tax professional will know how to do this.) The price shown, the $10,000, is the retail price. No one ever pays it. So, don't put yourself in the position of paying taxes on the full retail price. You'll probably find that the real price is somewhere closer to about $7,000. Add the $5,000 in cash, and the rest of your regular income, and you'll probably have about $500 in taxes due. If you use the full, list price of the trip, it will cost you around another $300, if you have no other income. You can set aside the tax money in the bank and pay it when you file your personal income tax return next year. Or you may send it in using an estimated voucher. Form 1040-ES. Since you have no other income, and the total due will be under $2,000, I'd wait until April. Looks like it's a good thing they gave you cash, otherwise, you'd have to use your own money to pay taxes for the trip. Have a wonderful trip! Best wishes, Eva Rosenberg Your TaxMama  |
 
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| Library of Congress - ISSN 1532-0790 Copyright © 2000-2007 - Eva Rosenberg |
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