Leigh Mutert, CPA and manager of the Get It Right Community for H&R Block points out that the new ways companies are using social media is to have contests to attract clients.
With Twitter’s 50 million daily tweets and Facebook’s 400 million active users, companies know they have a captive audience. Before posting or tweeting to win the prize, it would be wise if participants knew the tax implications.
As more businesses use social media, online contest winners need to know the federal tax implications are similar to winning the lottery. Prizes must always be included in income. Leigh tells us there is no minimum amount that can be omitted from gross income.
All prizes and awards, with the exception of qualified scholarships, non-cash employee achievement awards and certain designated prizes transferred to charities, should be included in a taxpayers gross income. Taxpayers should report the dollar amount of cash prizes and the value of non-cash items on their federal tax returns.
Yes, my friends, prizes and awards are taxable even if the winner is not issued Form 1099-MISC. Generally, when a winning is worth $600 or more, the contest sponsor should issue a 1099-MISC to the winner. There are no special forms needed for reporting contest winnings. They should be included on the other income line of the federal income tax return, Leigh said.
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