Help...Chinese Auction tips regarding paying taxes on prize

amother

Wine

Fri, May 15 2015, 10:53 am

We are low/middle income. I always like to try and purchase some type of cash prize ticket from Chinese Auctions. But now I have been told that we must pay taxes on our prize winnings, even if it says "Cash" prize. So if I win a 10,000 cash prize, does that mean I have to put that down as income when I file my tax return and pay taxes on that amount. I.e. if my yearly salary is 35,000 would it now be $45,000 which would reduce the amount of my refund if I am eligible for one? Help. Any advice would be greatly appreciated.

Fri, May 15 2015, 12:07 pm

Ask an accountant. But hey, you did make the money, so if you made an extra $10,000, good for you, you may NOT be eligible to that refund.

happy12

Fri, May 15 2015, 12:18 pm

Any prize worth over $600 must be declared.
As far as I know the only way to avoid taxes is to donate the money to an organization. which will leave you with out the $ but have given a charitable donation.

Amarante

Fri, May 15 2015, 12:24 pm

Income is income and must be declared.

Cash prizes or winnings are really not a problem because you are always going to owe less in taxes than the amount received.

What is a problem for people is when they receive merchandise with a high cash value - I.e. cars or other expensive items because they will be taxed for the fair market value of the item and may wind up owing taxes for which they don't have the money.

You can always sell the item and then you would have money to pay the taxes.

SRS

Fri, May 15 2015, 12:57 pm

I am failing to understand why you are reluctant to take 10K because you might need to turn over some money, probably not much if your regular income is only 35K, to the government? You still come out ahead. That is a good thing.

Miri7

Fri, May 15 2015, 1:12 pm

I think that the cash prize becomes problematic when you either fail to set some of the $$ aside to pay taxes later, or that income changes your tax income bracket.

33055

Fri, May 15 2015, 1:21 pm

happy12 wrote:

You owe income anytime you have dominion and control. If you receive the money and immediately turn it over. You are liable for the income tax. If you have dominion and control you can't take a charitable donation. Also, the cost of getting this income are deductible.

questioner

Fri, May 15 2015, 1:22 pm

Someone with 3 children and a $35,000 income is eligible for $6,044.00 from the Earned Income Tax Credit. They are still eligible until 46,000 or so, but if OP rounded her income somewhat, and the extra 10K would mean that she would lose the EITC that is most of the prize right there. If it would throw her off other government programs, it would indeed not be worth it.

(OOC, OP did you already win the prize or are you deciding whether to put in for it?)

SRS

Fri, May 15 2015, 1:44 pm

Squishy wrote:

I think the original poster was saying that the winner could reduce their income by making a donation, which is true. But the winner, by accepting the money, would still need to pay tax on it and then, after donating the money voluntarily, could take an itemized deduction. But, with 35K in income, this would cost them money without putting money in their pocket. Once the money has been accepted and received, it is taxable.

amother

Orange

Fri, May 15 2015, 2:07 pm

We have won several chinese auction prizes over the years from a yeshiva we are affiliated with. Sometimes they can work something out for you like pay you out over 2 years so it is less in one year. Or pay you in december and january so you get 2 1099s. Sometimes they can give some cash and make the declarable amount less.
I did have a problem with the last prize I won. it was a choice of jewelry valued at 4500 credit to a jewelry store. I got a 1099 from the organization for 4500$ miscellaneous income. I could have given the prize back had I wanted to but we chose to pay the taxes on it.
But yes... it is income.

SRS

Fri, May 15 2015, 2:17 pm

amother wrote:

I did have a problem with the last prize I won. it was a choice of jewelry valued at 4500 credit to a jewelry store. I got a 1099 from the organization for 4500$ miscellaneous income. I could have given the prize back had I wanted to but we chose to pay the taxes on it.
But yes... it is income.

You overpaid taxes. Prize money is not earned and does not belong on a 1099 but a W-2G. I recommend you have the organization correct their mistake and you amend.

33055

Fri, May 15 2015, 2:19 pm

SRS wrote:

Actually she said "the only way to avoid taxes".... I think I sussed out what she meant. I was clarifying for others who read her post. Anyway, we are saying the same things and I rather not start with code again to make my point to clarify nuances that few understand.

happy12

Fri, May 15 2015, 3:46 pm

I meant don't take the prize- just tell them to give it to a tzedaka of your choice. Yes, once you accept the prize you are required to pay the taxes.

amother

Wine

Fri, May 15 2015, 3:50 pm

questioner
(OOC, OP did you already win the prize or are you deciding whether to put in for it?)

When I posted the question, I had not yet entered the drawing. Now I did, but am having second thoughts about what I did. My mazel I will win and then what? If I have to pay more than I will be making, it won't help our financial situation one bit! Sad

amother

Wine

Fri, May 15 2015, 3:54 pm

OP here. The problem is that the whole world will know I won a major prize (if I win, which I have a feeling I will) and then all the debt collectors will come after me. What good will that do? I will pay all my debts and then have the IRS after me? Did anyone ever win a substantial prize and come out ahead?

Amarante

Fri, May 15 2015, 4:08 pm

I am not understanding how winning money or an item worth money is bad. You would only owe a percentage in taxes and it would appear that you are in a relatively low tax bracket.

If the item is valuable merchandise, sell it because the IRS would have to accept what you received for the item as fair market value as long as it was not obviously a fraudulent sale at a ridiculously low price.

If you have debts, why is it bad to have money to pay off some portion?

MagentaYenta

Fri, May 15 2015, 4:35 pm

amother wrote:

'Cause paying your creditors is a bad thing? Rolling Eyes

SRS

Fri, May 15 2015, 6:26 pm

Set aside whatever percentage is appropriate for taxes which I would guess is somewhere between 5% and 25% max, and use the remainder to pay your creditors. I personally have little fondness for these Chinese Auctions, but here you can do a mitzvah and pay your creditors. You should be davenning that you win!

It sounds to me like you have a negative attitude towards earning (or winning) money. I'd examine that. You won't get ahead if you are afraid to make more money. Of course there are calculations involved on new work or higher paid work. But there should be little debate in accepting prize money (not prize stuff). It isn't like you need to leave your kids with a babysitter and pay the babysitter more than you end up keeping after work and taxes. Anything you win that doesn't go to taxes in cold hard cash.

SorGold

Sat, May 16 2015, 9:59 pm

amother wrote:

You have a feeling you will win????