Winnings are considered “income” and you can get in some serious doo-doo if you try to hide it. Though reputable places will at least remind you of it when they send you a nice tax doc at the end of the year informing you they’re reporting it to the IRS :)
And it’s not only applicable to things like winning the lottery or hitting it big on slots either. Free *stuff* and giveaways also count! And can put a damper on your party like my boy Joshua is now finding out:
My wife recently had the incredible opportunity to go on a [POPULAR GAME SHOW] and she ended up winning a ton of gifts and a killer trip! We feel sooooo lucky, but…. Of course we found a way to stress about it.
The “fair market value” of what she won is ~$1,500, so we’re going to have to foot a $700 tax bill now. Thing is… it’s hard to enjoy the gifts when you realize you actually had to pay $700 for the stuff, especially when we were not planning on buying a bunch of things for $700. It’s basically like getting to buy everything at your marginal tax rate.
Being conservative you think, “would I have bought all this stuff for 60% off?” (Assuming you have to pay 40% of fair market value in tax)… Sure it’s a great deal, but I don’t think we would have still gone out and bought it all.
So even though we got all these great gifts we found a way to stress about it. Then I realized… Is this $700 going to significantly matter when we’re financially independent? No!!! So we might as well just enjoy the gifts we were sooooooo lucky to receive!
Going to just enjoy it all now :)
[This note was in response to our post on life when you’re financially free, and he’s absolutely right! While it sucks to “lose” money, it’s not going to matter a whole helluva lot once they FIRE. And plus you can still go and sell it all if you really wanted to or even re-gift them to others ;) Which ironically does not trigger any tax implications, at least up to a certain point…]
Remember that time Oprah gave out all those “free” cars to people 15 years ago??! Tax ding, Tax ding, Tax ding!! Haha…
“While General Motors handled the state sales tax on each of the new cars (around $1,800 per car), plus licensing fees, audience members were tasked with paying federal and state income taxes on the value of their new vehicle. To keep things simple, for reporting purposes, General Motors issued forms 1099-MISC to the recipients. While actual taxes payable varied based on individual tax brackets, estimates settled around $7,000 per car.” – Forbes, A Look Back At Oprah’s Ultimate Car Giveaway
Now you can always decline gifts, of course, if you’re not willing or in a position to pay the taxes, but most people never think about that in the heat of the moment (or know about it) and just see FREE FREE FREE!! OMG GIMME GIMME GIMME!!! Haha…
So 1) here’s your notice so you now know!
And 2) never go on game shows or ever get anything free in life ;)
Okay I’m just kidding, but do your best to set aside some $$$ so you avoid any nasty surprises later that can wipe away all that experiential joy…
And for the love of all things holy, do not win stuff on national TV and then IGNORE THE IRS!! They have literally seen you win millions of dollars as well as half of the rest of the world! If you’re gonna hide it, do it on the low or change your identity, jeesh! ;)
So that’s my negative nugget for you today, haha… In more positive news, there’s still time to max out that Roth IRA for the year if you’re looking to up your game! That’s a gift that’ll end up paying you the more times you participate in it – no luck required!
Jay loves talking about money, collecting coins, blasting hip-hop, and hanging out with his three beautiful boys. You can check out all of his online projects at jmoney.biz. Thanks for reading the blog!