Recently, a cousin of mine appeared on a game show to win big. Before messaging him congratulations, my thoughts went straight to “I wonder how this will affect his taxes next year?” Such is the tax accountant mindset! For the record, I don’t do his taxes because I generally prefer to keep family and work in their separate spheres of influence. However, this instance offered a chance to glance at what tax implications may occur if you or anyone you may know catches fortune’s fancy and wins big in game shows or gambling.
Income is Income
Winnings, such as game show awards or gambling prizes, are considered part of gross income for federal income taxes. In fact, the list of what isn’t income may be shorter and more exclusive. Prizes such as vehicles or vacation trips are still considered part of income and will need to be reported on your tax return.
Don’t miss out on the 1099-MISC
The game show studio or casino should issue the winner a 1099-MISC if the winnings are valued $600 or more. This information will be needed for the winner to help prepare their tax return correctly because it will indicate the income of the winnings to include in the tax return.
Gambling Trick
In the case of gambling winnings though, the option to deduct any related gambling losses may be available. For example, you win $10,000 in a lottery but spend about $600 in tickets. The $600 may be considered deductible. Gambling losses are claimed on Schedule A with other itemized deductions.
Moving On Up
Blessed with sudden fortune from a game show or casino, you may find yourself bumped into a higher tax bracket for the year. Plan to absorb a bigger tax liability than usual. Set aside some money to pay that higher tax bill when you file your return or work out a payment plan with the IRS.
Estimated Tax Bid
Just like earnings with no withholding, winnings from game shows or gambling with no withholdings involved may lead to owing estimated taxes. Individuals will need the Form 1040-ES.
Few would say “no” to winning big on a game show or at a casino, but some consideration for taxes should be made when accepting those winnings. Running a business, a steadier opportunity for wealth and growth, also requires considerations for taxes. MiklosCPA helps many small and emerging businesses with their tax & accounting needs. We work closely with clients to show how #AccountingIsAwesome for their business. Interested in knowing more? Give us a call. Additionally, check us out on our social media pages for more useful “good-to-know’ articles and other tax tidbits.